Notable market news this past week (28-Jan-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇨🇳 China’s $6t Stock Wipeout Exposes Deeper Problems for Xi
China’s decline: China's recent $6t stock market decline underscores deep-seated concerns about the country's economic outlook. The heavy selloff in China's CSI 300 Index, plunging 40% over three years, reflects widespread pessimism among investors, including retail and international players. Despite government efforts to stabilize the market, such as a proposed $278b rescue package and the bank reserve ratio cut by 50 basis points, doubts persist about their effectiveness in generating a sustainable rebound.
Challenges amid market turmoil: Unlike previous economic crises, such as the property downturn and demographic challenges, the current stock market turmoil exposes broader issues affecting the real economy, including declining consumer spending and business investment. Also, China's policy shift away from debt-fueled special bonds further complicates efforts to address the downturn, raising concerns about the economy's trajectory.
Investors remain skeptical: Investors are grappling with the implications of China's slowdown, questioning whether the economy can surpass the US or is heading towards stagnation akin to Japan in the 1990s. The lack of transparency in official economic data exacerbates uncertainty, prompting calls for China to enact meaningful policy changes to restore confidence and drive sustainable growth. To add salt to the wound, just this week, Singapore hedge fund Asia Genesis reported to be shutting down after making bullish bets on China.
☕️ Quick fire happenings to note
🌏 Global macro
- China cuts 50 basis points in bank reserve ratio requirements: Effective from February 5, releasing 1 trillion yuan in long-term capital to stimulate the economy. Additionally, the PBOC hinted at further monetary policy easing and revealed plans to support high-quality real estate developers. This move comes amidst concerns over the struggling economy and aims to bolster growth while addressing debt issues in the real estate sector. This move helped Chinese stocks to rally slightly.
- China is considering a US$278b rescue package to stabilize its slumping stock market: China has plans to mobilise about 2t yuan (US$278b) from offshore accounts of Chinese state-owned enterprises. This package would include buying shares onshore through the Hong Kong exchange link and utilizing at least 300b yuan of local funds to invest in onshore shares. The urgency to stabilize the market aiming to address investor concerns amid challenges like the property crisis, depressed consumer sentiment, and diminished confidence in local businesses. While state buying could temporarily stabilize the market, its long-term effectiveness remains uncertain without further measures.
- India's stock market value surpasses Hong Kong: Driven by the Nifty 50 index's record highs and an optimistic economic outlook, India’s stock market value is the seventh largest in the world standing at $3.989t compared to Hong Kong's $3.984t. The Nifty 50 index has surged 16% this year, while Hong Kong's HSI has declined by 17%. India's market success is attributed to increased liquidity, domestic participation, and favorable global macro dynamics. Conversely, Hong Kong faces challenges, including geopolitical tensions and Moody's downgrade, leading to a fourth consecutive year of market decline.
- US announced big grants for semiconductor companies: The move aims to stimulate the manufacturing of advanced semiconductors crucial for smartphones, AI, and weapons systems. The subsidies, expected to be unveiled before President Biden's State of the Union address in March, come as part of efforts to revitalize US chip production and reduce reliance on overseas suppliers. Intel and TSMC are among the likely recipients, with Intel undertaking projects in multiple states totaling over $43.5b, while TSMC is investing $40b in two plants in US.
- Chinese investors commit $7b for infrastructure projects in Congo: This deal involves an agreement for the Sicomines copper and cobalt joint venture, which maintains the current shareholding structure, involves Chinese partners like Sinohydro and China Railway Group paying Congo 1.2% of royalties annually. Congo, a major cobalt and copper producer, sees significant Chinese dominance in its mining sector. This agreement underscores China's continued investment in Congo's mineral-rich resources.
- ECB holds interest rates steady after 10 consecutive hikes: The key rate is set to remain at a record high of 4%, where it was brought through 10 consecutive hikes that began in July 2022 and pushed rates back into positive territory for the first time since 2011. The Governing Council said recent information confirmed its medium-term outlook for inflation at 2.1%. Future interest rate adjustments will depend on data in areas such as wage negotiations to be released later in 2024.
🏦 Individual stocks/companies
- Netflix secures $5b deal to exclusively stream WWE: Starting January 2025, this 10-year partnership expands Netflix's content offerings, bringing Raw, SmackDown, and pay-per-view events to its platform in multiple territories. The move marks Netflix's first significant investment in live events, aiming to attract WWE's dedicated fanbase and bolster its ad-supported streaming service. Raw, WWE's flagship show, draws a substantial audience, making it a valuable addition to Netflix's content line up.
- Microsoft to lay off 1,900 employees from its video-game divisions: The layoffs come after other video-game companies, like Riot Games, also implemented mass layoffs. As part of the restructuring, Blizzard Entertainment cancelled a survival game codenamed Odyssey and saw the departure of President Mike Ybarra and Chief Design Officer Allen Adham. The layoffs are part of a broader trend in the tech industry, with over 11,000 job cuts announced by more than 60 tech companies so far this year. The move comes just three months after Microsoft completed the Activision Blizzard acquisition.
- Apple to allow third-party applications for EU users: Apple is undergoing a significant transformation of its iOS, Safari, and App Store offerings in the EU in response to impending tough antitrust regulations. These changes, set to roll out in March as part of iOS 17.4, include allowing customers to download software from sources outside the App Store for the first time, as well as enabling alternative payment systems and easier selection of default web browsers. The changes mark a departure from Apple's traditionally closed ecosystem and present a significant test for both the company and EU regulators. Despite the potential benefits for users and developers, Apple executives have cautioned that the new approach introduces security risk.
- Macy's rejects $5.8b buyout offer: Arkhouse Management and Brigade Capital Management had proposed taking Macy's private, but the department store giant turned down the offer. Despite recent challenges, including layoffs and store closures, Macy's still sees potential, especially in its extensive real estate holdings. The company outright owns 316 out of 772 of its stores, and analysts estimate their value to be between $7.5b and $11.6b. Meanwhile, malls are experiencing a resurgence, particularly among Gen Z consumers who prefer in-person shopping over online options.
🇸🇬 Singapore related
- Private Property Rentals Decline and Prices Rise: Private residential property rentals in Singapore experienced a significant decline in Q4 2023, marking the first decrease in over three years, attributed to increased housing supply. However, private residential property prices rose in Q4 2023, albeit at a slower pace compared to previous quarters. This slower growth was influenced by rising resale prices, high interest rates, and government cooling measures.
- Singapore's HDB Resale Market Prices Increased by 4.9% in 2023: The slowest growth since 2019, influenced by declining demand, inflation worries, and higher interest rates. Fourth-quarter uptick of 1.1% attributed to BTO launches timing and government cooling measures. Predicted modest 3-5% rise in 2024 amid longer BTO wait times and market uncertainties, despite record transactions of million-dollar flats.
- Singapore-China Mutual Visa-Free Entry: Agreement signed for 30-day visa-free travel starting Feb 9, 2024, enhancing business, tourism, and people-to-people ties. Allows Singaporeans and Chinese citizens 30-day stays for various purposes, excluding activities requiring prior approval. Extension applications required for longer stays.
