HK and China stocks making new lows; Land of the Falling Yen; The lettuce won; "The Hang Seng Index" ????MoneyFitt Morning | Friday 21 Oct 2022
?? IN THE MARKET
?? FOCUS STORY
?? MoneyFitt EXPLAINS
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?? IN THE MARKET
US bond yields crept up, but markets were generally quiet. Interestingly, the US Federal Reserve’s uninterestingly-named Beige Book noted the gap in inflation rates between different cities is one of the widest ever. In some areas, activity and inflation are already falling. The risk is of Fed policy overshooting. This would be if the Fed hikes interest rates too high too quickly and holds them there for too long.
Over in the UK, Liz Truss resigned after 44 tumultuous days as prime minister. Though widely expected, it was still surprising to see UK markets barely rising. (See Focus.)
HK and China stocks making new lows
Shares in Hong Kong closed off their lows but were still down 1.4% on Thursday, taking the benchmark?Hang Seng Index??? to a 13-year low after a disappointing first policy address from the city’s new chief executive, John Lee. With expats and locals fleeing and the population falling, he announced a US$3.8 billion "trawl" to bring global talent and businesses back to Hong Kong.
China’s ongoing 20th Communist party congress continues to send negative vibes, particularly with the hard-line soon-to-be reappointed leader Xi is taking on his Covid Zero policy. The rise in Covid cases is sparking fears of a return to massive, widespread lockdowns. China delayed the release of its third-quarter GDP data on Tuesday, leading to speculation that the numbers were so bad that they didn't want them released during the congress.
China businesses listed on US markets fell sharply the day before, with the dreadfully-named Nasdaq Golden Dragon China Index down 7.1% to a 9-year low.
Land of the Falling Yen
The Japanese Yen continued to slide against the ridiculously strong US Dollar, with the exchange rate sweeping through the ￥150 per US$1 level and marking a new 32-year low. It's now down by almost a quarter this year alone.
The main reason is the different policies of the Bank of Japan and the US Federal Reserve. The US is raising interest rates to kill off runaway inflation while Japan has kept interest rates low as it's been battling decades of DEflation (prices going down) and consistently feeble economic growth. The Japanese WANT inflation and for consumers to expect more to come!
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A weak Yen pushes up import costs and can hurt consumption, but is generally good for "Japan Inc." The effect was greater as manufacturing was mostly in Japan, so a weaker currency made goods cheaper for foreign buyers. It also boosts the value of repatriated overseas earnings.
But a quarter of manufacturing has been moved overseas since the Yen was last at ￥150, and even for goods still made in Japan, many have imported components and other raw materials which are now getting more expensive as they're imported in USD.
And... a weak Yen is awesome for tourists! (Pandemic visa controls only started easing from October 11th for 68 countries - details?here.)
?? FOCUS
New UK Prime Minister by Friday 28th Oct.
Liz Truss announced her resignation after just 44 chaotic days as the UK's 56th prime minister. Her term followed what, in hindsight, was the comparatively stable premiership of Boris Johnson.
She was elected by party members and became PM on September 6th, meeting the Queen that very day. Two days later, the Queen died and the nation was in mourning until the 20th. Truss attended the UN General Assembly in New York on the 21st and 22nd, so the first realistic day she could do anything was Friday the 23rd. Unfortunately, the first thing she actually did was the disastrous mini-budget announced on that day by her chancellor (finance minister) Kwasi Kwarteng, and the rest is history.
The new prime minister should be in place by the end of next week. Rishi Sunak, her rival for the post, is currently the bookmaker's favourite, and his criticisms of Truss' platform policies during the debates have been shockingly accurate. But Sunak's old boss Boris Johnson is still popular with party members despite having resigned as PM in disgrace and could also be back in the running. (New chancellor Jeremy Hunt has ruled himself out.)
Some market watchers have referred to the "competence risk premium" in UK assets. The less competent the UK government is, the less investors would pay to own a UK asset. With UK government bond prices rising and the Pound Sterling holding steady, markets are assuming that the incoming team will not be as monumentally incompetent as the outgoing.
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?MoneyFitt EXPLAINS
?The Hang Seng Index
The HSI is the main stock market index for Hong Kong, which since 1997, has been officially a part of China as a Special Administrative Region (SAR). The HSI was first created in 1969 by Hang Seng Bank (a subsidiary of HSBC) and has been calculated ever since to represent the performance of the largest (“blue chip”) stocks in the SAR.
Like most major indexes globally, it is weighted by market capitalisation (share price times the number of shares) but adjusted for free float, i.e. they adjust for what's not held by permanent major shareholders like a family or a government.
The changing nature of the market will usually reflect that of the economy, in HK's case the greater and greater integration into China. The weightings of stocks, as well as the stocks themselves, change regularly. China companies which have a listing in HK, often in addition to other exchanges (in China or elsewhere) have become a much more important component of the index in the last decade or so and now dominate the 66 stock index.
There is a separate Hang Seng China Enterprises Index (HSCEI) which is entirely comprised of HK-listed China companies and also widely followed, and of course, the competing indexes in China itself, centred around Shanghai and Shenzhen where the main index is the CSI300.
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2 年Sometimes you just can't say it better than The Economist: ?"... Just after 1.30pm in London on October 20th Liz Truss, who the day before had vowed in Parliament to be a fighter not a quitter, stood in Downing Street to say that, on second thoughts, she was quitting. That was just the latest U-turn of her remarkably brief time in office..."