• York Investment & Finance

Global Markets Overview: China

By Chau Tonnu, Analyst at the York IFS Global Market Telegraph

From 31 August to 6 September 2020

Last Friday, the Nikkei tumbled 1.4%, following the announcement that Japan’s longest serving prime minister, Shinzo Abe, was set to resign due to illness [1]. Investors feared that his monetary and fiscal policy programme ‘Abenomics’ will end with his departure. However, despite analysts’ suspecting a further decline by up to 6% in the coming weeks due to uncertainties over Abe’s successor [2], Monday saw the Nikkei recover by 1% thanks to Warren Buffet’s purchases of stakes of more than 5% in the top five Japanese trading houses, valued at a total of $6.25bn [3]. Marubeni Corp.’s stock price soared by 14%, whilst, Mitsubishi and Sumitomo Corp gained more than 10% each, Mitsui & Co. rose by 8.7% and Itochu Corp. climbed up by 6% [4]

Chinese firms in the industrial sector saw profits increase for a third straight month in July, the fastest rate of increase since June 2018, which boosted the CSI 300 by 0.54% on Friday [5]. Xiaomi, a leading Chinese smartphone maker announced that the stock will be added to the Hang Seng Index, which led to the price to soar by 18.4%, and boosting the Hang Seng by 0.56% [6]

Ant Group, Alibaba’s fintech affiliate and owner of China’s most popular payment app, Alipay (with more than 700m monthly users), revealed it earned $10.5bn in the first half of the year [7]. The company, which is estimated to be valued at an enormous $200bn, has filed for an IPO in October, seeking to raise $30bn which would make it the largest IPO in world history [8]. Following the worsening relations between US & China, Ant Group plans to set up a dual listing, selling 10% of its shares on Shanghai’s STAR market and 5% on Hong Kong Stock Exchange. The decision to not list in Europe or the US is a major win for China to boost the appeal of the Chinese stock exchanges to raise cash and, if successful, could pave the way for other firms to list their IPOs outside the US [9]

After imposing severe restrictions on Huawei and threats to sanction Alibaba, the Trump administration has blacklisted a further 24 Chinese companies which have allegedly played a role in the Chinese military construction of artificial islands in the South China Sea, of which 3,000 acres (12.2 square km) have been built since 2013 [10]. Among the sanctioned firms is the China Communications Construction Company (CCCC), a big contractor in China’s Belt and Road Initiative, who saw its share price fall by 5.3% following its addition to the ‘Entity List’ [11].

Fears of military conflict between the US & China have also surfaced amid the souring relations. After weeks of increased US activity in the South China Sea, the US was also accused of sending a U2 spy plane over the region, where China was testing three missiles to which Beijing officials deemed a ‘provocative action’ [12]. Although a large military confrontation between the two superpowers is unlikely, it is clear negotiations need to take place to come to a resolution in order to ease tensions. Pressure has already mounted as the Philippines made it clear that they would turn to the US for military aid during flare ups between Manila and Beijing [13]. The tension between India and China has intensified following Indian’s deployment of a warship to the South China Sea, along with further sparring over the disputed Himalayan border [14].

By Chau Tonnu, Analyst at the York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 6 in early September 2020

Reference list:

[1]. https://economictimes.indiatimes.com/markets/stocks/news/nikkei-closes-down-more-than-1-4-after-reports-japan-pm-to-resign/articleshow/77799475.cms

[2]. https://www.ft.com/content/583d4a9e-4f4e-4f14-845e-01b1838efa17

[3]. https://www.cnbc.com/2020/08/30/warren-buffetts-berkshire-hathaway-buys-stakes-in-japans-five-leading-trading-companies.html

[4]. https://www.ft.com/content/55f15197-48ad-4eeb-9a89-cb183a0e7a72

[5]. https://uk.reuters.com/article/china-stocks-close/china-stocks-close-higher-on-strong-factory-pmi-data-idUKAZN00PT97

[6]. https://www.scmp.com/business/markets/article/3099187/hong-kong-stocks-gain-xiaomi-continues-surge-after-being-tapped

[7]. https://www.theguardian.com/business/2020/aug/25/jack-mas-mobile-payments-firm-ant-group-plans-floatation

[8]. https://www.ft.com/content/b5f6fed2-2dcf-48dc-9097-a49bff5532dc

[9]. https://www.bbc.co.uk/news/business-53915531

[10]. https://www.nytimes.com/2020/08/26/business/economy/trump-sanctions-south-china-sea.html

[11]. https://www.scmp.com/economy/china-economy/article/3099526/us-sanctions-over-south-china-sea-will-not-affect-blacklisted

[12]. https://www.express.co.uk/news/world/1327725/world-war-3-china-missiles-US-south-china-sea-latest-donald-trump-war

[13]. https://timesofindia.indiatimes.com/world/rest-of-world/will-ask-us-for-military-assistance-if-china-attacks-in-south-china-seaphilippines/articleshow/77847313.cms

[14]. https://www.deccanchronicle.com/nation/current-affairs/310820/indian-navy-deploys-warship-in-south-china-sea-after-galwan-clash.html

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