The global financial landscape, especially i Asia, is being redrawn amid digitalisation of the financial sector, propelled by both the regulators and fintech innovators
ONCE viewed with suspicion, digital currencies have gained wider acceptance since the Covid-19 pandemic started.
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The recognition has sparked not only various investment opportunities but also technological innovations and developments, including by governments around the world eager to capitalise on the digital currency potential.
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One is China, where its central bank People’s Bank of China has just launched pilot projects on digital currency and is working with the Bank of Thailand and Hong Kong Monetary Authority on the initiative.
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The global hype in cryptocurrency investment, meanwhile, has come under restraint from the regulators but with the pandemic – a number of Asian companies have embraced the crypto innovation in hope of riding out of the economic slump. Investors especially the Gen Z have jumped on the bandwagon despite the risk and pushed the value of Bitcoin to a new high.
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To help people understand the government-backed digital currencies and the future of cryptocurrencies further, The Star will co-host a webinar entitled “The rise of Govcoins & What’s next for crypto” this Thursday, July 22, 2021, at 10am.
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The webinar is organised jointly with the Asia News Network (ANN), an alliance of 23 national media in 20 Asian countries, and The Investor, which is a tech media start-up of the The Korea Herald. Both The Korea Herald and The Star are members of ANN.
The webinar is organised jointly with the Asia News Network (ANN), an alliance of 23 national media in 20 Asian countries
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The speakers on the first session “The rise of Govcoins” include John Kiff, former senior financial sector expert at the International Monetary Fund; Nelson Chow, chief fintech officer at the Hong Kong Monetary Authority; and Andrew Sheng, one of Malaysia’s and Asia’s top economists, and The Star’s columnist.
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The second session “What’s next for crypto” will feature speakers Kevin Werbach, professor of Legal Studies & Business Ethics at the Wharton School, University of Pennsylvania; Stephane De Baets, president of Elevated Returns Ltd, an investment firm based in the US with Asian focus; Marcus Lim, group CEO, Zipmex Co, a regional cryptocurrency platform; and Pindar Wong, a blockchain specialist and chairman of VeriFi, a financial tech consultancy in Hong Kong. The speakers will discuss the decentralisation of finance, benefits and dangers of cryptocurrency, a shake-up which is taking place to weed out illegal financial transactions and the development of AI and programmable smart money.
Malaysia and other partner nations are looking forward to better days ahead after signing the world’s largest trade deal.
THE Regional Comprehensive Economic Partnership (RCEP), eagerly awaited by 15 member nations and their 2.2 billion people, was finally signed last Sunday after eight years of negotiations and delays.
This regional free trade agreement has injected hope into the economies of member nations as they struggle to contain the second wave of Covid-19 pandemic.
The biggest trade deal in the world signed on Nov 15 during a virtual summit in Vietnam will, among others, allow participating countries to enjoy major tariff cuts.
Covering 30% of the global economy and global population, the RCEP will broaden and deepen economic linkages across the Asia Pacific region, ease trade in goods and services and facilitate the flow of investments.
The Geneva-based United Nations Conference on Trade and Development (Unctad) believes that the RCEP could give “a significant boost” to foreign direct investment (FDI) in the region.
“The provisions related to market access and disciplines in trade, services and e-commerce are highly relevant for regional value chains and market-seeking investment,” said the UN body in its special issue on investment trends last Sunday.
With China being a participating nation, others within the bloc will be able to gain easier access to China’s vast market of
1.4 billion people, including its 400-million strong middle-class income group.
And China, being the largest economy in Asia, will find it easier to export its capital to Asean and other RCEP nations after having faced political barriers in its investments in the West in recent years.
The RCEP comprises 10 Asean members (Indonesia, Malaysia, Singapore, Brunei, Vietnam, Laos, Cambodia, Myanmar, the Philippines and Thailand) and five others in the region – Australia, China, Japan, South Korea and New Zealand.
Indeed, Singaporean Prime Minister Lee Hsien Loong’s remark after the signing could best summarise the importance and impact of the trade agreement.
He described the signing of the RCEP as a “major step forward for the world at a time when multilateralism is losing ground and global growth is slowing”, according to The Straits Times.
“It signals our collective commitment to maintaining open and connected supply chains, and to promoting freer trade and closer interdependence, especially in the face of Covid-19 when countries are turning inwards and are under protectionist pressures,” he added at the virtual conference hosted by Vietnam.
Premier Li Keqiang of China, which has been suffering from the US-led trade war, said the RCEP “is a victory of multilateralism and free trade” and “it let people choose unity and cooperation in the face of challenges, rather than conflict and confrontation.”
In its analysis, Global Times said: “The conclusion of the RCEP indicates that most Asian countries endorse free trade framework and see it as a landmark step toward achieving closer economic integration in East Asia and South-East Asia.
“The RCEP sends out the message that Asian countries are not willing to blindly follow the US and exclude China from the region’s integration process. A sound and healthy economic community in Asia cannot be achieved without China’s participation.”
For China, the RCEP is the first multilateral free trade agreement it has ever participated in. China already has bilateral trade deals with many RCEP members, and it has been trying to seal an obstacle-filled trilateral pact with Japan and South Korea.
For Malaysia, the cheer is that the RCEP will provide greater access to regional markets and more opportunities for local small and medium-sized enterprises (SMEs) to expand into foreign markets, said Senior Minister Datuk Seri Azmin Ali.
The lowering of barriers and streamlining of rules in trade facilitation will boost Malaysia’s trade with RCEP countries and attract foreign firms keen on entering into a more integrated Asean, said the Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM).
“This will enhance transparency in trade and investment, as well as facilitate the greater inclusion of Asean’s SMEs in global and regional supply chains,” said ACCCIM president Tan Sri Ter Leong Yap in a statement.
Wanita MCA national chairperson Datuk Heng Seai Kie said the RCEP provides “new hope for Malaysian entrepreneurs and national economic recovery to counter the current pandemic”.
“The RCEP trade deal will help stimulate the economy by integrating the various participating nations in the Asia-Pacific while introducing lowered tariffs, standardised customs rules and procedures and widened market access, especially among countries that don’t have trade deals,” she said in a statement.
Describing the free trade agreement as “an incredibly important agreement in terms of the timing”, Australian Trade Minister Simon Birmingham said: “This agreement signifies that our region is still committed to openness and to trade and that we will use that as a platform and a springboard for recovery in the post-Covid era… Better access for our farmers and businesses means more jobs for Australians overall.”
Birmingham noted that Australian businesses in education, healthcare, accountancy, engineering and legal service industries would benefit most from the deal, which will allow them to open offices in RCEP countries.
Most importantly, the trade pact may facilitate Australia’s exports to China – its largest trading partner – if Australia tones down its two-year long hostility towards Beijing. Canberra’s ongoing spat with Beijing has hurt Australia’s economy deeply.
For Japanese exporters, the agreement means that China and South Korea will gradually eliminate tariffs on sake and shochu, according to Japan Times. The reduction from China’s current 40% tariff on both will fall to zero after 21 years, and South Korea’s 15% tariff on both goods now will be eliminated after 15 years.
The RCEP may help reduce the adverse impact of trade wars waged on any member country in the deal, according to prominent YouTuber Yang Fong.
“Once the RCEP comes into force in two years, the US cannot simply wage trade wars on China and other members. The deal will also bring major changes to supply-chains in China and the region,” said the economic analyst.
While all member nations are excited about RCEP, India left the negotiation table last year.
In November 2019, Prime Minister Narendra Modi said the pact would not benefit India’s core interest. Indian dairy farmers, as well as SMEs, are worried of losing out to China in the trade of manufactured goods, and to Australia and New Zealand on dairy products.
But despite this, the RCEP welcomes the return of India once it is ready to join.
To the Western world, the concern is that the world’s largest trade deal has left out the United States.
“Notably, the agreement excludes the US and can potentially allow China to cement its position as a key trade partner for South-East Asia and other countries,” CNBC said in its report.
The US Chamber of Commerce in Washington has expressed concern that the US is being left behind in the world’s largest free-trade bloc, reported Reuters.
However, the absence of US in the RECP could be easily explained. The world’s biggest economy was never a part of the trade pact from the very beginning.
The RCEP’s formation in 2012 is seen as an Asean response to the Trans-Pacific Partnership (TPP), a US-led free trade agreement that excluded China – the world’s second largest economy and largest trading partner for most Asian countries.
At the beginning, TPP membership included the United States, Malaysia and several Asean countries, Japan, South Korea, Canada, Mexico and Australia.
While setting up the RCEP, Asean invited China, India, Japan, South Korea, Australia and New Zealand to be partners in this free trade agreement.
For countries like Malaysia that believe in multi-lateralism, they can gain tremendously from having membership in both US-led TPP and Asean-led RCEP.
However, when Donald Trump became president, he rejected multilateralism and the Trump administration withdrew from the TPP in 2016.
Trump’s “America First” policy and the trade wars he has waged against China and others have also raised doubts about the US’ willingness to trade with Asian countries on mutually beneficial basis.
Without US participation, the West is worried that China will dominate RCEP and expand its influence in the region.
China’s state-linked Global Times is prompt to supply answers and address the concern.
Noting that major US allies (such as Australia, New Zealand and Japan) are part of the RCEP, Global Times said: “China cannot dominate the attitude of these countries or Asean as many major US allies are in the deal.”
In fact, Japan and Australia – which have enjoyed very close ties with the US – are likely to keep a close eye on China in the RCEP, while championing their own interests in the deal.
Global Times added: “If China is the so-called winner this time, then it is a win-win situation for all other RCEP members because these countries have strived for their own benefits during the past eight years of negotiations. All countries can only be winners since they have signed this agreement.”
European Central Bank president Christine Lagarde (pic) said the
economic recovery is “losing momentum more rapidly than expected” after
the partial rebound seen in the summer. She warned that the risks to
Europe’s economies are “clearly tilted to the downside”.
THE recent resurgence of the Covid-19 infections has cast a new shadow over the global economy, with lockdown measures taking place.
In France, President Emmanuel Macron has declared a nationwide lockdown starting today. It comes just days after German Chancellor Angela Merkel announced a four-week shutdown of bars, restaurants and theatres.
This week’s decline in global equities comes as investors grow increasingly worried about the economic recovery due to the sharp rise in the number of Covid-19 cases in Europe and in the US.
Over the past few weeks, there has been a series of new restrictions in many countries, including Malaysia, that make it harder to know where the economy is heading.
On Thursday, European Central Bank president Christine Lagarde said the economic recovery is “losing momentum more rapidly than expected” after the partial rebound seen in the summer.
She warned that the risks to Europe’s economies are “clearly tilted to the downside”.
The latest round of infections are causing a heightened level of uncertainties for governments to prepare fiscal and monetary responses.
International Monetary Fund (IMF) chief economist Gita Gopinath called on governments to continue fiscal support, including credit lines for small and medium businesses, wage subsidies and grants until the recovery is underway.
“To prevent large scale bankruptcies and ensure workers can return to productive jobs, vulnerable but viable firms should continue to receive support, wherever possible, through tax deferrals, moratoriums on debt service, and equity-like injections, ” she said in mid-October.
“Most economies will experience lasting damage to supply potential, reflecting scars from the deep recession this year, ” she added.
The IMF pointed out that Covid-19 remained the critical factor in economic recovery, and that “many more millions of jobs are at risk the longer this crisis continues.”
According to a recent estimate by the World Bank, up to 150 million more people may be pushed into extreme poverty by 2021.
The global economy is expected to decline by 4.4% this year before it expands to 5.2% in 2021, according to the IMF’s World Economic Outlook report published recently.
Interestingly, IMF data shows that emerging markets are likely to see a lower contraction of 3.3% this year compared to 5.8% decline in developed economies.
For the eurozone economy, the agency expects a slump in GDP by 8.3% in 2020, a level not seen since the 1930s Great Depression, with Spain likely to suffer the most.
The report predicts the Spanish economy to slide 12.8% followed by Italy, down by 10.6.%. Even the EU’s economic powerhouse, Germany, could contract by 6%.
Advanced economies’ recovery in 2021 would be slower than emerging economies, with GDP expected to grow 3.9% compared to 6%, the IMF believes.
The IMF said China, where the first cases of Covid-19 were reported, will be the only economy with positive growth for this year, with 1.9% expansion.
“While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks, ” it said.
China’s recovery from the pandemic is mostly coming from accelerating industrial production and robust export growth.
The US economy grew at a record pace in the third quarter. It expanded by an annualised 33.1% quarter-on-quarter following a plunge of 31.4% q-o-q in the preceding quarter as economic activities gradually resumed.
With the second wave of pandemic infections, though, some market observers suggest that a recovery remains uncertain.
MIDF Research said that on an annual basis, the US economy contracted 2.9% year-on-year in the third quarter, which is a “significant recovery” from the 9% fall registered in the second quarter this year.
“The recovery remains incomplete as the pandemic-induced crisis is far from over and the number of daily Covid-19 cases remains elevated.
“Tighter rules in other parts of the world such as in some European countries could be echoed by the US, which threatens the continuous recovery in the country, ” it said in a report yesterday.
In a report by Reuters, Moody’s Analytics chief economist Mark Zandi said rising Covid-19 cases, particularly in the winter months, could means a second economic hit from the virus, which is likely to be worse than the first time around.
He expects more business failures should the number of cases continue to spike.
“A lot of businesses were able to navigate together with the PPP money (Paycheck Protection Programme loans). Of course, consumers were able to hang in there, because they got all that consumer support from the government, ” he said.
“This time, if the pandemic intensifies and infections rise, it is going to be very difficult for these businesses to make it through, ” he added.
“We will see more business failures and the scarring effect, as economists say, will make it much more difficult for the economy to get back on track and get back to full employment.”
The IMF, meanwhile, has called on governments to rethink their spending priorities and direct funding to projects that will boost productivity, including green energy investments and education.
With debt on the rise in many countries, it said policymakers may need to increase taxes on the highest earners, cut out loopholes and deductions, and ensure that corporations pay their fair share of taxes while eliminating wasteful spending.
“This is the worst crisis since the Great Depression, and it will take significant innovation on the policy front, at both the national and international levels, to recover from this calamity, ” IMF said.
Summary of the 13th Five-Year Plan 2016-20 Infographic: GT
During the 13th Five-Year Plan period, from 2016 to 2020, China has made great strides in improving the economy, people's livelihood and other fields. China has contributed over 30 percent to global economic growth, with GDP hitting almost 100 trillion yuan ($14.9 trillion). Over 50 million people have been relieved from poverty, and 53.78 million new urban jobs have been created. New standard bearers in technology emerged, including high-speed trains, the BeiDou Navigation Satellite System and domestic passenger aircraft C919. This rapid technological development can be attributed to investment in research and development, which totaled 2.17 trillion yuan in 2019, accounting for 2.19 percent of GDP and up 56.3 percent from 2015.
Highlights of the fifth plenary session of the 19th CPC Central Committee Infographic: GT
With decisive progress in the past five years and a strategic victory against the COVID-19, top leadership of the Communist Part of China (CPC) on Thursday unveiled a steady and bright picture for the country's future, as it sets sweeping social and economic development goals for the next five to 15 years that aim to build the world's most populous nation into a modern socialist power in the economic, technological and other fields by 2035.
In a wide-ranging communiqué released after the fifth plenary session of the 19th Central Committee of the CPC ended in Beijing, top officials conclude that China remains in a major strategic development period, citing "decisive achievements" in the past five years and "major strategic results" of the COVID-19 epidemic, and offered sweeping solutions in a wide range of areas, from economy, to security, and to governance.
While the communiqué projected confidence in China's development paths and prospects, certain targets, particularly in economic areas, reflected a cautious and pragmatic sentiment among top officials, given mounting domestic and external pressure on growth, while other goals such as greenhouse gas reductions underscored the country's determination to pursue high-quality growth and tackle global issues, experts said.
Sweeping targets
"Having deeply analyzed the profound and complex changes our country faces in its development, the plenary session believes that China's development remains in an important strategic period," the communiqué said, calling for strategic patience in overcoming challenges and striving for progress.
Among the key takeaways from the communiqué are sweeping targets sets for the 14th Five-Year Plan (2021-25) and long-range goals through the year 2035. Coming at a critical inflection point for China, the four-day meeting and the targets for the coming five to 15 years are essential steps in China's long-term goal for national rejuvenation. The 14th Five-Year Plan would also mark the start of the pursuit of the second centenary goal to build a modern socialist country.
"Previously, we usually set five-year plans, but this time we mentioned the 'long-range goals for 2035' for the first time. The time span extended from five years to 15 years. That shows we have become more strategic," Yang Xuedong, a professor of political science at Tsinghua University, told the Global Times on Thursday.
Under the goals in the communiqué, China will achieve modern socialism by 2035. What that entails includes achieving "big leaps" in economic strength, technological prowess as well as overall national strength, the document said. Total economic output and urban and rural income will reach a "new level," and major breakthroughs would be made in core technologies.
"I think those targets are very pragmatic as they reflect our advantages and long-term development goals, as well as the many challenges we have to face," Tian Yun, vice director of the Beijing Economic Operation Association, told the Global Times on Thursday.
Though the document refrained from offering specific empirical targets, Tian said that those goals could mean that China would double its current GDP of around 100 trillion yuan in 2035, and double current per capita GDP of $10,000. "That would require a real GDP growth of around 3.5 percent annually; it is a big target but can be done if China's full potential is realized," he said.
In keeping with a decades-long tradition, the communiqué also included goals for the 14th Five-Year Plan. During the coming five-year period, China will aim for "new achievements" and "sustained and sound growth" based on improvements in quality. The domestic market will be further boosted and economic structure would be improved, it said.
In a breakaway from previous five-year plans, the 14th Five-Year Plan did not include an annual growth target. In the 13th Five-Year Plan, an annual growth target of around 6.5 percent, which, experts say, could be missed due to the COVID-19 epidemic.
That decision reflected the considerable risks and challenges the country is confronted with, including the COVID-19 pandemic, experts noted.
The new five-year plan came at a critical juncture for the Chinese economy. Though China has effectively reined in the epidemic and embarked on a steady economic recovery path with a 4.9 percent growth in the third quarter in the year, the deadly virus continues to ravage across the world, which is already mired in rising trade and geopolitical tensions.
While the 6,200-word communiqué focused mostly on economic issues, it also touched on a long list of issues, including governance system, security, social fairness, education, healthcare, and environmental protection - all part of China's long-term strategy to build a modern socialist society.
In security, the communiqué called for modernizing its military. On environmental protection, the communiqué said that China will continue to reduce carbon dioxide emissions after reaching a peak by 2035, which experts called a "bold" pledge that reflects China's determination to tackle climate and environment issues.
Paths to success
The communiqué also outlined strategies and paths that China would take to overcome those challenges, and reach its goals in the medium-to-long term.
Among the major steps listed in the document is a strategy that has already gained widespread attention - the "dual circulation" model. In line with previous speeches from top officials, the communiqué called for forming a "powerful" domestic market and establishing a new growth model, where the internal circulation would play a main role in driving growth, though the external circulation would also be boosted. "Consumption would be boosted and room for investments would be expanded fully," the document said.
Though China is at a transitory period where both opportunities and challenges are abundant, "fully grasping the 'dual circulation' would turn this into a period of opportunities," Wang Huiyao, an adviser to China's State Council and president of the think tank Center for China and Globalization, told the Global Times on Thursday.
With China's exports, which have already been declining in recent years, facing a tough situation due to the raging pandemic and tensions, Chinese policymakers are counting on the massive domestic market to ensure economic growth and security. China, which already has a middle-income population of over 400 million, is set to overtake the US as the world's biggest consumer market in the coming years.
Aside from the "dual circulation" strategy, the communiqué also highlighted the country's focus on technological innovation to drive sustainable growth, calling it an "innovation-driven" development strategy, and aiming to become a global leader in innovation. The Chinese character for innovation appeared nearly 20 times in the document, and for technology, 13 times.
"One of the most important points in the communiqué is mentioning innovation as a core national strategy… Facing the complex global situation, China needs to improve these areas," Wang said.
However, as the communiqué has made clear, focusing on the internal circulation does not mean China will turn inward and stop its long-standing opening-up policies. China will firmly adhere to its opening-up paths, and will continuously expand opening-up at a higher level, the document said.
"When we talk about the 14th Five-Year Plan, we shouldn't stress its effect on domestic development. It also has a significant meaning globally. China's economy is the engine for the global economy. China achieving a strategic victory against the epidemic and sustained economic growth is also a dose of confidence for the world," Yang said.
PUTRAJAYA: Tun Dr Mahathir Mohamad has returned to his office at Perdana Putra amidst the political storm raging over the last two days.
The vehicle ferrying him was seen approaching the protocol gate here at 9.29am on Tuesday (Feb 25).
This comes a day after the 94-year-old Dr Mahathir resigned as Prime Minister, when the Yang di-Pertuan Agong accepted his resignation.
However, the King has consented for Dr Mahathir to continue running the country as interim Prime Minister until a new premier has been appointed and a new Cabinet formed.
Dr Mahathir is the only one from the Pakatan Harapan administration who is left after the Yang di-Pertuan Agong cancelled the appointments of all Cabinet members.
Aside from ministers, the duties of other members the administration including the deputy prime minister, deputy ministers and political secretaries ceased, effective Feb 24.
It is learnt that ministers have packed their belongings and left with them on Monday (Feb 24) night, following the announcement that the King had accepted Dr Mahathir's resignation.
Regardless of who Malaysian prime minister will be, he
will have vision and goals for economic development, which China,
especially through its BRI, can offer. It is expected that Malaysia's
next state leader will cooperate with China. And the same can be said of
other Southeast Asian nations.
Unknown future: As Singapore further cut its
growth forecast, New Zealand, India and Thailand also cut their interest
rates signalling concerns on growth outlook. — AFP
SINGAPORE: Singapore slashed its full-year economic growth forecast as global conditions were seen worsening and data confirmed the slowest growth rate in a decade amid mounting fears of recession in the city-state.
The government cut its forecast range for gross domestic product in Singapore – often seen as a bellwether for global growth because international trade dwarfs its domestic economy – to zero to 1% from its previous 1.5%-2.5% projection.
Singapore’s downgrade adds to concerns globally about the effect of increasing protectionism on exports and production.
The deterioration in the global outlook has pushed central banks to cut interest rates and consider unconventional stimulus to shield their economies.
“GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half, ” the trade ministry said in a statement to the media yesterday.
The ministry flagged a host of growing economic risks including Hong Kong’s political situation, the Japan-Korea trade dispute, the Sino-US tariff war, slowing growth in China and Brexit.
Final second quarter GDP data yesterday showed a 3.3% on-quarter contraction on a seasonally-adjusted annualised basis. That was slightly smaller than the 3.4% decline seen in the government’s advance estimate but deeper than a 2.9% fall predicted in a Reuters poll and a sharp contrast to the robust 3.8% first quarter expansion, which was driven by brisk construction activity.
Yesterday’s data also confirmed annual GDP expanded 0.1% in April-June from a year earlier, its slowest rate in a decade, and lower than poll expectations of 0.2% and the first quarter’s 1.1%.
Singapore’s benchmark stock index fell 1.2% to a two-month low in early trade, underperforming other bourses in the region.
Singapore has been hit hard by the Sino-US trade war, which has disrupted world supply chains in a blow to business investment and corporate profits.
Also yesterday, Singapore cut its full-year forecast for non-oil domestic exports to a 9% contraction from an 8% fall previously.
That comes after a 26.9% drop in electronics exports in the second quarter year-on-year.
“With trade tensions between the US-China unlikely to abate anytime soon, we expect exports and trade-related services to push the economy into technical recession in Q3, ” said Sian Fenner, lead Asia economist at Oxford Economics.
New Zealand, India and Thailand all cut interest rates last week, signalling major concerns about the outlook for economic growth. Last month, the US Federal Reserve cut interest rates for the first time since 2008.
Singapore Prime Minister Lee Hsien Loong said in an annual speech last week that the government stood ready to stimulate the economy.
“It feels like the storm is coming if you look at the whole macro economic fundamentals softening, ” said Selena Ling, head of treasury and strategy at OCBC Bank.
“All the downside risks are piling up on one side, ” Ling added, pointing to the myriad of global risks flagged in the trade ministry statement. — Reuters
China urged the US to stop its unfair and discriminatory
treatment of Chinese firms following the US government moves to ban on
Wednesday federal purchases of telecommunications equipment from five Huawei's HarmonyOS unveiled: Could it catch on?
https://youtu.be/JrDKlrgEtjI
China warns the U.S. of tariff 'countermeasures'
https://youtu.be/j8Dd4bjCfTU
Poised for correction: A file picture showing a
woman walking by an electronic stock board of a securities firm in
Tokyo. After 10 years of continued rise in asset prices, markets are
poised for correction. — AP
Tariffs are here to stay and likely to disrupt the 10-year economic cycle
IF investors ever needed a reminder that not all is right with the equities market, the shock waves the world capital markets, including Bursa Malaysia, had to endure earlier this week are proof enough.
Most stock markets are at the tailend of a 10-year bull run, although the same cannot be said for Bursa Malaysia which has generally has been more bearish than others in the last five years. Going by the current trends, Bursa Malaysia is likely to finish the year lower, which if it happens will be the fourth time in the last five years.
But the leading platform in the world which sets the pace for global flow of capital – the Wall Street – has been hitting new highs although it corrects from time to time largely due to the tweets from President Donald Trump.
Wall Street’s run started in May 2009 and seems to have the strength to carry on for a few more legs, defying conventional logic that economic boom-bust cycles corrects after 10 years. Other stock markets have had good and bad times since 2009 but the US has been consistently on the rise.
The benchmark Dow Jones Industrial Average, the Nasdaq and S&P 500, which charts the broader market, have all hit news highs. Bursa Malaysia on the other hand has languished between the 1, 600 and 1, 700 levels, with only one year of positive returns since 2014.
There are several reasons for Bursa Malaysia’s poor performance compared with other markets. For instance, the United States slashed tax rates, which spurred earnings of companies and has the best technology companies listed there. It’s not the same elsewhere in the world.
Nevertheless, after 10 years of continued rise in asset prices due to the combination of a low interest rate environment and advancement in technology, the markets are poised for correction. Until earlier this week, nobody had an inkling of an idea where and how the correction will take place.
However, after President’s Trump latest statement that the US would impose 10% tariff on an additional US$300bil worth of exports from China, it clearly underlines that the trade war is here to stay.
If anybody had a view that the trade war would end if President Trump does not retain his position in the US elections next year, they are wrong. Even some Democrats are leaning towards imposing tariff as measure to help the US keep its competitive edge in the world economy.
Reverse globalisation is no longer a bad word in world trade.
A 25% tariff has already been imposed on US$250bil worth of China’s exports to the United States since March this year.
It is bringing in billions to the US coffers with some going towards helping the farmers overcome the woes of the trade war. The person who takes over from Trump is not likely to dismantle the structure.
Any other president will want to get more from China, which is led by the influential President Xi Jinping, who is seen as the most powerful man that rules the second biggest economy in the world after the late chairman Mao Zedong.
China has retaliated by imposing tariffs on US$110bil worth of imports from the US so far including the produce from farms. It has also allowed the yuan to weaken, sparking concerns that the trade war is evolving into a currency war.Latest data from China shows that the exports are still growing and imports dropping in July even though there is a trade war, suggesting that President Xi will not yield to pressure from the US easily.
A new cold war in the form of the trade war has emerged. As a result, it has caused upheavals in the capital markets that should worry investors.
There have been significant shifts in asset prices from bonds to equities and commodities such as oil. Among all asset classes, dramatic movement in bond prices of government debt papers is the first to feel the impact from the trade war.
This is on the back of increasing certainty that the Federal Reserve and other major central banks will reduce interest rates more aggressively to stimulate the sagging economy. It has caused for money to seek safe haven such as US government debt papers.
For instance the yields on the 10-year US debt paper is 1.69% now. It was 1.9% a week ago and 2.06% a month ago. The yields moves inversely with the price of the bonds.
The yields on the five- and two-year government debt papers have also moved by up 18 points in the last one week. Such movements on billions of dollars will have an impact in the months to come.
The trade war has caused a major disruption in the global supply chain, evidence of the economy slowing globally.
If anybody wants any evidence of the disruption in global supply chain, they only need to go to the KLIA cargo complex and see for themselves the number of idle lorries that do not have enough cargo to move about.
In Malaysia’s case, apart from a slowdown in movement of goods around the world, the uncertainties in Hong Kong have exacerbated the situation.
The combined effects of the trade war, China’s economic uncertainties and Hong Kong’s future as Asia’s financial hub will only be felt in the fourth quarter of this year.
Until then, asset prices will continue to adjust to the new norm.
The views expressed here are solely that of the writer. Source link
Chinese telecommunications giant Huawei released its
much-anticipated operating system HarmonyOS on Friday amid the US ban
still that is imposed on the company and escalating China-US trade
tensions. A Huawei executive said the groundbreaking move, considered a
Plan B that the company has long prepared, could be used at any time if
the company is no longer able to access Google's Android.
China's real effective exchange rate (REER) in 2018 is
estimated to be at the same level as warranted by fundamentals and
desirable policies, the International Monetary Fund (IMF) reiterated on
Friday in a newly released report.
At the waterfront of the Singapore River, an exhibition
of porcelain bowls and gold artifacts dating back to China's Tang
Dynasty (618-907 AD) offers a glimpse to how this region was importantly
situated on an ancient trade route.
