A furious rebound in beleaguered Chinese tech behemoths stalled after just two days, while global markets entered a holding pattern ahead of Jerome Powell’s virtual Jackson Hole speech on Friday.
The Hang Seng Tech Index managed just a fractional gain Wednesday after surging another 3.5% at the day’s highs. Tencent, which was up more than 4% at one juncture, held onto a small gain, while Alibaba relinquished the entirety of its 3.5% jump on the way to falling more than 1%.
There’s no way of knowing if the worst is truly over for China’s largest internet companies or what’s coming next on the regulatory front. Last week’s despondency was this week’s bargain-hunting.
In all likelihood, sentiment will careen from one extreme to the other for the foreseeable future until there’s some evidence that Beijing is satisfied with official efforts to halt socially deleterious trends.
SEC Chair Gary Gensler this week effectively told China Inc. to hasten compliance with US demands for audit inspections or get the hell out (pardon the colloquialism). “The path is clear. The clock is ticking,” he said, referencing a 2024 deadline for compliance. Chinese companies hoping to list in the US are now compelled to effectively advertise the risks associated with Party capriciousness. US investors need to have the “regulatory risks [and] various political risks” clearly spelled out, Gensler reiterated. (Of course, Chinese corporates aren’t much better informed in that regard than US investors.)
Bloomberg described the unyielding stance as a disappointment for Wall Street, where “some” had hoped “Gensler might drag his feet,” giving Beijing more time to cut a deal that “allows the gravy train of Chinese stock sales to continue.”
Meanwhile, questions linger about the world’s second-largest economy. Allusions to easier monetary policy helped risk sentiment earlier this week and the PBOC on Wednesday injected a net 40 billion yuan in order to “maintain stable liquidity conditions at the end of the month.” “Although the volume wasn’t huge, the intention was clear enough,” traders told Reuters. The PBOC wanted to “lift market sentiment.” Interbank rates were pushing higher, causing some mild consternation. “Short-term funding costs are back in focus after…China’s overnight repo rate [neared the top of] a narrow trading band it’s held since March, as demand for cash climbs with local governments boosting bond sales and banks becoming less willing to lend,” Bloomberg noted.
“We expect fiscal spending to support growth in Q4, facilitated by liquidity provision from another RRR cut,” Goldman said earlier this month, in the course of cutting their outlook for the Chinese economy. “We do not expect policy rate cuts because of ongoing efforts to rein in property prices, elevated PPI inflation, and monetary policy transmission problems amid weak private demand,” the bank’s Hui Shan and Maggie Wei wrote, adding that “such monetary and fiscal policy coordination can help provide a floor to growth, but the upside risk is limited as policymakers take on an increasingly long-term approach to managing the economy.”
Elsewhere Wednesday, German business confidence missed estimates. Ifo printed 99.4 for August (figure below), slightly below the 100.4 the market wanted.
The expectations index dropped to 97.5, well short of consensus (100).
“The mood in the German economy has clouded over again,” Ifo said, noting “significantly less optimism in companies’ expectations [as] concerns grow in the hospitality and tourism sectors.” Additionally, the report cited “supply bottlenecks for intermediate products in manufacturing and worries about rising infection numbers” which are “putting a strain on the economy.”
“It’s quite clear that the growth outlook will have to be revised downwards,” Ifo President Clemens Fuest remarked, during an interview with Bloomberg TV. The supply chain story isn’t just about semis, he said. “It’s metal products, it’s plastic products, paper even. And then it’s certainly the pandemic.”
Yes, “certainly.” And just in time for Germany’s elections.
