Alternative Markets Update March 2020
Since the last week in February 2020, markets across several assets plummeted. Main driver of this development is certainly the coronavirus cover-19, more specifically the increased number of infections outside China, and the response of the FED and BoE to cut interest rates by 0.5% each as a response. Furthermore, a disagreement among Russia and Saudi Arabia arose during their OPEC+ meeting about the oil price strategy, which lead to a 30% loss in oil prices. The major indices of most countries lost more than 10% and face a high volatility since the virus outbreak outside China with a WHO classification as epidemic. It is expected that the interest rates in the positive yielding countries like US, Uk, Australia and New Zealand are lowered further. Safe haven assets, such as currencies like CHF and JPY or commodities like gold continuously increased in value. Bitcoin, oftentimes referred to as digital gold, could not establish itself as safe haven asset, as it decreased substantially to $6,105 on 12th March 2020 and other crypto assets followed in a similar fashion with declines.
Macro Outlook March 2020 by Aquila Markets
The current situation is now comparable to 2008 in terms of the potential shock to the global economy. Whilst the initial shock of the virus on global supply chains, the ongoing ramifications are significant. In the GFC, within a few short weeks, Lehman went bust, Banks merged, AIG was bailed out amongst many other companies. Rates were slashed globally. The world “survived”. But the policy responses – QE in waves in the US , austerity in Europe, the rise of China , US monetary policy, has defined the past decade. But, because failure was banned and assets supported, we have fuelled yet another credit driven boom especially in the US.
Macro and Political Outlook April 2019 MacroEagle
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 35
With 2015 GDP of US$10.87 trillion, China is the world’s second-biggest economy behind USA. Its banking assets are around three times the size of its GDP while its stock markets, even after last year’s crash, were together worth $6.27 trillion in 2015, second only to America’s. Its bond market is the third largest behind USA and Japan but growing very rapidly. China is the third largest creditor nation behind Japan and Germany. At the end of September 2016, foreign exchange reserves stood at $3.17 trillion (nearly three times that of Japan, which is in second position globally) but they have been steadily declining since hitting a peak level of nearly US$4 trillion in June 2014.
China’s spectacular growth during the last decade has not only made it the “big elephant in the room” on the world stage, but has also created major imbalances in its economy, resulting in a major risk of contagion across the globe.
For example, official estimates for non-performing loans (NPL) stood at close to $300 billion, double the level of 2014. If off-balance sheet and shadow banking loans such as trusts and peer-peer-lending (P2P) were included, NPLs would be much higher. In 2015 alone, investors have lost around $25 billion through financial fraud and nearly $670 billion of capital has left the country while China spent nearly $200 billion to prop up its stock market. These are just a selection of some worrying statistics, which have become a focus of global investors.
In the summer of 2015, a mere 2% devaluation of the Chinese yuan sent global markets tumbling. There were similar China related worries for global markets in early 2016. The slightest of concerns over slowdown in China is having major consequences for commodity exporting countries. So, it is a big understatement to say that the prospect of a China hard landing and the impact on commodity producers and global stock, bond and currency markets would be very severe.
Global investors are currently pre-occupied with issues such as the US Presidential Elections, the nature and timing of Federal Reserve expected tightening and Brexit. China concerns appear to be on the back burner, at least for now. However, they certainly haven’t gone away and will continue to remain as one of the major concerns for investors across all asset classes, across the globe.
In this Research Perspective, we review some of the China issues that will continue to remain as major factors in driving global investment decisions across many of asset classes in the coming years.
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 4
2015 is an eventful year for China, for reasons good and bad. The acute reversal in the mainland stock markets over the summer, along with this month’s administered decline in the Yuan (Renminbi) against USD and other currencies, have unsettled many investors whose expectations for China’s performance were very different. Is there cause for alarm among fixed income investors with broad exposure to Chinese corporate credit?
Ashvin Chotai, Stone Mountain Capital's Senior Advisor in Research, wrote in research perspective Vol. 3 on August 6th 2015, that neither sharp gains nor losses in Chinese equities this year were justified by economic or company fundamentals. This observation is readily confirmed by the hard quantitative assessments of financial and operating efficiency that Rapid Ratings International has conducted on 600 mainland Chinese companies over the last 12 months.
Rapid Ratings conducts an in-depth examination of balance sheets and income statements of companies in a country coverage report. Rapid Ratings then publishes a Financial Health Rating or FHR™ on each company on a scale that runs from zero/worst to 100/best. FHRs carry no geographic biases, in contrast to ratings elsewhere. Every month Rapid Ratings collects ratings and rating changes – “deltas” - within each of 34 countries with the largest number of names in coverage, in order to compare financial health trends.
Senior Advisor Research
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STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 3
One of the major current talking points among investors and economists has been the sharp declines in the price of Chinese stocks since mid June 2015. Should these declines be regarded as a healthy correction or is there something more serious going on and has the bubble burst? What is the impact of stock market gyrations on the broader Chinese economy and will the effects spill over to global stocks, particularly of companies with significant China exposure?
Chinese stocks had been “on a tear” during the second half of 2014 and the first half of 2015. The Shanghai Stock Index jumped by 53.3% in 2014 (with most of the gains coming in the last 5 months of the year) and by a whopping 152% in 12 months to June 12th 2015, when the index reached a closing 7 year high of 5,166. A correction after such spectacular growth was over overdue and should not have come as surprise. In early August, even after a 30% correction, the index was up by close to 70% compared to a year earlier. Even for calendar year 2015 year to date, the index is up by 15.8%. So, we are hardly looking at a disaster scenario, especially for long-term investors.
Senior Advisor Research
Tel.: +44 7740 823049
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 2
In 2013, total vehicle demand, including passenger cars and commercial vehicles, in China stood at around 22.2 million units. This is over a quarter of global vehicle demand and makes China’s vehicle market around 40% larger the US market. China overtook the US to become the largest market for automobiles in 2009.
Foreign automakers, although having to operate via joint ventures, control over 70% of passenger car demand and many now rely heavily on China to support their global growth ambitions. Thus, the significance of developments in China on the global auto industry is not difficult to see.
In the last decade, vehicle demand grew at a compound annual growth rate of over 20%. Major cities in the East Coast were the main growth engines initially but in recent years healthy support has also been coming from the spread of motorization in other provincial capitals and medium size cities.
Since the stimulus fueled boom in 2009 and 2010, growth rates have moderated considerably, but have still remained relatively healthy and so far the transition from high growth rates to more moderate growth rates has been relatively smooth.