Stock Market Crash Becomes A Top Priority – Is China On The Comeback Trail?

Economic

Summary:

Investors are currently facing a tough challenge with China's economy.

The government in Beijing has implemented numerous minor steps in recent months to bolster the economy, yet none of these measures have significantly stimulated growth. Now, the worsening decline of Chinese stocks has become a top priority: President Xi intends to personally address the issue.

Hong Kong 50 lays groundwork for recovery

By mid-January, the Hang Seng index had already risen by about 10%. This momentum served as the foundation for a recovery that has now taken shape, despite new unsettling news from China in the meantime. The year's low point has not been breached again, which is an important signal. Sales have diminished.

Now, the index stands above 16,300, surpassing the initial surge high from January. A foundation has been established that remains unchallenged, as long as the Hong Kong 50 stays above 16,300. Below this level, however, the recovery could be at risk. China's central bank has also emerged from the sidelines with a reduction in the reserve requirement ratio, especially as the start of a rate-cutting cycle by the US Federal Reserve becomes increasingly likely by June at the latest.

Doubts still prevail

Currently, it's uncertain which of the already adopted, discussed, and planned measures might be the right ones to bring growth back to China. However, it might ultimately be enough for investors to believe that stocks have fallen sufficiently and valuations have become attractive enough to reverse the trend.

US rate-cutting cycle anticipation

The crisis in China's real-estate sector signifies deep cuts for Chinese households, who have invested heavily there. Falling prices mean they must also save in other areas. However, travel activity during the Chinese New Year has shown that the Chinese people are probably not as badly off as feared.

Yet, with stocks also performing poorly, sentiment is at a low. This gloomy mood is, however, typical near market bottoms. The stock market also looks three to six months into the future. There's hope for an end to dollar repatriation that began when the Fed first raised interest rates 18 months ago. Since it has now signalled its intention to cut rates this year, there's hope for a return of investors from the US and abroad.

Attractive valuations unlock recovery potential

Chinese stocks look affordably priced, and there's a growing number of statements from well-known US investors who have started investing again. The stocks in the Hang Seng China Enterprises index (which represents mainland Chinese stocks in the Hang Seng) have a forward price-to-earnings ratio (P/E) of only 6.5. This is low in absolute terms and also compared to the five-year average of 8.5. The German stock index is priced at a P/E of 12.9, more than double, and the S&P 500 at 20, more than triple. If a recovery occurs, the Chinese stock market could see a significant upward movement.

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Samantha Luan

Economic

The official gross domestic product (GDP) data for Q3FY24 is scheduled to be released on Thursday, February 29, by the National Statistical Office (NSO). Though the RBI expects India’s Q3 GDP growth at 6.5 per cent, various analysts peg the Q3 economic growth between 6 per cent and 7 per cent.

Rating agency Icra expects India’s GDP to grow 6 per cent in Q3FY24, State Bank of India (SBI) sees a 6.8-7 per cent growth, and the RBI sees the country’s GDP growth at 6.5 per cent in the October-December 2023 quarter.

Ratings agency ICRA in its note said projected GDP growth is likely to have moderated sequentially to 6 per cent in the third quarter of FY24 from 7.6 per cent in the preceding three months, mainly due to subdued performance of agriculture and industrial sectors.

The GVA growth is estimated to ease to 6 per cent in Q3 FY2024 from 7.4 per cent in Q2 FY2024, driven by the industrial (to +8.8 per cent from +13.2 per cent) and agriculture (to +0.5 per cent from +1.2 per cent) sectors, amidst an improvement in services (to +6.5 per cent from +5.8 per cent), according to the ICRA report.

“The anticipated deterioration in the industrial sector growth in Q3 FY2024 is partly attributable to an adverse base effect (+2.3 per cent in Q3 FY2023 as against -0.5 per cent in Q2 FY2023) and a deceleration in volume expansion (IIP growth of 5.8 per cent in Q3 FY2024 vs. 7.8 per cent in Q2 FY2024), even as the continued deflation in commodity prices kept profitability of some sectors favourable,” ICRA said.

SBI Research in its report forecasts Q3 FY24 GDP growth at 6.8 per cent, based on an unchanged base, but could potentially hit 7 per cent due to expected downward revisions in the estimates for Q3 FY23.

“The CLI Index (a basket of 41 leading indicators which includes parameters from almost all the sectors) based on monthly data shows a slight moderation in economic activity in Q3,” SBI Research says in its latest Ecowrap note.

Full-Year GDP Growth Estimates

According to the government’s first estimates, the Indian economy will grow at 7.3 per cent in FY24, which is higher than the RBI’s upwardly revised estimate of 7 per cent.

The World Bank expects the Indian economy to grow 6.3 per cent in FY24, while the International Monetary Fund (IMF) recently revised its estimate from 6.3 percent to 6.5 per cent.

In the preceding quarter ended September 2023 (Q2 FY24), India’s GDP had grown 7.6 per cent y-o-y. The Q3 FY24 GDP growth was more than what was expected by analysts.

Source：news18

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Alex

Economic

Global fintech investment witnessed a slowdown as investors worldwide chose to preserve their funds. Pulse of Fintech H2’23, KPMG’s bi-annual publication surrounding global fintech investment trends, found that fintech investments dropped from US$196.6b across 7,515 deals in 2022 to US$113.7b across 4,547 deals in 2023. The report highlighted that while 2023 was a challenging year for the fintech market overall, it was a combination of geopolitical events, high interest rates and the parched exit environment that drove the downturn.

Much like global, fintech investment in the Europe, Middle East, and Africa (EMEA) region dropped to a seven-year low of US$24.5b across 1,514 deals in 2023, compared to the US$49.6b across 2,478 deals in 2022. However, the region’s fintech market displayed robust geographic diversity as fintechs from seven different countries represented the top ten deals in the region, with the United Arab Emirates’ Tabby (US$950m) and Haqqex (US$400m) being among the standouts.

Commenting on the outlook for fintech investment in Kuwait, Ankul Aggarwal, Partner and Head of Deal Advisory, KPMG in Kuwait, said, “Kuwait's fintech sector is rapidly catching up with the global markets and witnessing an increase in the industry participants such as digital payments facilitators, insurtech, and P2P platforms, among others.

The Central Bank of Kuwait (CBK) has created an enabling environment for fintech innovation, implementing a range of initiatives, such asupdated e-payment regulations and digital banking guidelines. Additionally, CBK is also working towards an open banking framework.”

According to the report, H1’24 in the EMEA region will see a growing focus on embedded finance and banking offerings, adoption of the Buy Now Pay Later (BNPL) model, consolidation within the BNPL space, asset tokenization, and artificial intelligence (AI) based solutions around fraud prevention and customer services.

Ankul further added, “In Kuwait, largely, fintech companies are focusing on the unbanked and underbanked segments of the market to carve a niche for themselves and offering related solutions, while traditional banks are moving towards adopting value-added solutions approach focusing on embedded finance and banking offerings.”

On a sectoral level, proptech and ESG proved to be hotbeds for investors with proptech-based investment reaching an all-time high of US$13.4b globally. According to the report, 2023 was the second-best year in terms of ESG fintech investment as it doubled to reach US$2.3b year-over-year (YOY). Given the ongoing regulatory changes and ambitious net zero commitments displayed by governments and businesses, it is likely that ESG-focused fintech solutions will chart an upward trend heading into 2024.

Moreover, investor interest in AI continued to peak in the fintech market as AI-driven fintech companies accounted for US$12.1b in investment in 2023. The report underlines that while this reflects a decline in funding compared to the US$28.1b in 2022, it does not demonstrate falling interest in the space, given many financial organizations and fintechs adopted AI through alliances and product spend instead of doing it through direct investment.

Here are some of the other highlights that emerged from the report:

The Americas attracted US$78.3b across 2,136 deals in 2023 — of which the US accounted for US$73.5b across 1,734 deals — while the EMEA region attracted US$24.5b across 1,514 deals, and the ASPAC region attracted US$10.8b across 882 deals.

1.Global M&A deal value dropped from US$98.2b in 2022 to US$56.4b in 2023; global venture capital (VC) investment declined from US$88.8 billion to US$46.3 billion year-over-year. Private equity (PE) growth investment showed the most resilience, up from US$9.6b in 2022 to US$11b in 2023.

2.Payments remained the strongest area of fintech investment globally in 2023, with US$20.7b in investment compared to US$58b in 2022; 2023 investment in other notable sectors included proptech (US$13.4b), insurtech (US$8.1b), crypto and blockchain (US$7.5b), regtech (US$2.6b), ESG fintech (US$2.3b), and cybersecurity (US$1.3b)

3.Corporate-participating VC investment globally fell from US$45.9b in 2022 to US$25.2b in 2023.

The biannual analysis anticipates fintech investment to remain slow heading into the first quarter of 2024, helmed by ongoing global conflicts, surging interest rates, and the continued lack of exits. The expectation is as interest rates stabilize, and potentially decline, AI and B2B (business-to-business) solutions will likely emerge as a top priority for investors. The report predicts that mergers and acquisitions (M&A) activity could also rebound as investors begin to look more closely at distressed assets.

Source：zawya

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Warren Takunda

Economic

Traders' Opinions

Central Bank

Markets React as RBNZ Decision Fuels Pound-New Zealand Dollar Surge_1

The currency markets witnessed a notable surge in the Pound against the New Zealand Dollar following the recent decision by the Reserve Bank of New Zealand (RBNZ) to maintain its current monetary policy stance. The RBNZ's choice to keep interest rates unchanged at 5.5% was widely anticipated, yet its accompanying guidance and assessment of economic conditions sparked significant movements in currency pairs.

Prior to the announcement, there had been growing speculation within the foreign exchange market that the RBNZ might opt for another interest rate hike. This speculation was fueled by persistent signs of inflationary pressures coursing through the New Zealand economy. Consequently, market participants were primed for a potential shift in the RBNZ's monetary policy trajectory.

However, the RBNZ's decision to leave rates steady came as no surprise to many, especially considering its recent remarks indicating satisfaction with the effectiveness of the current OCR level in curbing excessive demand. Despite acknowledging the presence of inflationary undercurrents, the central bank appeared confident in its ability to navigate these challenges without the need for immediate monetary tightening.

Markets React as RBNZ Decision Fuels Pound-New Zealand Dollar Surge_2

The reaction in the currency markets was swift and pronounced, with the New Zealand Dollar experiencing a sharp decline against major counterparts. The Pound, in particular, rallied by three-quarters of a percent against the Kiwi, reaching a level of 2.0725 in the hours following the RBNZ's decision. This reaction underscored the market's reassessment of the likelihood of further rate hikes in the near term.

Moreover, the RBNZ's shift in tone from its previous warning in November, where it hinted at the possibility of tightening monetary policy if inflationary pressures persisted, contributed to the market's recalibration of expectations. The central bank's updated assessment, emphasizing a more balanced view of inflation risks and the need for sustained capacity pressure reduction to achieve inflation targets, suggested a prolonged period of unchanged rates.

Market sentiment regarding the RBNZ's future policy direction was further influenced by commentary from domestic lenders such as ANZ, which highlighted the tightness of the labor market and its implications for inflation dynamics. Additionally, Toronto Dominion's revised forecast predicting another rate hike added to the atmosphere of anticipation leading up to the RBNZ's decision.

Despite the heightened expectations for a potential rate hike, the RBNZ's cautious approach and emphasis on maintaining the OCR at a restrictive level for an extended period sent a clear signal to the markets. While the immediate reaction favored the Pound against the New Zealand Dollar, the longer-term implications of the RBNZ's guidance remain to be fully realized.

Looking ahead, the RBNZ's stance on monetary policy presents both challenges and opportunities for the New Zealand Dollar. While the prospect of prolonged rate stability may provide support for the currency in the short term, the diminishing likelihood of imminent rate hikes could weigh on market sentiment in the near term.

In conclusion, the RBNZ's recent decision and accompanying guidance have reshaped expectations in the currency markets, highlighting the central bank's cautious approach in the face of persistent inflationary pressures. The implications of this stance extend beyond immediate market reactions, shaping the trajectory of the New Zealand Dollar in the coming weeks and months.

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Samantha Luan

Economic

Georgieva, whose five-year term ends in October, told Reuters she was focused on the work at hand as the IMF managing director.

"Look, I have work to do right now," she told Reuters in an interview on the sidelines of the a meeting of finance officials from the Group of 20 major economies.

"I have always been of the view that you do the job you have - not some hypothetical in the future. So let me do my job."

Georgieva, a gregarious economist from Bulgaria, is the second woman to head the IMF and the first person from an emerging market economy.

Keeping Georgieva on for a second term would answer longstanding concerns raised by emerging market and developing countries over the U.S.-European duopoly at the two global financial institutions, the IMF and World Bank.

A self-described "eternal optimist", Georgieva has weathered huge shocks to the global economy ranging from the outbreak of the global COVID-19 pandemic just months after she took office to the February 2022 Russian invasion of Ukraine.

She is focused on bolstering prospects for medium-term growth which is lagging historical levels, managing the ongoing sovereign debt challenges and guiding the IMF through a complicated quota revamp.

Georgieva drew criticism inside and outside the Fund early on for her push to include climate change as a factor in surveillance reports on member countries' economies and her great interest in emerging market and developing economies.

She's been instrumental in securing large loans for Ukraine, helping to catalyze additional funds to help its economy weather the strains of the two-year war against Russia's invasion, overseen a revamp of Argentina's massive loan program and worked steadily to help China embrace sovereign debt restructurings.

She also survived a big personal challenge in 2021 when the IMF's executive board expressed its full confidence in her after reviewing allegations that she pressured World Bank staff to alter data to favor China while serving in a top role at that institution.

U.S. Treasury Secretary Janet Yellen put Georgieva on notice at the time that she would closely monitor the IMF's follow-up and evaluate any new facts or findings, but the two have developed a good relationship since that time, according to sources familiar with both officials.

Under a longstanding agreement, European countries traditionally nominate a candidate to lead the IMF, while the U.S. nominates a candidate to head the World Bank. Both jobs are ultimately decided by the institutions' board of directors.

Georgieva herself was a compromise candidate for European leaders who were divided between a former Dutch finance minister and a Spanish economy minister in 2019 to replace outgoing IMF chief Christine Lagarde.

Sources familiar with the process said the selection could go quickly once Europe unites around a candidate.

While Georgieva's term won't end for months, some say it makes sense to make decisions before the April spring meetings of the IMF and World Bank, so the leadership issue does not overshadow the already full agenda for the meetings.

Source：Reuters

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ING

Economic

Rates are still looking to go higher near term

Rates are still looking to go higher. Despite a stronger start into yesterday's session, bearish sentiment prevailed by the end of the day with eurozone bond markets also having to digest sizeable long-end supply, foremost a new 30Y French benchmark – this time the curve resteepened from the long end.

Yet, the overall driver remains the macro backdrop and with it, the assessment of policy paths, foremost of the Federal Reserve. The market is still sensitive to the data as witnessed by yesterday's reaction to the durable goods orders, or more precisely the stronger capital goods shipments which enter GDP calculations. But the market also appears somewhat selective. A notable decline in the Conference Board's consumer confidence left rates unfazed. But we have reached one bearish milestone. With the repricing of the front end, the market is now aligned with the Fed's median dot plot showing three 25bp cuts this year.

For now, pushing back first rate cuts has had less impact on the expected landing

Euro rates have joined the pushback of rate cuts in US markets, but the landing zone has remained relatively unchanged. Forward curves now price in 100bp of rate cuts in 2024, compared to almost 150bp a month ago. At the same time, 1y1y forwards joined the trend upwards, indicating that in 2025, the policy rate is also expected to remain higher (see chart below). But when looking ahead at 2026 and beyond – as captured by the 2y1y and 3y1y forwards – we note that those points remain relatively anchored. This divergence suggests that recent rate moves were driven predominantly by a change in the timing of cuts and less so by a conviction that the end point is higher.

The picture is similar, though not quite as pronounced, in the US as the market did tilt more towards a soft landing scenario, and the data surprises to the upside appear to corroborate this view. But at some point, with higher rates for longer, the risk of a hard landing further down the line should increase. The overall economy has so far shown resilience despite a tightening of monetary policy, but in the end, only one pillar needs to break to drag the rest down. An obvious candidate in the US is the commercial real estate sector, but also steep delinquencies and rising credit card rates cannot be ignored. As long as policy rates remain restrictive, the buildup in such pockets of risk will keep increasing.

For now, the market has put hard landing risks on the back burner in Europe and obviously, the US, which has also prevented a deeper inversion of curves. Despite potentially higher hard landing risks in the future, we expect markets to maintain a bearish bias towards bonds in the immediate near term.

EUR forwards show more rate cuts pushed towards 2025

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Ukadike Micheal

Economic

Forex

Property analysts are maintaining their prediction of a 5.0% increase in Australian home prices in 2024, disregarding recent central bank comments suggesting a potential interest rate hike by year-end. Despite a 25% surge during the pandemic and a subsequent 9% dip from the peak, average house prices rebounded, nearly recovering all losses last year, even with the central bank raising the cash rate to a 12-year high of 4.35%.

The central bank is widely expected to maintain this rate well into the second half of the year. While the average home price remains a challenge for many first-time buyers, a low jobless rate, robust wage growth, and a spike in immigration are projected to drive prices upward, albeit at a slower pace than in recent years.

Since the 2008 financial crisis, Australian home prices have almost doubled. The median forecast from a February survey of 14 property analysts predicts a 5.0% rise in average home prices this year, unchanged from December. The forecast for 2025 is also a 5.0% increase, compared to 3.9% in the previous poll.

Senior economists note a cooling in the housing market and attribute it to the interest rate staying at 4.35%, putting a limit on housing price growth in 2024. Despite this, they expect prices to rise due to increased borrowing capacity from tax cuts and rate reductions, strong population growth, and a backlog of homes that need to be built.

However, concerns about affordability persist. Six out of 10 analysts predict a worsening affordability situation for first-time homebuyers in the coming year, while four believe it will improve. Economists note that housing has become a luxury good, with affordability at record low levels, potentially leading to a decline in homeownership rates.

Respondents are divided on the homeownership versus rental dynamic, with five out of eight predicting a decrease in the proportion of home ownership to renters in the next year, while three anticipate an increase. Analysts foresee a widening gap between demand and supply of affordable homes over the next 2-3 years, emphasizing the need for increased social housing to address the affordability challenge.

The Australian property market faces a delicate balancing act between rising home prices, affordability concerns, and the evolving dynamic between home ownership and renting. The impact of potential interest rate changes, government policies, and socio-economic factors will continue to shape the trajectory of the property market, requiring a comprehensive approach to address the complex challenges and opportunities in the sector.