Worsening trade row deepens chill felt by Chinese dealmakers seeking to do U.S. takeovers

The rapidly deteriorating trade and investment relationship between Washington and Beijing is sending a further chill through Chinese dealmakers who have already seen the number of Chinese acquisitions of American assets take a big hit.

So far this year, Chinese companies have spent just $1.6 billion on U.S. assets, down almost 80 per cent from the year-earlier period, according to Thomson Reuters data. By contrast the amount China has spent on European assets has risen 39 per cent from last year to $45.1 billion.

“We are now focusing on Europe-bound deals and having U.S. deals on hold. The trade war between China and U.S., if not short-term, will be a mid-term thing and will take some time to conclude,” said Lin Feng, founder and CEO of Chinese investment and advisory firm DealGlobe.

“Opportunities in the U.S. will be more small investments, or joint ventures in China. It will definitely hurt significant minority stake acquisitions, but on the other hand it may help targets in Europe and Israel,” he added.

In 2016, which stands as the record for Chinese cross-border dealmaking, China acquired U.S assets worth $62.6 billion and spent $88.4 billion on European assets.

Since then, China’s imposition of capital controls and in particular a regulatory crackdown on some of its most acquisitive companies, such as HNA Group [HNAIRC.UL], Dalian Wanda Group Co and Anbang Insurance Group [ANBANG.UL], have badly dented Chinese investment flows heading for American shores.

Chinese Stocks With ‘Emperor’ surging

Asia Stock Markets

What’s the trade on China’s move to let President Xi Jinping stay in power indefinitely? Some investors may have decided that it’s buying shares in companies with “king” or “emperor” in their names.

While stocks traded on China’s mainland largely tracked Friday’s advance in the U.S., firms like Shenzhen Emperor Technology Co. saw outsized gains, with the southern China-based maker of smart-card systems surging more than 9 percent on Monday, the most since the start of November.
Trading volume in the stock also spiked, to over three times what it was on Friday.

Likewise, shares of Harbin Viti Electronics Co., which has a Chinese name that means “powerful emperor,” jumped more than 4 percent, and Vatti Corp., a stove and water heater manufacturer called “Chinese emperor” in Mandarin, was up more than 1 percent to a three-week high.

The shortened name for Jiangxi Huangshanghuang Group Food Co., which climbed almost 3 percent, roughly translates as “king of kings.”

Even Shanghai Emperor of Cleaning Hi-Tech Co. got a boost, rising 2.6 percent compared with the benchmark index’s 0.7 percent climb.

Chinese investors have a history of betting on stocks because of their names.

Traders in the $7.7 trillion market, which is dominated by mom-n-pop investors, flocked to a stock whose name sounded like “Trump Wins Big” to Mandarin speakers as the U.S. president secured victory in November 2016, while one called “Aunt Hillary” sold off.

When China said it would build a new economic area and city near the capital in April last year, companies with “Beijing,” “Development,” “Construction,” and even “Cement” in their names benefited.

The push to remove presidential term limits from China’s constitution would allow Xi to rule beyond 2023 and further cement his status as the country’s most powerful leader in decades.

Since the announcement on Sunday, social media has been weighing in with posters both lauding -- and lampooning -- the move, and some keying off the idea it would give Xi emperor-like status.

The Communist Party congress in October had already elevated the president to a level that put him alongside the nation’s most vaunted political figures.

Asian shares stepped back from decade highs on Tuesday as Chinese stocks stumbled

Asian Stock Markets

Asian shares stepped back from decade highs on Tuesday as Chinese stocks stumbled for a second straight session, while the U.S. dollar trod water ahead of a crucial Senate vote on tax reform.

Investor confidence in China has been dented by rising bond yields as Beijing steps up its crackdown on shadow banking and other risky forms of financing. Higher borrowing costs threaten to squeeze corporate profits.

Mainland stocks have jumped 22 percent in 2017 .CSI300, with the gains concentrated in a handful of large index-weighted stocks. The index was down 0.3 percent while Shanghai's SSE Composite index slipped 0.2 percent at 0221 GMT.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.3 percent from last week’s high of 570.21 points. It was on track to end November in the black.

The index has been on an uptrend most of this year, posting a monthly loss only once in 2017.

Australian shares were flat while Japan's Nikkei .N225 rose 0.2 percent.

Wall Street had been mixed on Monday, with the S&P 500 .SpX off a touch, the Nasdaq .IXIC losing 0.1 percent and the Dow .DJI up 0.1 percent.

The dollar was a touch softer on the yen at 111.27 JPY=, and within spitting distance of a recent 2-1/2-month low, as bulls fret about potential delays in U.S. tax cuts.

The euro EUR= was steady at $1.1898, within reach of a two-month high.

The tweet came after a meeting with Senate Republican tax-writers on Monday ahead of a crucial vote on the Senate floor that could come as early as Thursday.

Separately, the U.S. Senate Banking Committee holds a hearing on Tuesday to confirm the nomination of Jerome Powell at the helm of the Federal Reserve. If confirmed, Powell will have to balance tightening policy against still sluggish wages and inflation.

The bond market is concerned the Fed will hike rates too far, keeping inflation too low and ultimately slowing the economy.

That has been a major force in the remarkable pace of curve flattening in recent weeks. The 2s/10s yield curve is only 58 basis points from inverting - a classic signal that recession is just around the corner. [US/]

In commodity markets, U.S. light crude CLc1 was off 29 cents at $57.82, having fallen more than a dollar overnight. Brent crude LCOc1 slipped 13 cents to $63.71, but not far from a near 2-1/2 year peak of $64.65 touched earlier this month.

Spot gold XAU= inched lower to $1,293.30.

Chinese Stocks Fall, Other Asian Markets Mostly Quiet

Early strength in Hang Seng index dissipates. More new regulations and investors' preference for larger-cap companies pressured Chinese stocks, while activity was muted elsewhere in the region. Thursday is a holiday in Japan and the U.S. 

 
The Shenzhen Composite ended morning trading down 1.7% and the startup-heavy ChiNext slid 2% as Beijing took steps to halt the proliferation of small online lenders, days after saying it plans to streamline oversight of asset-management products sold by financial institutions.

Weak starts -- often attributed at least in part to regulatory concerns--followed by quick recoveries has become something of a habit in Chinese markets of late.

Some investors are rotating away from smaller-cap companies, which dominate the Shenzhen stock market, into large caps, more prevalent in Shanghai, said Caroline Yu Maurer, head of greater China equities at BNP Paribas Asset Management. "People are willing to pay for quality," she added.

The Shenzhen Composite, home to manufacturing and tech companies, has fallen 2.7% this week, dropping it into negative territory for 2017, a sharp contrast to the double-digit gains and multiyear or record highs achieved by many Asia markets.

On Thursday, selling in some so-called white-horse stocks--local jargon for blue chips--also weighed on sentiment, said David Millhouse, head of China research at Forsyth Barr Asia.

They have been under pressure for the past week, since the state-run Xinhua News Agency expressed concern about Kweichow Moutai (600519.SH) , which frenzied investors had turned into the world's most valuable liquor company. Shares in the maker of the traditional Chinese spirit baijiu fell 2.1% Thursday morning, putting the past week's skid at 11%.

Meanwhile, early strength in Hong Kong stocks withered into the lunch break there, with the Hang Seng finishing up 0.1% after earlier rising as much as 0.6%, a day after closing above 30000 for the first time in a decade.

Shane Chanel, an equities and derivatives adviser at ASR Wealth Advisers, said he is on watch for profit-taking after the recent gains in many Asian stock markets. He cautioned that markets could take a hit if U.S. tax-overhaul efforts are derailed.

In Australia, the S&P/ASX 200 was essentially flat ahead of the close as higher commodity stocks helped cushion weakness in banking stocks. The former got a boost from the U.S. dollar's worst session in eight months on Wednesday, which lifted commodities prices.

Oil futures were down 0.2% in Asian trading after the U.S. benchmark hit a 2 1/2 -year high on Wednesday.

Korea's Kospi was little changed even as tourist-related stocks like Lotte Tour and Amorepacific erased this week's declines. Investors there continue to assess the impact of fresh sanctions against North Korea.

The Japanese stock market closed Thursday for Thanksgiving, as will U.S. markets. If the yen holds on to its overnight gains, Tokyo stocks are likely to slip when trading resumes Friday, as a stronger yen hurts Japan's export-oriented companies. The yen hit a two-month high against the dollar , which was recently around Yen111.35, versus Yen112.20 when Japan equities trading ended Wednesday.

China stocks end higher after early scare from new asset management rules

Asian Stock Markets

China stocks reversed early losses to end higher on Monday, aided by a rebound in banking shares even after Beijing set sweeping new guidelines to regulate asset management products.
 

The central bank issued the guidelines on Friday to more strictly regulate asset management businesses, in the government's latest effort to rein in the risky shadow banking sector which had been channelling money into Chinese stocks, bonds and property.

At the end of 2016, the collective outstanding volume of the asset management business was 102 trillion yuan ($15.37 trillion).

The blue-chip CSI300 index dropped as much as 1.5 percent in early trade but closed up 0.6 percent at 4,143.83 points, while the Shanghai Composite Index ended 0.3 percent higher at 3,392.40.
Sector performance was mixed.

The heavyweight banking sector led the rebound with a 1.7 gain, powered by Ping An Bank leaping 8 percent to a 29-month high.

The draft guidelines will unify rules covering asset management products issued by all types of financial institutions and will set leverage ceilings on such products, but won't have an immediate impact. There will be a transition period that lasts until June 30, 2019.

Still, there was a psychological impact on the market as it reinforced views that regulators will continue to tighten their grip on riskier areas of the financial system.

Views were mixed on the new rules, as some analysts expect tougher rules to curb money flows into the stock market from lenders and hurt liquidity levels.

But some still see long-term value in China's stock market.

Zizheng Wang, portfolio manager at UBS Asset Management, said in a statement on Monday that from a long-term perspective, the money manager sees sustainable growth in the Chinese economy and opportunities in the A-share market.

Wang, who will manage a newly-launched onshore China equity fund for UBS AM, said he sees attractive investment opportunities in fairly valued Chinese blue-chip stocks, as well as industry leaders with growing international competitiveness.

China shares hit 21-month high; Turkish lira takes a dive

Chinese shares climbed on Monday after a week-long break as a disappointing survey on the country’s service sector did little to dent optimism on global growth, while political uncertainty caused turbulence for the Turkish and British currencies.

Liquidity was lacking with Japan and South Korea on holiday and a partial holiday in the United States. where stocks will be open but bonds will be closed. 

The Chinese blue-chip CSI300 index rose 1.7 percent to heights not seen since late 2015, partly in a delayed reaction to a targeted easing by the country’s central bank announced a week ago.

That helped offset a fall in the Caixin index of service sector activity to a 21-month trough of 50.6 in September, a contrast to healthier numbers in manufacturing.

Australian stocks still managed to put on 0.5 percent, while Nikkei futures added 0.1 percent even though the cash market was shut.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.02 percent, having rebounded by 1.7 percent last week. E-Mini futures for the S&P 500 were trading 0.11 percent firmer, while futures for the Treasury 10-year note rose 1 tick. 

Bond yields had initially spiked on Friday in reaction to firm U.S. wage numbers, only to retreat as fresh jitters over North Korea bolstered safe havens.

Annual growth in average hourly earnings accelerated to a relatively rapid 2.9 percent in September, outweighing a 33,000 drop in nonfarm payrolls. 

The pick-up in wages boosted already high expectations that the U.S. central bank will raise rates at its December meeting, and that further hikes are likely in 2018. 

Minutes of the Federal Reserve’s last meeting are due on Wednesday and may well show enough support for a move by year-end. A host of Fed speeches are also due this week.

The Chinese Yuan Strengthened, Oil Prices High

The dollar stood at 111.63 yen JPY=, slipping from one-week highs of 112.13 touched on Wednesday.

Those moves have pulled the dollar's index against a basket of six major currencies .DXY =USD down to 97.028, near Monday's 6-1/2-month low of 96.797.

The Chinese yuan CNH=D4 CNY=CFXS strengthened, hitting its highest level in almost two months, on buying by major state-owned banks in what some traders thought was a show of strength a day after Moody's downgraded the country's credit rating.

Mainland Chinese shares .SSEC, which were briefly unsettled by Moody's downgrade of its rating on China on Wednesday, bounced back 1.6 percent.

The Canadian dollar strengthened to a five-week high of C$1.3402 per U.S. dollar CAD=D4 after the Bank of Canada was more upbeat about the economy than some investors had expected.

Oil prices flirted with five-week highs as investors expect oil producing countries to extend output cuts at their meeting in Vienna later in the day.

Benchmark Brent crude oil LCOc1 rose 49 cents a barrel, or 0.9 percent, to $54.45. U.S. light crude CLc1 was up 46 cents, or 0.9 percent, at $51.82.

Both benchmarks have gained more than 16 percent from their May lows below $50 a barrel, rebounding on a consensus that OPEC and other producers will maintain strict limits on production in an attempt to drain persistent global oversupply.

Elsewhere, digital currency bitcoin BTC=BTSP hit a fresh record high, having surged 170 percent in about two months from its March low.

Demand for crypto-assets soared with the creation of new tokens to raise funding for start-ups using blockchain technology.

Gold Prices Rallied, The Dollar Rose

Gold prices rallied 0.2 percent to $1,231.24 an ounce, extending Friday's 0.3 percent gain.

U.S. Treasury yields dropped to 2.292 percent, building on Friday's loss when they ended at 2.333 percent, down from Thursday's close of 2.4 percent and their biggest one-day drop in more than three weeks.

Chinese shares added 0.35 percent, after the government soothed market fears of tighter regulation saying bank risks were "completely controllable."

That reassurance, as well as stronger retail sales and property investment data, helped offset weakness in factory output and fixed-asset investment growth.

Hong Kong shares gained 0.5 percent. Australian shares were down 0.2 percent. The euro was little changed on Monday at $1.093, holding Friday's 0.7 percent gain.

On Friday, the S&P 500 and the Dow Jones Industrial Average closed lower after growth in retail sales and consumer prices missed expectations, and worries deepened over the health of department stores after weak earnings reports.

The dollar rose 0.1 percent to 113.39 yen , failing to make up most of Friday's 0.5 percent loss.

The dollar index, which tracks the greenback against a basket of major trade-weighted peers, pulled back 0.1 percent to 99.151.

NERVES OF STEEL

Shares on Wall Street looked set to open marginally higher ESc1 SPc1, with the main indexes having closed between 0.75 percent and 0.9 percent higher on rising expectations for first-quarter corporate profits. 

Asian stocks ended the week on a positive note, unscathed by a U.S. trade probe on Chinese steel exports. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.5 percent, but was down 0.4 percent on the week.

Asian steelmakers were mostly steady or higher, as investors dismissed for now any negative impact from the launch of a U.S. trade probe against Chinese steel exporters, although Chinese companies shed some of their earlier gains. The move sent their U.S. counterparts surging over 8 percent overnight.

Markets also mostly shrugged off White House comments that the U.S. may consider tit-for-tat tariffs on imports, and concerns raised by the International Monetary Fund that U.S. tax cuts could fuel financial risk-taking and increase public debt.

Japan's Nikkei .N225 advanced 1 percent, posting a weekly gain of 1.6 percent.

The safe-haven yen, which tends to move inversely to the Nikkei, was on track for its worst week against the dollar in seven JPY=, down around half a percent as nerves over geopolitical tensions have eased off a touch.

Chinese shares in Shanghai .SSEC added 0.1 percent but recorded a 2.2 percent weekly drop, their worst since mid-December.

In commodities, oil prices edged lower and were on course for the biggest weekly drop in a month, over doubts that an OPEC-led production cut will restore balance to an oversupplied market.

Front-month Brent futures LCOc1: were at $52.95 a barrel and set for a 5.2 percent weekly drop, the most since the week of March 10. Gold XAU= was flat at $1,280.91 an ounce.