The revival of “Made in Japan” and China just party
on
The
long awaited rate hike from US Fed did not happen in September. The Fed is worried that the fragile emerging
markets especially their weak currencies may not be able to hold up. It is great that the Fed is so considerate and
they are right to be concerned.
Brazilian Real, Russian Ruble, Indian Rupee and Chinese Yuan have weakened against 52.4%,
8.74%, 4.5% and 2.9% this year as of 22 September. The Chinese bull has lost steam and commodities
prices have been falling. Australian
Dollar and Canadian Dollar have lost 13.9% and 14.2% respectively against the
USD in 2015. Market is saying the
current scenario is like Asian crisis in 1998. The developed markets did not get too hurt in
1998 and they probably could survive “Asian Crisis 2015” just like they survived “Russian
Ruble Collapse 2014”. Well, the
Fed made it clear that rate hike is still on the agenda and the plan to starting increasing interest rate is delayed but not cancelled. Asian emerging markets have an extra month to deal
with an even stronger US Dollar.
The
dynamics in Asia because of the currency movement have changed significantly in
the past year. Japan has been a quiet
winner with a much weaker currency and it manages to be a lot more competitive
in exports. The weakening Japanese Yen
has also turbo charged Japan tourism and property markets. Bloomberg report made a
forecast of 4 million
Chinese tourists to visit Japan in 2015. The Japan National Tourism Organization said
576,900 Chinese tourists visited Japan in July 2015.
Hong Kong people are investing in Tokyo property which they find more
affordable than Hong Kong property.
Japan manufacturing sector enjoys both weak Japanese Yen and low oil
prices. There is a revival theme
happening. Inflation in Japan is 0.2% year on year in August and local people seems to be able to cope. Japan economy as reflected by the GDP has contracted by 0.3% in Q2 2015 versus Q1 while Q1 was up 1.1% versus Q4
2014.
China
is working hard to develop service industry and domestic economy. It has said goodbye to the low cost labor
export driven economy as many South East Asia countries are a lot more
competitive in price. The recent stock market
crash and Chiense Yuan devaluation may get a lot of worrying look from the
West. But the inside story is a fair bit
stronger. Most people in the West may
struggle to name a China household brand although a lot of household appliances
and gadgets are made in China, including iPhones. Maybe a few people could name Huawei and
Leveno because of mobile handsets and computers. In China, local brands are doing
well in domestic market and that is a 1.3 billion people market. Consider Alibaba's Taobao.com which is mainly
targeting Chinese residence. As a brand,
Taobao
is nothing like Amazon but it has 350 million users versus Amazon 244 million
users. Similarly, Facebook's Whatsapp
versus Tencent's WeChat is 900 million users versus 600
million
users. Due to Chinese language and
regulations, the local brands and products have obvious advantages in the domestic
market. The traditional brick and mortar
business is even more localized with the exception of retails especially in
fashion and luxury products. H&M,
Zara and Uniqlo have big stores in prime locations. Hermes, Chanel, LV and many more brands are
easier to find than a HSBC branch. There are 25 Ferrari
showrooms in China. Of course, there are also 1500
Starbucks in China. China economy is ok
and still moving forward. On the
contrary, the Chinese stock market has taken a step back as government and
regulators are discouraging trading. The
once most liquid stock and futures markets have gone into nuclear winter. Stock market turnover has dropped 70% from its
peak and has totally lost its popularity as the benchmark index CSI 300 is 40% off
its peak in June.
The CSI300 futures used to trade over 2 million contracts a day and now
at 30,000 level. Why? The exchange decides to charge retail investors
40% initial margin and practically limit retail investors to trade
only 10 contracts a day. This shows the
government is determined to tightly manage the stock and futures markets. If they find it hard to manage, they limit
the activities to a scale that they could manually manage.
