The revival of “Made in Japan” and China just party on

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.