Aurelia Butler

The China Securities Regulatory Commission (CSRC) proposed steps including cutting trading costs, supporting share buybacks and encouraging long-term investment to support a stock market that has slid to nine-month lows.The regulator said it did not know if there would be a cut in stamp duty, a measure which has been discussed recently but which the CSRC said is beyond its power, falling within the remit of the Ministry of Finance.Other measures laid out by the CSRC include boosting the development of equity funds, studying plans to extend trading hours, and improving the attractiveness of listed companies.China’s leaders vowed in late July to reinvigorate the stock market, which has been reeling as the country’s economic recovery flags and woes in the property market deepen. The CSRC said on Friday that stablizing the stock market was a priority. “Without a relatively stable market environment, there’s no basis for reviving the market and lifting sentiment,” the regulator said. Some investors said they were disappointed with the plans. Niu Chunbao, a fund manager at Wanji Asset Management, said the policies would not be enough to offset broader concern about the Chinese economy.”The key to lifting market sentiment is to rescue the economy, and the property market is the crux,” Niu said. “The market is short of confidence because investors see no concrete measures to fix the economy.” Pang Xichun, research director at Nanjing RiskHunt Investment Management Co, said the measures “will give a short-term lift to a market where investors are extremely pessimistic”.”But they won’t change the market fundamentals. A bull market requires genuine policies that would boost credit expansion.”COUNTERCYCLICALThe CSRC said it would boost the development of equity funds by speeding up the registration of index funds and broadening funds’ access to derivatives, and encourage fund managers to make countercyclical investments.Listed companies will be encouraged to buy back shares, and offer investors steady streams of dividend payouts. The CSRC will also study measures to restrict financing activities by companies and sectors whose shares trade below net asset value or initial public offering prices. It also vowed to keep “balanced” development between the primary and secondary markets, by keeping up a “rational” pace of IPOs.Although the market had expected China to introduce a so-called “T+0” mechanism to allow shares to be bought and sold on the same day, the CSRC did not include that among its proposals, saying it could drive speculation and harm small investors. Currently, investors can only sell stocks on the second day of purchase in China. More

HONG KONG/NEW YORK (Reuters) -Chinese fears of a spillover from missed payments on some shadow banking linked trust products and worsening consumer sentiment are expected to hasten a policy response to revive the country’s cash-starved property sector.Concerns about the outsized exposure of China’s $3 trillion shadow banking sector, roughly the size of Britain’s economy, to property developers and the wider economy, have grown over the past year as the sector lurched from one crisis to another.Zhongrong International Trust Co, which traditionally had sizable real estate exposure, has recently missed repayments on some investment products, fuelling contagion fears.Trust firms operate outside many of the rules governing commercial banks and mainly channel the proceeds of wealth products sold by banks to real estate developers, other sectors, and even some retail investors. Barclays (LON:BARC) said in a note that regulators were likely to step in if the market environment deteriorates significantly, and measures used by China in the past to deal with spiking financial volatility have included liquidity injections.”The risk of a systemic shock to the Chinese financial system is not great, but the downward pressure on the economy will intensify,” said Yan Wang, chief emerging markets and China strategist at Alpine Macro.”These issues are all related, thus the contagion is already happening, and the risk of further spread is material. The government needs to act promptly and aggressively to contain the risk,” he added.Beijing took a step in that direction on Tuesday by cutting key policy rates after a broad array of data highlighted intensifying pressure on the economy, mainly from the property sector.The latest challenge came from the shadows, with two companies saying over the weekend they had not received payment on maturing Zhongrong International Trust investment products.Nomura said a wave of defaults on trust products could cause “substantial ripple effects” for China’s broader economy as losses suffered by individual investors, lured by higher returns, would have an acute impact on consumption.”This is something where the problems are probably not going to be confined to this individual trust but are going to spread to or become more evident in the trust industry as a whole,” said Arthur Kroeber, partner and head of research at Gavekal in New York.”I think they’re within the ability of the government to manage without any sort of dramatic explosion or blow up. But it’s a long, slow-burning problem.”Even as China’s property problems have torn through the economy in the last few years, Beijing has so far managed to contain the impact on the financial industry.Analysts at Columbia Threadneedle Investments, which manages more than $600 billion in assets, said recent developments could provide an opportunity to buy government bonds.”Given the view that any short-term domestic liquidity squeeze will be eased, we are more inclined to use the opportunity to buy Chinese government bonds, should yields spike,” said Chuanyi Zhou, Assistant Vice President, EM Asia Corporate Credit Analyst, and Lin Jing Leong, Executive Director, Senior EM Asia Sovereign Analyst.’CONTAGION’The trust sector had been a major fundraising channel for property developers seeking rapid expansion. But since 2021, when real estate slipped into a downturn, some of them have gone bust, while others have divested investments in property firms.Beijing has also ramped up efforts since 2017 to reduce the size of the shadow banking sector amid concerns over financial stability. As of end-2022, assets held by trust firms totalled 21 trillion yuan, down about 20% from end-2017.The outstanding value of trust products invested in the property sector was 1.2 trillion yuan as of end-2022, down about 30% year-on-year. Still, exposure to the real estate sector varies from different trust firms.”The real contagion may just be what we are already seeing – weak consumer and business confidence which is dragging down growth. The government is well aware of this but has so far been very timid in its response,” said Kamil Dimmich, partner and portfolio manager at North of South Capital LLP, in London.Barclays said since trust product clients tend to be wealthy individuals or companies, the authorities may have some “tolerance for market forces to play out”.Rayliant Quantamental China Equity ETF co-portfolio manager Phillip Wool said the rise in defaults by trust firms would result in another hit to confidence, as home buyers will not feel comfortable putting down a big down payment.”As for whether Beijing steps in, I think we’re getting to a point where that has to happen. The deeper confidence sinks, the harder that is to reverse,” Wool added. More

Cocaine trafficking is an “even bigger” challenge than terrorism in Belgium, said the country’s justice minister, who called on the EU to speed up international co-operation to help catch drug lords hiding abroad. Vincent Van Quickenborne told the Financial Times that the EU needs joint extradition agreements and increased co-operation among ports to combat international trafficking networks. Belgium’s port city of Antwerp is the largest cocaine trafficking hub in Europe, with a record of almost 110 tonnes seized last year, up from about 90 tonnes in 2021 and 66 tonnes in 2020, according to customs authorities. “What the fight was against Islamist terrorism seven/eight years ago is now today the fight against organised crime,” Van Quickenborne said, adding that “the magnitude [of drug trafficking] is even bigger” than terrorism because of the hundreds of thousands of users across Europe who have “blood on their noses”. Van Quickenborne is under police protection after criminal gangs attempted to kidnap him and his family last September

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Cocaine seizures in Belgium in the first half of 2023 rose 21 per cent compared to the same period in 2022, and customs authorities expect another record year. Antwerp’s growth as a smuggling hub is a result of its sprawling size, which makes it difficult to control, as well as a large amount of container shipments arriving from Latin America, where cocaine production has increased over the past seven years.In February, the Belgian government announced new measures to fight the criminal networks, including appointing a dedicated drugs commissioner, more than 200 additional staff for police and customs, new container scanning equipment as well as background checks on 16,000 port employees.Cocaine smuggling has risen since 2017. Belgian police spent “a lot of energy” on counter-terrorism in the wake of the 2016 attacks on Brussels, the minister said. But drug trafficking was now “on the top of every government [agenda] in Europe”, he said.

In recent years, several kingpins overseeing the illegal trade have moved to locations including the United Arab Emirates and Turkey to evade prosecution. Authorities in Belgium and other EU countries had struggled to get them extradited, Van Quickenborne said. His country signed an extradition accord with the UAE in 2021, which so far has proved ineffective. “There should be more European pressure on the Emirates,” Van Quickenborne said. “If I talk to my colleagues in Italy, Spain, Germany, France, they all have a wish list of the people that are hiding in Dubai and they are not able to move to see them extradited to Europe.” Extradition or other legal agreements facilitating cross-border prosecution “coming out of Europe instead of on a bilateral basis could help us to put pressure on Dubai,” he said. He also called for a “network of port prosecutors” to exchange information.Dutch, German, French, Italian, Spanish and Belgian ministers met in Antwerp in June to discuss organised crime, where they signed a declaration supporting an EU-wide approach. The European Commission declined to comment on Van Quickenborne’s call for action but said it was “engaged in stepping up the efforts against drug trafficking, including cocaine in the EU”.The flexibility of criminal groups means they could increasingly move to different European ports, such as Hamburg, Le Havre and Valencia to evade tighter measures in Antwerp, according to Europol. Van Quickenborne warned that it would be difficult to completely stamp out the drug trade, but said he was “very determined to continue our fight . . . [and] eradicate these drug criminals”. More

China’s central bank has stepped up defence of its currency as concerns mount over the health of the world’s second-largest economy.The efforts by the People’s Bank of China to arrest a slide in the renminbi follow a series of gloomy economic data releases this week that showed weakening exports and waning consumer confidence.Foreign exchange traders and analysts said downward pressure on the Chinese currency intensified after an unexpected interest rate cut by the central bank on Tuesday. They added that state banks had been buying up renminbi and selling dollars in an apparent effort to slow the pace of depreciation.In the latest move to defend the currency, the central bank on Friday set the daily midpoint for the renminbi — around which the currency is allowed to trade 2 per cent in either direction — at Rmb7.2006 to the dollar. That compared with an average estimate of 7.3047 from analysts polled by Bloomberg.The gap between expectations and the level set by the PBoC is the largest since the survey began in 2018.Traders and strategists said it reflected mounting discomfort at the central bank over the speed of the Chinese currency’s fall, which has been driven by underwhelming economic performance and outflows from the country’s renminbi-denominated bond and stock markets.The PBoC is also under pressure to bolster growth and this week injected Rmb757bn ($104bn) of short-term liquidity into the country’s banking system — the largest such move since March and potentially undermining efforts to stem the currency’s fall. On Thursday, the central bank also pledged to “step up the intensity of macroeconomic policy adjustments”.“Ideally they’d want to cut rates without renminbi depreciation, but given how strong the dollar is and how high US interest rates are, you can’t do that,” said Hui Shan, chief China economist at Goldman Sachs. A Shanghai-based foreign exchange trader at one large European lender said: “Things are different now. With previous weakening streaks the fundamentals [of China’s economy] helped and there weren’t such high dollar rates.”Yields on the benchmark 10-year US Treasury surged to their highest levels in 16 years this week, widening the gap between US and Chinese bond yields.The Shanghai-based trader said markets now expected the exchange rate to breach a low of Rmb7.3274 seen in October of last year, during the peak of Covid-19 lockdowns in China, which had marked the weakest level since the 2008 financial crisis.The renminbi on Friday strengthened 0.1 per cent to 7.2825 against the dollar.The Chinese economy has struggled for months to rebound from the end of strict pandemic controls last year, with weak trade and little sign of the expected resurgence in consumer spending. In contrast with much of the world, price rises have been muted and data in July showed the economy falling into deflation.Beijing policymakers have set an economic growth target of 5 per cent this year, the lowest in decades.

Shan at Goldman said the central bank still had a number of tools at its disposal to offset downward pressure, including adjustments to limits on dollar lending and borrowing at Chinese lenders.But she added the PBoC was unlikely to begin burning through its foreign exchange reserves in an attempt to stop the exchange rate from falling past last year’s low. “It’s more about the pace of depreciation, and when that gets to a certain level, they might get a bit nervous,” she said.Sameer Goel, global head of emerging markets and Asia-Pacific research at Deutsche Bank, said there were “diminishing returns” on the strategy of using the currency band’s daily fix to push back against depreciation.With the exchange rate now closer to the weak end of the trading band, the midpoint was more likely to move towards the market level, Goel said. More

Japan’s consumer price growth in July slowed from the previous month, nudged lower by falling energy prices and complicating central bankers’ task as they debate a historic shift in monetary policy.The “core” inflation rate, which excludes volatile fresh food prices, retreated to 3.1 per cent in July from 3.3 per cent the previous month.The reading, released on Friday and in line with economists’ forecasts, marked the 16th consecutive month that the index exceeded the Bank of Japan’s target of 2 per cent.The lower rate supported some central bankers’ belief that Japanese inflation had peaked after reaching its highest level in four decades this year following a long period of negative or near-zero growth.Higher prices, along with interest rate rises by other major central banks, have put pressure on the BoJ as it considers unwinding its ultra-loose monetary policy, which includes the world’s only negative rates.Headline inflation, which includes fresh food prices, remained flat from the previous month at 3.3 per cent. Food price inflation has proven particularly resilient and remains vulnerable to external jolts such as Russia’s withdrawal last month from the Black Sea grain deal, noted Moody’s Analytics senior economist Stefan Angrick.

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But stripping out energy and fresh food prices showed inflation accelerated to 4.3 per cent in July from the previous month’s 4.2 per cent as hotel charges, travel and other leisure-related services prices rose during the summer.This “core-core” index is closely scrutinised by the BoJ for underlying inflationary trends and is a central focus of monetary policy meetings.“All of this complicates the picture for monetary policy,” said Angrick, adding that the central bank would need evidence of stronger domestic demand before altering its ultra-loose monetary stance.Last month, the central bank announced that it would allow yields on long-dated government bonds to rise as high as 1 per cent, in effect relaxing its yield curve control policy.But Kazuo Ueda, the BoJ’s new governor, cautioned against unwinding its policy quickly, arguing that price rises were not being driven by strong consumer demand and would fall as costs of imported commodities retreated.

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Despite a strong preliminary reading this week that showed Japan’s economy expanded at an annualised rate of 6 per cent in the second quarter — reflecting a rebound in foreign tourist arrivals attracted to the weak yen — recent data has not painted a picture of robust domestic demand.“Inflation remains predominantly supply-driven,” said Angrick. “Our best guess is still for the BoJ to stay on hold for the time being, but the possibility of surprises has increased.”

According to a summary of the BoJ’s July monetary policy meeting, one committee member forecast that inflation would fall below the bank’s target in the second half of the financial year ending March 2024.Marcel Thieliant, Japan economist at Capital Economics, said a sharp fall in import prices in July meant the rate of goods inflation would probably begin to decline in earnest.“The key question is whether services inflation can pick up the baton, but with unit labour costs barely rising and consumer spending starting to falter as real incomes are falling sharply, we doubt that it will,” he wrote in a note to clients, adding that the BoJ was likely to keep its policy rate unchanged for the foreseeable future. More