Aurelia Butler

Asia’s emerging market equities have been hurt by recent fears over China’s recovery and geopolitical risks. But while the region’s markets have historically been correlated with Chinese assets, investors are missing a stealthy decoupling from the country’s giant economy. Tailwinds from supply chain shifts, favourable demographics and resilient economic fundamentals are set to support long-term gains in Asia emerging markets, despite China’s risks.First, global companies are actively tilting supply chains beyond China, resulting in business and investment flows to its regional neighbours.Apple’s recent move to diversify iPhone production from China to India is the most striking example. According to the IMF, China’s global market share of greenfield foreign direct investments in strategic sectors, such as semiconductors, has been declining since 2021, while the market share of the rest of Asia has risen. In the US, the percentage share of imports from China has been falling since 2018 and is set to be overtaken by imports from India, Taiwan and Asean economies.Moreover, this is likely to be just the start of things. For Asian emerging markets, the scale of potential “friendshoring” — sourcing material from friendly countries — is vast. China’s manufacturing output is 10-fold that of India, the next largest emerging economy in Asia, and more than 50-fold of Vietnam’s. Diversifying supply chains out of China will require sizeable investments over years, resulting in significant impact on major friendshoring destinations. Part of China’s global competitive edge in manufacturing is the relative low cost of its labour force. Many Asian economies, such as India, Indonesia and Vietnam, are competitive with China in this regard. Relative to China, however, the lack of high-quality infrastructure and large pools of educated workers has made these economies more suited to labour-intensive industries and lower-value goods, such as apparel, for now.Over time the demand for higher value manufacturing, such as electronics and machinery, will be increasingly met in these friendshoring destinations. Although overall development, in terms of manufacturing automation and supply chain ecosystems, is less advanced across emerging economies in Asia relative to China, this provides scope for faster long-term growth.Second, in contrast to China’s ageing population, the most populous emerging Asian countries, including India and Indonesia, are set to reap the benefits of favourable demographics in the coming years.China’s population is on a downward trend because of its weakening fertility rate. China’s dependency ratio — defined as the number of dependents in its population relative to those aged between 15 and 64 years — is likely to rise unfavourably. At the same time, the working-age population is projected by the UN to potentially fall by a quarter by 2050. Currently, the median age in China is about 38. In contrast, India, Indonesia and Vietnam enjoy more youthful demographics with median ages below 33. The dependency ratios in these countries are expected to remain favourably low over the next decade. China’s regional rivals are therefore likely to enjoy the comparative advantages and consumption power of younger, energetic workforces for years.Third, Asian emerging markets enjoy relatively resilient fundamentals. The region has been less affected by inflation, as much of the world’s supply chains run through Asia, significantly reducing transport costs for local companies. Several central banks were early to tighten monetary policy to curb inflationary pressures, including the Bank of Korea and Monetary Authority of Singapore. Moreover, the People’s Bank of China, faced with tame inflation in the country, is likely to maintain its accommodative policy stances, helping liquidity conditions across the region. Likewise the Bank of Japan, which is determined to entrench inflation around its 2 per cent target after three decades of weak inflation and growth.Additionally, China’s post-Covid reopening is likely to increase demand for the rest of Asia’s goods and services and lead to stronger flows of tourism in the region. The reopening also should help shield Asian economies this year from recession against a difficult global growth backdrop.For investors concerned about China’s risks, recognising that Asian emerging markets are a universe beyond the Middle Kingdom will yield significant opportunities. Friendshoring, demographics and fundamentals are all helping the region’s economies become less correlated with their giant neighbour. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian market trading will be lighter than usual on Monday with no major regional economic data scheduled and U.S. markets closed, leaving investors to gear up for the first major event of the week on Tuesday – China’s interest rate decision.The People’s Bank of China is likely to cut its one- and five-year loan prime rate (LPR) lending rates by 10 basis points to 3.55% and 4.20%, respectively, its latest attempt to bolster China’s creaking economy and steer it away from deflation. The PBOC earlier this month cut its medium-term policy loan rate for the first time in 10 months, paving the way for cuts in the benchmark LPR rates and bucking the global trend of raising rates to get inflation back down to policymakers’ targets. It’s little surprise that the yuan is under heavy selling pressure – down 4% in the last couple of months and hovering at seven-month lows. Looser monetary policy will do little to reverse these dynamics. Investors on Monday may also keep an eye on headlines from U.S. Secretary of State Antony Blinken’s visit to Beijing, the first top American diplomat to visit China in five years amid frosty bilateral ties and dim prospects for progress on the long list of disputes between the world’s two largest economies.Looking ahead and beyond China, investors have two other Asian monetary policy decisions this week to digest – Indonesia’s Bank Indonesia (BI) and the Philippines Bangko Sentral ng Pilipinas (BSP) on Thursday.Both are likely to leave policy unchanged, with BI maintaining its benchmark lending rate at 5.75% and the BSP keeping its key policy rate at 6.25%.The broader market tone across Asia on Monday could be one of caution, with investors tempted to take some profits from the recent rally. Japanese stocks have surged 20% in two months and are at a 33-year high, while the MSCI Asia ex-Japan index last week jumped 3%, its best week since January.Other potential market-moving events from the region later in the week include data on Japanese consumer price inflation for May on Friday. The annual core CPI rate is expected to ease to 3.1% from 3.4% in April.The Bank of Japan last week left its ultra-loose policy unchanged and signaled it is in no rush to change its dovish stance even though inflation has exceeded the BOJ’s 2% target for over a year. Contrast that with the more hawkish posture of other major central banks around the world and it is little surprise that the yen is on the defensive – on Friday it hit a 15-year low against the euro.Here are key developments that could provide more direction to markets on Monday:- Bank of Korea Governor Rhee Chang-yong speaks- U.S. Secretary of State Antony Blinken in China- Hong Kong unemployment (May) (By Jamie McGeever; Editing by Leslie Adler) More

Good morning. US secretary of state Antony Blinken has met China’s foreign minister Qin Gang in Beijing as part of a highly anticipated mission to reboot the countries’ relations, which suffered after an alleged Chinese spy balloon flew over North America.Blinken is the first secretary of state to visit China since 2018, a reflection of Beijing’s strict Covid-19 lockdowns but also of how US-China ties have fallen to their lowest level in decades. The US diplomat began two days of meetings with officials on Sunday, but it was unclear if he will meet President Xi Jinping.Blinken met Qin for five and a half hours and invited him to Washington to continue discussions, the US state department said. Blinken’s trip is designed to follow a meeting between President Joe Biden and his Chinese counterpart Xi Jinping in Bali in November, when the leaders agreed to create a “floor” under the relationship. But the plan was derailed in February when Blinken cancelled a visit to China because of the balloon.One senior US official said relations were now “in a place where we can move forward with the Bali agenda”. “That’s what this trip is about,” said the official, who cautioned that Blinken was “very clear-eyed” that progress would be “hard” to achieve.Here’s what else I’m keeping tabs on today:Diplomacy: Germany and China begin bilateral government consultations in Berlin, the first face-to-face meeting between the countries since 2018. It will also be the first overseas visit by new Chinese premier Li Qiang, who will meet German business leaders and ministers. UK: MPs will gather to ratify a damning parliamentary report on Boris Johnson, the former prime minister.Holiday: The US celebrates Juneteenth on Monday. Financial markets are closed.Five more top stories1. AstraZeneca has drafted plans to spin off its China business and list it separately in Hong Kong as a way to shelter the company against mounting geopolitical tensions. The Anglo-Swedish drugmaker began discussing the idea with bankers several months ago, according to people familiar with the talks, who cautioned that a separation might not ultimately take place. Opinion: Corporate contingency planning in Hong Kong will be a litmus test for assessments of China risk. 2. Italy has stripped China’s Sinochem of its influence as the largest shareholder in Pirelli, removing its right to appoint the CEO or set the tyremaker’s strategy. The Italian government invoked national security concerns about the potential for misuse of Pirelli’s chip technology, as well as Chinese Communist party interference, to justify the new restrictions on Sinochem.3. SVB Financial Group has reached a deal to sell its investment banking division to a group led by some of its own top bankers, including Jeffrey Leerink, as well as a hedge fund, the Baupost Group. The unit, known as SVB Securities, has been for sale since Silicon Valley Bank’s failure in March sent tremors through the banking industry. Here’s more on the deal.4. Ukraine has stepped up attacks this weekend on Russian arms depots and other targets deep in occupied territory. The strikes are aimed at supporting a counteroffensive that has made modest gains against heavily fortified Russian frontline positions. 5. Beijing’s attempt to persuade investors to value its giant state-owned enterprises according to their socialist credentials, rather than by conventional western capitalist measures, has flopped after a rally in their shares fizzled this month. Read more on Beijing’s new “valuation system with Chinese characteristics”. The Big Read

Paddy Scott was just 34 when he was diagnosed with cancer © Jon Super/FT

The past 30 years have seen a rise in cases of so-called “early onset” cancer in younger people. The increase is so marked that leading epidemiologists have suggested it should be called an epidemic. Researchers have no definitive explanation for why people in the prime of life seem to be markedly more vulnerable to the disease than their counterparts in earlier generations.We’re also reading . . . Narendra Modi’s US visit: Concerns over democratic standards will be set aside as the US regales India’s leader this week, writes John Reed. ChatGPT: OpenAI’s chief technology officer Mira Murati is expanding applications for ChatGPT after the chatbot’s extraordinary rise. Rana Foroohar: A paradigm shift is under way in America’s political economy — even if the details are still catching up with the narrative. Chart of the day

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The 2023 Forbes list shows that, worldwide, billionaires are down slightly in numbers and wealth from the pandemic peaks but still up sharply over the past two decades. There were almost 500 billionaires worth a total of less than $1tn in 2000; now there are more than 2,500 worth over $12tn.Take a break from the newsVogue Ukraine has become an unlikely voice of defiance since the Russian invasion. The magazine’s content reflects that, even in the most barbaric circumstances, people want a break. “There is no textbook on how to run a magazine, let alone a fashion title, during the war,” editor-in-chief Venya Brykalin told the FT’s Jo Ellison. Additional contributions by Tee Zhuo and Gordon Smith More

A phrase you hear used with a lot more friction than before, remarks a senior Hong Kong investment banker on the theme of geopolitics, is “worst-case scenario”. Its enhanced deployment, he adds, is revealing. However remote the worst-case scenario may be, a diminishing number of companies and investors feel they have any permission to ignore that risk. The worst-case scenario that most concerns him centres on China, the US, the ambitions of Xi Jinping, the aggressively tight consensus in Washington and the fate of Taiwan. Things may yet calm down, and leadership summits may defuse tensions, but for now at least the hostility feels irreversible and the divergence permanent. An alarming combination.The coming months, the banker suspects, will hum with experiments and contingency planning (some overt, some much less so) based around a grand — but now more obligatory — pessimism.“There is a huge terror among US and European investors now that if something happens with China, you get wiped out,” says a senior US asset manager. “As the main centre of allocation of foreign capital into China, Hong Kong is acutely sensitive to that terror.”At the same time, Hong Kong is a sensible place for multinationals and global funds to begin forming a plan. They should start with an assumption of the abrupt end of life as we know it, recommends one fund manager, and work backwards. The Russian invasion of Ukraine has made this planning a more focused process than it might otherwise have been. The spectacle of decades-long corporate investments in Russia evaporating and entire portfolios of assets being marked to zero overnight has powerfully shaped an equivalent fear around China.There are two areas in which Hong Kong is likely to provide both early and regular indicators of where the thinking of global funds and multinational corporations has moved on China risk. Watch Hong Kong, says another banker, reaching for another phrase of the moment, for an inkling of how everyone is now “recalibrating their options”.One of the first big signs of a radical shift in thinking, say bankers and other advisers, has been what they report as a rising number of US and European multinationals exploring the idea of entirely carving out their China businesses and listing them separately. Hong Kong would be a probable destination for those initial public offerings. AstraZeneca, the UK-headquartered pharmaceutical giant, looks to be among the first to have taken this sort of planning beyond the purely theoretical but the bankers are clear that many others have at least begun to look into it. There would undoubtedly be a range of different approaches, and significant pitfalls. But the fundamental idea of ringfencing the China business would be to secure two forms of protection. The main company would no longer face interrogation on its China exposure; the China business might, in the event of some crackdown on foreign firms, be allowed to survive if its local listing meant Beijing now deemed it a domestic player.For the time being, the benefit for companies of exploring this option may be largely psychological and, if necessary, a way of appeasing shareholders: businesses will leave their plan B prominently on the chief executive’s desk, but hope it gathers dust. If the strategy catches on as widely as bankers suspect it will, though, the collective stash of plan Bs will be a useful litmus test of corporate worry: the more plans that are heard being dusted-off, the greater the sense of peril. Another set of experiments that Hong Kong should be in a strong position to observe is how companies actually respond to all that pressure on them to “de-risk” supply chains. Many of them, say bankers involved in financing these proposed moves, have quite genuinely rerouted supply chains out of China and into south-east Asia and beyond. Many are motivated by the need to be seen to be doing something.But, as many have discovered, the hopes of a quick and extensive “lift and shift” need to be tempered by the reality of the scale and complexity of China’s manufacturing set-up. There was a lot of very ambitious talk about engineering an exodus from China, say bankers, but it has been significantly scaled back. Again, companies’ stated efforts to respond appropriately to worst-case scenario chatter are likely to resume in line with the perceived level of risk. The bankers closest to the ground — many in Singapore, but far more in Hong Kong — should be able to tell how much is actually [email protected] More

Hello and welcome to the working week.A key theme in the coming days will be global diplomacy. Chinese premier Li Qiang will arrive in Germany for his first overseas trip since his appointment. The tour will also include France. Meanwhile, Narendra Modi visits Joe Biden at the White House. The Indian prime minister will become one of a few foreign leaders, along with Winston Churchill, Nelson Mandela and Volodymyr Zelenskyy, to address a joint session of Congress more than once. Key interest rate decisions are expected in Beijing, Ankara and London. The People’s Bank of China last week announced a surprise cut in its main policy rate; on Tuesday it is scheduled to publish its latest move. The Bank of England’s monetary policy committee is expected to increase the UK base rate further from 4.5 per cent; markets are betting that rates will peak close to 5.75 per cent this year.And the recent shift in economic policy by Turkish president Recep Tayyip Erdoğan will face its first test as new central bank governor Hafize Gaye Erkan chairs her debut policy meeting. Business executives and analysts expect Turkey’s main interest rate to rise sharply to 17 per cent, from 8.5 per cent.Investors will be watching for indications of the future path of US rates as Federal Reserve chair Jay Powell testifies at the Senate Banking Committee. Other events this week include the Paris Air Show, which returns after a four-year hiatus. Delegates from G7 nations and international financial institutions will meet in London for a conference to discuss the reconstruction of Ukraine. In the UK, MPs will gather on Monday to ratify a damning parliamentary report on Boris Johnson, the former prime minister. The week ends with Greeks going to the polls a second time in just over a month, after Kyriakos Mitsotakis’s New Democracy party failed to secure an outright majority at the last ballot. Email me at [email protected] dataThere will be a chance to compare G7 nations at the end of the week with the release of flash manufacturing and services purchasing managers’ indices, plus a few confidence surveys, some housing market indicators for the US and the UK and monthly inflation data from Japan and Germany.CompaniesHas anyone at Activision Blizzard considered producing a computer game based on battling courtroom lawyers? They certainly have the material given the regulatory challenges its merger with Microsoft have come up against. The contest will go to the next level this week when a district court in California holds an “evidentiary hearing” on Federal Trade Commission plans to block the transaction.It’s thin gruel as far as earnings are concerned, but Accenture could be interesting given the consultancy sector’s travails. Also, British asset manager Liontrust is expected to post higher annual profits, driven by strong fee revenues and outflows. Further details below.Economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayUK, Rightmove’s June House Price IndexUS, Juneteenth federal holiday. Financial markets closed.TuesdayChina, Mainland China Policy rateIMD World Competitiveness Center launches its annual World Competitiveness Ranking of countries.European Central Bank board member Philip Lane discusses “The dynamics of the financial system in the Eurozone” at the Bernacer Prize ceremony in Madrid.The world’s biggest producers of lithium for electric vehicle batteries hold their largest annual gathering at the Fastmarkets Lithium Supply & Battery Raw Materials conference in Las Vegas.Germany, May producer price index (PPI) inflation rate figuresUK, Kantar grocery market share figuresUS, May housing starts and building permitsResults: FedEx Q4WednesdayCase management hearing in the class action case brought by British consumer champion Liz Coll against Alphabet and its subsidiary Google. Coll, who is representing 19.5mn Android phone users, claims the 30 per cent surcharge added to products bought through the Google Play store is a breach of European and UK competition laws and seeks damages of almost £1bn.Numis general meeting of shareholders to vote on the proposed acquisition of the company by Deutsche Bank.Novo Nordisk chief executive Lars Fruergaard Jørgensen and Bayer’s pharma chief Stefan Oelrich to speak at an industry event in Brussels hosted by big pharma lobby group EFPIA.Canada, retail sales figuresGermany, Ifo economic forecastSouth Africa, May consumer price index (CPI) inflation rate figuresUK, May CPI, retail price index (RPI), PPI and harmonised index of consumer prices (HICP) inflation rate figures. Also, May public sector finances data.Results: Berkeley Group FY, Liontrust Asset Management FYThursdayUS district court in San Francisco begins hearing evidence in Federal Trade Commission suit requesting injunction in Microsoft and Activision Blizzard mergerUS, Federal Reserve Chair Jay Powell testifies at US Senate Banking CommitteeNetflix co-chief executive Ted Sarandos visits Seoul to speak about the media streaming company’s $2.5bn investment in South Korean entertainmentEU, June flash consumer confidence IndicatorTurkey, one-week repo rate decisionUK, Bank of England monetary policy committee rate decisionResults: Accenture Q3, DS Smith FY, Mulberry FY, Speedy Hire FY, Whitbread Q1 trading updateFridayEU, France, Germany, Italy, Japan, UK, US: S&P Global/Cips flash services and manufacturing purchasing managers’ index (PMI) figuresGermany, Ifo business climate surveyJapan, May CPI inflation rate dataUK, June GfK consumer confidence report and May retail sales figuresResults: CarMax Q1, Naked Wines FY, Zephyr Energy FYWorld eventsFinally, here is a rundown of other events and milestones this week. MondayFrance, 54th International Paris Air Show begins, running until SundayGermany, Nato secretary-general Jens Stoltenberg begins a two-day visit with a meeting in Berlin with chancellor Olaf ScholzUS, President Joe Biden speaks at a campaign fundraiser in CaliforniaRepublican presidential candidate and Florida governor Ron DeSantis will visit the same state today for his fundraising campaignUK, MPs vote on approving a privileges committee report which concluded that former prime minister Boris Johnson misled parliament over rule-breaking parties at his office during Covid lockdownsTuesday60th anniversary of agreement to create the Kremlin-White House hotline to avert a nuclear war starting accidentallyChinese premier Li Qiang and various members of his cabinet arrive in Berlin for bilateral government consultations, the first face-to-face summit between the two countries since 2018. The delegation will then travel to Paris for an official visit and to attend a financial conference on ThursdayUK, chancellor Jeremy Hunt answers questions by MPs on the Treasury select committee in the House of CommonsUK, Royal Ascot horse race meeting beginsWednesdaySummer solstice, marking the longest day of the year and the first day of summer in the northern hemisphereUK, London hosts a two-day Ukraine Recovery ConferenceThursdayQatar, municipal electionsUK, chief medical officer for England Chris Whitty and Britain’s former chief scientific adviser Patrick Vallance give evidence to the UK’s Covid-19 InquiryUK, Women’s Ashes cricket series begins with a Test match at Nottingham’s Trent Bridge groundUS, president Joe Biden hosts Indian prime minister Narendra Modi for an official state visit to WashingtonFridayUK, seventh anniversary of the Brexit referendumSaturdaySierra Leone, presidential and parliamentary electionsUK, Scottish National party convention in Dundee to debate how to hold a second legally binding independence referendumSundayGreece, parliamentary elections More