Raphael Stevens

The savings and loan (S&L) crisis terrorised America’s banks for years. Starting in the mid-1980s, a mix of aggressive lending growth, poor risk controls and a property downturn contributed to the collapse or consolidation of over 1,000 small lending institutions. China’s smallest banks are now suffering from many of the same ailments. But until recently few have collapsed or merged with others.That is starting to change. In the week ending June 24th, 40 Chinese banks vanished as they were absorbed into bigger ones. Not even at the height of the S&L crisis did lenders disappear at such a clip. More

Starbucks offers endless opportunities for innovation. Parts of social media delight in hacking the chain’s menu to create highly instagrammable drinks. Fancy a “cake batter Frappuccino”? Simply order a “vanilla bean crème Frappuccino”, add a pump of hazelnut syrup and ask the barista to put a cake pop in the blender. How about some “liquid cocaine”? That involves four shots of espresso with four pumps of white-chocolate syrup, served over ice.A new working paper suggests the purveyor of coffee-based milkshakes offers other innovation, too. Choi Jinkyong, Jorge Guzman and Mario Small, all of Columbia University, find that a new Starbucks in an American neighbourhood without a coffee shop leads to the creation of between 1.1 and 3.5 new companies a year over the next seven years. That, the authors argue, owes to the café’s role as a “third place”—somewhere people can gather without a purpose. Branches “help entrepreneurs form and mobilise networks”, they write. More

The world is still, in a sense, swimming in cash. Or at least the electronic equivalent: central-bank reserves. The Bank for International Settlements (BIS), a club of central banks, estimates that the balance-sheets of rich-country central banks amount to roughly 50% of collective GDP. That is down from 70% in 2021—a reduction which reflects quantitative tightening (QT), or the offloading of assets acquired while easing—but is still far above the pre-global-financial-crisis norm of around 10%.Qt is intended to enhance the disinflationary effect of raising interest rates. As assets roll off a central bank’s balance-sheet, the corresponding reserves are extinguished. The process should, in the words of Janet Yellen, America’s treasury secretary and a former chair of the Federal Reserve, be as interesting as watching paint dry. Yet if reserves are to return to anything like their earlier 10% level, that may not be the case. Some worry such a reduction would prompt nasty surprises in the financial system. Hawkish types nevertheless argue that central banks ought to ensure reserves once again become “scarce”. They suggest that the “abundant” era created by quantitative easing has been destabilising, since banks no longer need to economise on their holdings or rely on the disciplining effects of money markets. More

The earliest depiction of the ouroboros—a serpent coiled in a circle, eating its own tail—was found in the tomb of Tutankhamun, a pharaoh who ruled Egypt around 1320BC. It was used in his funerary texts to depict the infinite nature of time, and later cropped up all over the place. In Ancient Rome it signified the seasonal cycle of the calendar year; in Norse mythology the snake was large enough to encircle the world. The idea is also an allegory for the modern financial system. It depicts how credit risk has been cycled out of banks, only to be gobbled up by them once more.After the global financial crisis of 2007-09, lawmakers in America and Europe penned new rules to govern finance. These had two aims. First, to force banks to hold more capital against their assets, so as to cushion losses. Second, to curb the risky activities in which banks had indulged. Some, such as proprietary trading, were prohibited; others were simply discouraged, sometimes by assigning higher “risk weights” to spicier assets. Both aims are measured by “common equity tier 1 capital” or cet1, which divides bank equity by asset value, adjusted for risk weights. More

China’s Ministry of Commerce said Thursday it hoped to reach an agreement soon with the European Union on the bloc’s planned tariffs for imported Chinese electric cars.
The EU started an investigation last year into the role of subsidies in China’s electric vehicle production.
The new energy vehicle industry, which includes hybrid and battery-only cars, has grown rapidly in China and automakers such as BYD have started to export the vehicles to Europe and other regions.

Employees work on the assembly line of electric vehicles in a digital automotive factory of Jiangling Motors on May 17, 2024. 
Vcg | Visual China Group | Getty Images

BEIJING — China hopes to reach an agreement with the European Union soon on the bloc’s planned tariffs for imported Chinese electric cars, the Ministry of Commerce said Thursday.
The European Commission announced in mid-June that if discussions with China did not go well, the bloc would start to impose additional duties on imported Chinese EVs on Thursday, July 4. “Definitive measures” would take effect four months after that date, according to a press release.

“We hope that the European side will work with China to meet each other halfway, show sincerity, speed up the consultation process, and, on the basis of rules and reality, reach a mutually acceptable solution as soon as possible,” Chinese Commerce Ministry spokesperson He Yadong told reporters in Mandarin, according to a CNBC translation.
He reiterated China’s opposition to the European Union’s anti-subsidy probe and pointed out the two sides still have a four-month window.

China’s Minister of Commerce Wang Wentao and European Commission Trade Commissioner Valdis Dombrovskis met virtually on June 22 to discuss the EU probe, according to the commerce ministry.
Spokesperson He said Thursday that the two sides had held multiple rounds of talks at a technical level, but he did not specify whether the talks were ongoing or had ended.
The EU started an investigation last year into the role of subsidies in China’s electric vehicle production. The new energy vehicle industry, which includes hybrid and battery-only cars, has grown rapidly in China and automakers such as BYD have started to export the vehicles to Europe and other regions.
The Chinese government spent $230.8 billion over more than a decade to develop its electric car industry, according to an analysis by the U.S.-based Center for Strategic and International Studies. More

The market for initial public offerings in Hong Kong is set to improve significantly over the next five years, said George Chan, global IPO leader at EY.
“I would say if the interest rate can be further cut down, 1 percent maybe, that would have a significant effect on the IPO market,” Chan said.
“Our HK cap markets team is very busy and has a strong pipeline for H2.  We expect to see many HKSE listings,” Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, said in an email Wednesday.

Hong Kong Exchanges and Clearing celebrates the 24th anniversary of its listing on June 21, 2024.
China News Service | China News Service | Getty Images

BEIJING — The market for initial public offerings in Hong Kong is set to improve significantly over the next five years, starting in the second half of this year, George Chan, global IPO leader at EY, told CNBC in an interview Wednesday.
“I think it will take a couple years to go back to the peak [in 2021] but the trend is there,” Chan said. “I can see the light at the end of the tunnel.”

High U.S. interest rates, regulatory scrutiny, slower economic growth and U.S.-China tensions have constrained Greater China IPOs in the last three years.
EY said in a report that while the volume of IPOs and proceeds in the U.S. increased significantly in the first half of 2024 compared to the same period a year ago, mainland China and Hong Kong saw a sharp decline in listings.
Many of the macro trends are now starting to turn around, which can support more IPOs in Hong Kong, said Chan, who is based in Shanghai.
“We are seeing a reversing trend,” he told CNBC. “We are seeing more of these [U.S. dollar] funds, they are moving back to Hong Kong. The main reason is that Hong Kong has already factored in these uncertainties.”
The Hang Seng Index is up more than 5% year-to-date after four straight years of decline — which was the worst such losing streak in the history of the index, according to Wind Information.

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“Our HK cap markets team is very busy and has a strong pipeline for H2.  We expect to see many HKSE listings,” Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, said in an email Wednesday.
Many companies that were waiting for a listing in mainland China’s A share market have decided to switch to one in Hong Kong, she said. “Previously [China Securities Regulatory Commission] approval was slowing things down but recently our team has gotten CSRC approvals pretty quickly.” 
In June, China issued new measures to promote venture capital, and authorities spoke publicly about supporting IPOs, especially in Hong Kong. Investors and analysts said they are now looking at the speed of IPO approvals for signs of a significant change.
Chan said another supportive factor for Hong Kong IPOs is that many of the companies listed in the market are based in mainland China, where economic growth is “quite satisfactory.”
He expects consumer companies could be among the near-term IPO beneficiaries.
“As the economy slowly recovers, a lot of people in China are willing to spend,” he said, noting that was especially the case in less developed parts of the country.
Official national-level data have showed that retail sales are growing more slowly in China — up by just 3.7% in May from a year ago versus growth of nearly 10% or more in prior years.
Also significant for global asset allocation, the U.S. Federal Reserve and other major central banks are pulling back from aggressive interest rate hikes. High rates have made Treasury bonds a more attractive investment for many institutions instead of IPOs.
“I would say if the interest rate can be further cut down, 1% maybe, that would have a significant effect on the IPO market,” Chan said.
Hong Kong IPOs raised $1.5 billion during the first half of the year, a 34% drop from a year ago, EY said in a report released late last month. Back in 2021 and 2020, the Hong Kong Stock Exchange saw nearly 100 or more IPOs a year raising tens of billions of dollars, according to the report.
In comparison, mainland China IPOs raised $4.6 billion in the first six months of 2024 — a drop of 85% from the year-ago period, according to EY.

Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a conference last week that so far this year, the Hong Kong exchange has received 73 new listing applications — a 50% increase compared to the second half of last year. She is not related to EY’s George Chan.
“The pipeline is building up nicely,” she said, noting about 110 IPOs in total are in line for a Hong Kong listing. “All we need is a set of good market conditions so these things get to launch and price nicely,” she added.

Improving post-IPO performance

“What we need is a strong pipeline,” EY’s Chan said. “We need an interested investor with the money to invest, and we need a good aftermarket performance.”
Hong Kong IPO returns are improving. The average first-day return of new listings on the Hong Kong stock exchange in the first half of 2024 was 24%, far more than the average of 1% in the same period last year, according to EY.
“The aftermarket performance of Hong Kong IPOs has been doing quite good compared to the past five years,” Chan said. “These things added together are projecting an upward trend for the Hong Kong market [in the] next 5 years.”
Chan said he expects the number of deals to pick up in the second half of 2024.

He said those will likely be medium-sized — between 2 billion Hong Kong dollars to 5 billion Hong Kong dollars ($260 million to $640 million) — but added he expects better market momentum in 2025.
Slowing economic growth and geopolitical uncertainty have also weighed on early-stage investment into Chinese startups.
Total venture funding from foreign investors into Greater China deals plunged to $19 billion in 2023, down from $67 billion in 2021, according to Preqin, an alternative assets research firm.
U.S. investors have not participated in the largest deals in recent years, while investors from Greater China have remained involved, the firm said in a report last month.

U.S. IPO outlook

As for IPOs of China-based companies in the U.S., EY’s Chan said he expects current scrutiny on the listings to be “temporary,” although data security rules would remain a hurdle.
In early 2023, the China Securities Regulatory Commission formalized new rules that require domestic companies to comply with national security measures and the personal data protection law before going public overseas. A China-based company with more than 1 million users must pass Beijing’s cybersecurity review to list overseas.
“As time goes on, when people are more familiar with the Chinese [securities regulator] approval process and they are more become comfortable with geopolitical tensions, more of the large companies … would consider [the] U.S. market as their final destination,” Chan said.
“When the time comes I think the institutional investors would be interested in these sizeable Chinese companies, as they pretty much want to make money.”
He declined to comment on specific IPOs, and said certain high-profile listing plans are “isolated incidents.”
Chinese ride-hailing company Didi, which delisted from New York in 2021, has denied reports it plans to list in Hong Kong next year. Fast-fashion company Shein, which does most of its manufacturing in China, is trying to list in London following criticism in the U.S., according to a CNBC report. More

One exchange-traded fund is betting on a U.S. manufacturing job resurgence.
Tema ETFs CEO and founder Maurits Pot is behind the American Reshoring ETF (RSHO) that focuses on industrials.

“Some will call it deglobalization. We’re in the early innings,” Pot told CNBC’s “ETF Edge” this week. “At the heart of it is job creation, manufacturing and reshoring — bringing back local manufacturing jobs.”
Pot’s firm launched the American Reshoring ETF in May 2023. Since its inception, the exchange-traded fund is up almost 37% as of Wednesday’s close.

Despite the strong performance, “ETF Edge” host Bob Pisani contends ETFs built around a theme often come and go.
However, Strategas’ Todd Sohn, who tracks the ETF industry, thinks investing in U.S. manufacturing is a sound strategy. He points to the industrial sector’s runway for growth after a vast reduction in size over the past three decades.
“If I am going to play the industrials in a thematic way, I like the route of going active,” the firm’s managing director said. “I do think there is staying power here as opposed to some of the fads we’ve seen in the thematic space — particularly those that are a little more tech and growth oriented.”

The American Reshoring ETF is underperforming the broader market over the past three months, falling more than 4%.
Disclaimer More

Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates.
Minutes released Wednesday showed that policymakers lacked the confidence they needed to lower policy, while they generally agreed there should be no rush to cut.

Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates, minutes released Wednesday showed.
“Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent,” the meeting summary said.

Though the minutes reflected disagreement from the 19 central bankers who took part in the discussion, with some even indicating a penchant toward raising rates if necessary, the meeting concluded with Federal Open Market Committee voters holding rates in place.
The Fed targets 2% annual inflation, a level it has been above since early in 2021. Officials at the meeting said data has improved lately, though they are want more evidence that it will continue.
Meeting participants “emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee’s 2 percent objective.”
At the meeting, policymakers also provided an update on economic projections and monetary policy over the next several years.
The FOMC “dot plot” showed one quarter percentage point cut by the end of 2024, down from the three indicated following the last update in March. Even though the dot plot indicated one cut this year, futures markets continue to price in two, starting in September.

Also, the committee largely left its economic projections intact, though they lowered their inflation expectations for this year.
In discussions over how they would approach monetary policy, the minutes reflected some disagreements. Some members noted the need to tighten the reins should inflation persist, while others made the case that they should be ready to respond should the economy falter or the labor market weaken.
“Several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised,” the minutes stated. “A number of participants remarked that monetary policy should stand ready to respond to unexpected economic weakness.”
The minutes do not identify individual members nor do they provide exact amounts for the number of officials expressing particular viewpoints. However, in the Fed parlance, “a number” is considered more than “several.”
The summary also noted a “vast majority” saw economic growth “gradually cooling” and that the current policy is “restrictive,” a key term as the officials contemplate how restrictive policy needs to be while bringing down inflation and not causing undue economic harm.
Since the meeting, officials have largely stuck to a cautious script stressing data dependency rather than forecasts. However, there have been indications from multiple officials, including Chair Jerome Powell, that continued encouraging readings on inflation would provide confidence that rates can be lowered.
In an appearance Tuesday in Portugal, Powell said the risks of cutting too soon and risking a resurgence in inflation against cutting too late and endangering economic growth have come more into balance. Previously, officials had stressed the importance of not backing off the inflation fight too soon. More