China’s Olympic Victory a Sunny Break in the Stock Market Storm

China Fund OpportunitiesBy Nick Seymour

Amid the doom and gloom of recent weeks, with Greek worries falling into a Chinese tumble, this week has seen some more positive news to cheer us up before the weekend.

“Let me assure you that if you choose Beijing, the Chinese people will present to the world a fantastic, extraordinary and excellent Olympic Winter Games,” Xi Jinping, Chinese President

There has finally been some cause for celebration in China, with Beijing being awarded as the host city for the 2022 Winter Olympics. The announcement, made in Kuala Lumpur on last Friday, finally brings along some positive news amid all the stock market gloom which has seen US$ 4trn wiped from the Shanghai Index in just over a month. The city will be seeking to showcase China in 2022 as a developed and prospering nation, compared to the emerging nation it portrayed when it held the Olympics in 2008. China’s President, Xi Jinping has promised a “fantastic” games at a time when he himself will be handing over power to the Communist Party’s next generation and it remains to be seen whether the promises of a crackdown on pollution and a clean-up of Beijing’s infamous smog, allegedly a swaying factor for Beijing to win the bid, can come to fruition before the winter sports arrive.

“We continue to expect one more rate cut from the Reserve Bank of India (RBI) by the end of this year, but the timing of the move will be contingent on domestic (mostly inflation) and external (e.g. the Fed) factors.” Aidan Yao, Senior Emerging Market Economist, AXA Investment Managers

The RBI chose to hold its policy rate at 7.25% on 4th August 2015 amid earlier concerns of a projected poor monsoon season, as well as to gauge the impact of previous cuts and the Fed’s decision to delay its rate rise, according to Senior Emerging Market Economist at AXA Investment Managers, Aidan Yao.  Yao states that even though India’s economy has performed well compared to its EM peers, “the structure of its growth remains uneven”. This, along with an improvement in the monsoon season outlook, alleviating concerns over inflation, will mean the RBI will be “more comfortable about delivering further policy easing later this year”. However, though Yao expects a rate cut, the “timing of the move will be contingent on domestic (mostly inflation) and external (e.g. the Fed) factors.”

“The most ambitious and comprehensive FTA that the EU has ever concluded with a developing country” EU report on the EU-Vietnam free trade agreement

After 3 years of negotiations, the EU and Vietnam finally agreed in principle on a “comprehensive and ambitious trade and investment agreement”. The agreement is the second in the region after Singapore, giving investors and exporters in the European Union “access to a fast-growing market of 90 million people”, helping to consolidate Europe’s foothold in the region. As part of the deal, 65% of import duties will be liberalised on EU exports to Vietnam, the remaining duties eliminated within a 10-year period, whilst all EU duties will be removed within 7 years. According to an HSBC Global Research report, the accord will go “beyond the elimination of tariffs to include liberalisation of investments and services, and seeks to level the playing field between SOEs and private firms”. Only agreed in principle, the negotiators must now discuss the details, expected to be completed by the end of the year, and the EU must then pass the agreement through its legislative process. HSBC has indicated it could be another year before the agreement is put in place. Despite this, it should be a welcome boost to European trade in the region, with the EU already the second largest trading partner of Vietnam.

Of course, amid this more positive news, there are still major concerns about China’s stock market outlook, which for now seems to have bottomed out. Meanwhile, the market is also maintaining caution ahead of US employment data, which could set the stage for the Fed to raise rates in September. BM