Chinese firms are cashing out their overseas investments. Singapore warns of the possibility of tougher Covid restrictions. Asian stocks are set to climb. Here’s what you need to know this morning.
Just a few years ago, Chinese firms spent lavishly overseas on everything from luxury hotels to soccer clubs. Now they are heading for the exit amid rising demand for anything that throws off cash. Companies in China announced divestment plans of their overseas assets worth $10.5 billion so far this year, the second-highest total since at least 1998, according to data compiled by Bloomberg. At the current pace, 2021 could surpass last year’s $15 billion sum. Meanwhile, China announced an expansion of the Qianhai economic cooperation zone in Shenzhen; Beijing’s regulatory efforts to increase control over its tech sector adds another “ decoupling engine” to the global economy says former head of the World Trade Organization; and China’s Vice Premier Liu He makes a pledge to continue supporting private businesses in spite of the crackdowns.
Asian stocks look set to climb, bolstered by a rally in Japan and expectations that central bank support for the reopening from the pandemic will be pared very gradually. Futures for Japan were up more than 1% after the Topix hit a 31-year high. Contracts also rose for Australia and Hong Kong. European shares rallied, helping a gauge of global equities to scale a fresh all-time high. And U.S. futures advanced in early Asian trading, with markets reopening Tuesday after the Labor Day holiday. Oil extended losses amid Saudi Arabia’s price cut for Asian buyers, and Bitcoin topped $52,000, with El Salvador planning further purchases after buying 200 coins ahead of its planned adoption of the cryptocurrency as legal tender.
And, here we go again. Singapore said it can’t rule out closing restaurants and restricting public life once again if serious infections continue to rise. The government won't allow social gatherings at workplaces from September. 8. Elsewhere, Thailand is set to reopen more tourist destinations starting next month; Indonesia added the fewest new cases since May 18 and New Zealand lifted a nationwide lockdown outside largest city Auckland; and Chile approved Sinovac’s vaccine for use on children as young as six.
A military junta that seized power in Guinea said it plans to establish a unity government pending a transition to civilian rule, urged mining companies to keep operating and reassured them that their existing agreements with the state will be honored. Aluminum surged to its highest in a decade after the coup triggered uncertainty in a key part of the metal’s global supply chain. The ready availability of cheap, high-quality Guinean bauxite helped cement China’s position as global leader in aluminum output, but the fresh upheaval leaves the world’s aluminum market exposed to further disruptions.
El Salvador bought 200 bitcoins and plans to buy “a lot more” of the cryptocurrency as it prepares to adopt it as legal tender from Tuesday, President Nayib Bukele said in a post on Twitter. Its adoption will get an initial boost from the government’s bitcoin wallet Chivo, which comes pre-loaded with $30 worth of the currency for users who register with a Salvadoran national ID number. The adoption has sparked interest across social media platforms, with users on Twitter and Reddit discussing plans to buy $30 worth of Bitcoin en masse on September 7 to mark El Salvador’s new Bitcoin law. The potential coordinated price pump echoes previous online campaigns targeting meme stocks like GameStop.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here’s what Tracy’s interested in today
There's an argument to be made that the U.S. dollar has been acting a lot like a U.S. Treasury. Given that no one can quite pinpoint what’s keeping bond yields so stubbornly low, the greenback may have been a better vehicle for investors to express their opinion about the future direction of the U.S. economy, and we've seen it behave accordingly over the summer. As shown in the chart below, the U.S. dollar has tended to strengthen when U.S. economic data disappointed. But of course, even if you don’t think a rising dollar says something ominous about how investors are viewing prospects for global growth, a strengthening dollar can end up being a headwind to it as it effectively translates into a tightening of financial conditions.
You can see that dynamic in the next chart, courtesy of Michael Purves over at Tallbacken Capital Advisors. As the dollar strengthened to a nine-month high in August, it dragged risk premiums on junk-rated U.S. corporate debt higher. The dollar's trajectory is important not just for emerging market or other foreign investments, writes Purves, but also because a stronger U.S. currency acts as a "tightening factor, which we had a subtle taste of this summer." The dollar has been softening again after Jackson Hole, but with the Federal Reserve still poised to start tapering this year, it could yet resume its rise.
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