Foreigners Miss Out In Japan

As the Nikkei 225 Stock Average rises toward its highest level in more than two decades, one group of investors has surprisingly missed out.

Since the start of 2016, foreigners have offloaded some $27 billion in the Asian country’s equities. While they were initially right to sell as the Nikkei 225 fell to a 20-month low in June 2016, they’ve been slow to return, even as the measure trades within 4 percent short of its highest close since 1996. In fact, a Bank of America Merrill-Lynch survey published this month showed global fund managers cut their allocations to Tokyo shares.

Strategists say overseas investors, who made big profits plowing money into Japanese equities in Prime Minister Shinzo Abe’s early years, simply took their eye off the ball. They’ve been diverted by markets like Europe, where valuations are attractive and political risk has receded, as far-right candidates lost in French and Dutch elections. For once, Japanese investors are much more optimistic about Japan — pushing two measures of smaller shares to the highest on record.

“Japan doesn’t seem to be foreign investors’ predominant focus,” Shusuke Yamada, chief foreign-exchange and equity strategist at Bank of America Merrill Lynch in Japan, said in a phone interview. “We don’t have big events. It may not be easy for the Japanese market to attract attention.”

The Nikkei 225 has risen 35 percent from that low in June last year, while the Jasdaq Index and the Tokyo Stock Exchange Second Section gauge of smaller stocks, which are dominated by local investors, both advanced to records this week. The Nikkei 225 slipped 0.5 percent Wednesday.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

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Russian Grain Gain

Russia’s wheat fields are expected to see warm, dry weather in the next two weeks, a relief for farmers that have struggled with a cold and soggy planting season.

Wet fields of winter wheat will start drying out, which would benefit the crop to be harvested next month, according to Commodity Weather Group. Later in June, most models show rain will return, which would replenish soil moisture and keep the crop in good shape, said David Streit, a forecaster for the Bethesda, Maryland-based firm.

“Russia has a good soil moisture supply in place going into this drier spell that the wheat can tap into,” Streit said, adding that the dry weather will help prevent disease.

Bad weather has lowered expectations for Russia’s total grains production, and traders are closely watching weather forecasts ahead. Earlier this month, the Agriculture Ministry cut production estimates to as low as 100 million metric tons from a previous forecast of 110 million tons, according to a report from Tass news service, which cited an interview with the minister.

Cold, Wet

Earlier in the year, cold weather in central and southern Russia, the main areas for winter wheat, raised the risk of delays to the wheat and barley harvest. It’s also possible that central and eastern Ukraine, and central portions of Russia’s North Caucasus could see lower yields, said Kyle Tapley, a senior agricultural meteorologist at MDA Weather Services.

“I don’t see major problems for the winter wheat except for some falling behind with vegetation, but it is not the major issue,” said Dmitry Rylko, director general of Institute for Agricultural Market Studies in Moscow.

The weather could be a bigger problem for spring crops, such as wheat, barley and corn, which are falling behind in planting and development, he said.

In the spring-wheat areas of Volga region and the Urals, the fields will likely remain cold and wet over the next 10 days, which could slow planting and early crop growth, said Tapley of MDA. However, conditions could improve later in the season, he said.

Sowing of spring wheat, the smaller of the two main wheat harvests in Russia, are lagging behind last year’s pace. Plantings account for 12.5 million hectares (30.9 million acres) as of June 2, compared with 13.3 million hectares a year before, according to the Agriculture Ministry.

Spring wheat, mainly grown in Siberia, usually accounts for a third of Russia’s total harvest.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Hong Kong V Singapore

Many cities lay claim to being important financial centers, but two metropolises are usually seen vying for the title of Asia’s most important financial hub: It’sHong Kong versus Singapore.

Singapore is a gateway to Southeast Asia and is seen as a wealth management hub, but Hong Kong boasts easy access to China’s trade and capital flows, and has held the title of top global IPO market for two consecutive years.

“I think that Singapore is really in the right place as where the growth is. So if you think about the deep capital markets here, this ability to finance regional growth, its focus on wealth management, that sort of access to regional and international wealth management [are] opportunities from Singapore,” Anna Marrs, regional CEO of Standard Chartered said on Monday.

As for Hong Kong, proximity to China is seen as the number one reason many Chinese companies choose to list there. Currently, almost 8,000 companies are listed on the Hong Kong Stock Exchange compared to about 800 on Singapore’s.

“If you’re talking about the equity markets, Hong Kong, you know, is part of greater China and the Chinese story is alive and well — and kicking. From an equity markets perspective, I think the Hong Kong capital markets is still extremely strong, valuations are not that stretched,” said Tan Su Shan, managing director of Singapore’s DBS.

But Standard Chartered’s Marrs said in an interconnected world, proximity isn’t enough. Her bank, she said, is now looking at Hong Kong as a gateway to markets beyond China — through Beijing’s “One Belt, One Road” plan to connect markets along the ancient Silk Road.

“When you look at where China is investing, and you look at the One Belt, One Road markets, it’s not just about Hong Kong,” Marrs said.

Despite the opportunities, both Hong Kong and Singapore face various financial challenges.

In Singapore, slowdowns in a number of legacy sectors like oil and gas, construction and shipping are weighing on the financial industry.

Standard Chartered saw income down by about 6 percent in Singapore last year, and saw fewer private wealth clients. According to Marrs, one of the key places to hedge against risks is in the technology sector: Singapore is the technology headquarters for Standard Chartered, and in 2016 it launched a new innovation lab there in conjunction with its Smart Nation plan.

DBS also pointed to technology as a catalyst for its growth, not only in its domestic market, but also in new markets like India and Indonesia. Digital financial services are bringing access to liquidity, deposits and loans to the masses in those markets.

“How DBS wants to play in this field is to be able to harness this fabulous technology, to be able to give us that reach and that ability to reach out to a bigger market, a wider market without the cost that comes with an incumbent, you know, branch-based banking,” Tan said.

Hong Kong, meanwhile, faces challenges in corporate governance and auditing as a result of doing business with China. Moreover, while it does have a budding financial technology industry, Ke Yin, CEO of CITIC Securities International said that this is one industry where Hong Kong lags behind mainland China.

Chris Wei, the Asia Chairman for Aviva said that Singapore is leading Hong Kong when it comes to innovation in fintech, and he cited the Singapore government’s support for innovation as a reason.

“For example, giving access to financial institutions, to Singapore government databases for identity validation, for anti-money laundering validation etc., that helps a lot. So I think Singapore has taken a little bit of a lead in that. The journey is not over, it’s a long-term one, but that, I think, is the next wave,” he said.

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The Pinstripe and Bowler club shares information with MF Solutions Ltd.

Global Economy Slow Down

Global growth is expected to slow down significantly in the coming months as borrowing levels dominate in both China and Europe and “Trump-mania” is set to fade, a chief economist at Danish investment firm Saxo Bank said on on Monday.

“Our main global macro outlook still maintains that recession is more likely than not in the near future (12 to 18 months) based on the global credit impulse having peaked simultaneously with global inflation,” Steen Jakobsen, chief economist at Saxo Bank, said.

In a recent note, Jakobsen explained that the biggest “perception-versus-reality gap” in the market currently remains this risk of recession. He added that his company is not predicting a recession, but that its economic model does indicate a significant slowdown as “the large credit impulse from China and Europe in the early part of 2016 has not reversed to negative”, which it says should make the market conservative, risk averse push investors into U.S. fixed income.

“While the market at large sees less than a 10 percent chance of recession, we at Saxo – together with our friends at South Africa’s Nedbank – see more than a 60 percent chance,” he added in the note.

Europe is seen as the main region driving global growth, according to Jakobsen, beating the U.S. in the second and third quarters of this year. Jakobsen is not alone in this thesis, with a number of investment houses recently upgrading their outlooks on European stocks as fears recede on the rise of populism and polls indicate that centrist candidate Emmanuel Macron is likely to do well at the upcoming French elections.

Mike Bell, global market strategist at JPMorgan Asset Management, stated Monday that European stocks “look pretty cheap” compared to U.S. stocks. “What you’re starting to see now is that underperformance of earnings that you’ve seen since the financial crisis is disappearing,” he said. There’s been a fundamental acceleration in the euro zone economy, he also noted.

But, according to Jakobsen, Europe’s momentum is not followed in other parts of the globe.

“One thing is absolutely clear: Asia is not going to contribute anything in 2017 to growth. China is on total standstill,” Jakobsen said Monday.

“They don’t know what to do with (President Donald) Trump and I think Trump again showed his hand over the weekend that he is not to be relied on in terms of a set-out path for how they conducted themselves,” he added.

Trump and Chinese President Xi Jinping agreed during a summit last week to develop trade talks during the next 100 days to reduce the Chinese trade surplus with the U.S. They also agreed to increase cooperation to curb North Korea’s nuclear program.

Shortly after the meeting, Trump sent 100,000-ton USS Carl Vinson and U.S. Navy support ships to the Pacific as a show of force amid rising fears that North Korea will launch an intercontinental ballistic missile test in the coming days. Last week, Trump approved a missile strike on Syria, after an alleged chemical attack. Such a decision overshadowed the summit with his Chinese counterpart.

Furthermore, the main driver of U.S. equities seems to be hope, Jacobson added. The S&P 500 has reached historic highs since the new president took office on expectations that he will deliver massive tax cuts and infrastructure investments.

“A dominant part of the equity analysts sees a significantly higher S&P but it’s based on hope. Hope to me belongs in church on a Sunday,” Jakobsen said.

When economies slow up, people buy gold.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Bull Not In The China Shop

Mark Mobius is tempering his bullishness toward China’s equity market.

The legendary emerging-market investor says Chinese shares traded offshore have become too pricey after an almost 20 percent jump in technology stocks helped propel the MSCI China Index to its most expensive level in more than six years.

“We won’t be adding aggressively at these levels,” Mobius, executive chairman of Templeton Emerging Markets Group, said in an interview on TV Thursday, referring to tech shares. “The problem you face now with China is that the index is so heavily weighted to tech stocks which are naturally very expensive so it pushes up the whole index.”

Chinese tech giants Tencent Holdings Ltd., Alibaba Group Holding Ltd. and NetEase Inc. have driven the MSCI China gauge up 14 percent this year, making it the best performer globally. Company earnings, meanwhile, haven’t kept up the pace, which has contributed to the index’s swelling valuation. The MSCI China traded at 14.9 times members’ reported earnings on March 20, the highest level since December 2010.

Tencent, the Internet company best known for its blockbuster WeChat messaging service, has gained 18 percent since Mobius made a bullish call on onshore Chinese shares back in November, pushing its market capitalization above that of Wells Fargo Inc. His argument then was that Beijing may be forced to speed up the pace of opening China’s markets by the threat of a trade war with President Donald Trump.

Five months on, Mobius is confident Trump will put the bluster aside when he meets Chinese President Xi Jinping for the first time Thursday in Florida. China’s intent will be to build a smooth relationship with the U.S., he said.

“The Chinese are in pretty good position because they could easily raise their exchange rate, make it stronger and still export a heck of a lot,” Mobius said Thursday.

While offshore-traded Chinese shares have outpaced their mainland brethren this year, Mobius sees greater gains onshore in the long term. MSCI Inc.’s plan to include mainland stocks in its global benchmarks will lure more foreign investors, while government stimulus should invigorate demand from locals, he said.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Indian Summer

As India’s monetary policy committee begins its two-day meeting, the inflation-targeting central bank may be using flawed price measures as the basis for its swing to neutral policy.

All 52 economists in a survey predict the Reserve Bank of India will leave the repurchase rate unchanged at 6.25 percent on Thursday, as price pressures appear to be picking up. Governor Urjit Patel is concerned about core inflation — stripping out volatile food and fuel costs — which he says is worryingly sticky.

But what if the core gauge and the benchmark consumer-price index are off the mark? Patel could be missing a window to lower borrowing costs to spur investment proposals that are near a decade low. Such concerns revolve around three question marks over price data.

Core Concerns

The RBI’s measure of core CPI shows stickiness around 4.8 percent year-on-year since September. This feeds into overall CPI, which accelerated in February for the first time in seven months to 3.65 percent, nearing the 4 percent midpoint of the RBI’s target range. Bloomberg Intelligence’s economist Abhishek Gupta says that’s because the RBI hasn’t fully stripped out fuel costs from its transport basket; once done, core CPI is at 4.2 percent.

“A falling core-CPI inflation suggests that the pricing power at the retail level is sliding due to inadequate demand,” Gupta said. “This should signal the central bank to cut the policy rate in order to stimulate demand so that the economy can operate closer to potential.”

Consumption Patterns

Another argument pertains to the weights the RBI assigns various consumption patterns in its CPI basket. These are based on the government’s surveys on consumer expenditures in 2011-2012, which show that the average Indian spends about 46 percent of monthly income on food, the main driver of local prices.

More contemporary data published in January pegs private consumption expenditure on food at about 30 percent. Moreover, economists such as Surjit Bhalla, senior India analyst at Observatory Group, have argued that the CPI data ignores spending on financial services, and could be overestimating price pressures by roughly a full percentage point. He declined to comment when reached by email on Friday, citing obligations with Observatory.

Missing Inputs

Economists such as Soumya Kanti Ghosh at State Bank of India say the nation’s statisticians aren’t accounting for the rising e-commerce market, which offers consumers big discounts. Instead, they seek inputs from traditional suppliers, which typically sell at higher prices.

The gap was flagged by the RBI’s external advisory group in 2015, which has since been replaced by the monetary policy panel that votes on rates, and the government was last year said to be planning to include online retailers in its dataset. In a report published last month, Ghosh predicted headline CPI was below 4 percent in March, lower than his previous estimate of about 4.4 percent and the RBI’s 5 percent target.

TCA Anant, the government’s top statistician, said CPI represents the average Indian consumer, and so certain types of consumption — such as spending on luxury goods — may not be included in the index. The next consumer expenditure survey will ask people about online purchases, though that’s probably quite small, he said in an interview in New Delhi on Monday.

Apart from these questions about the price data, inflation could also swing as the outlook on India’s crucial monsoon rainfall remains uncertain and clarity is still awaited on the roll out of higher housing allowances for government employees and a nationwide sales tax.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Growth To Bust – A Cautionary Tale.

Not so long ago, Mongolia was the world’s fastest-growing economy. Now, by nearly every metric, it’s in a dire fix. Its debt has surged, its currency has plummeted, and its budget deficit has widened alarmingly. Foreign investment has dried up and economic growth all but ceased. Even the poor antelope are beset by plague.

Making matters worse, some staggering bills are coming due. The government, along with a state-backed development bank, is on the hook for more than $1 billion in maturing bonds over the next year, starting with a $580 million payment due in March. By one account, locals are so anxious they’re donating their horses to help avoid default.

Thankfully, better options are available. This week, the government is negotiating with the International Monetary Fund for a bailout, its sixth in less than three decades. China also may be willing to lend a hand, at a price. Yet even if it avoids default, Mongolia should stand as a cautionary tale for the ages.

Sitting on expansive mineral reserves, and sharing a long border with the world’s second-biggest economy, Mongolia long looked like an appealing place to invest. Its economy grew by 17 percent in 2011, as its mines churned out huge amounts of coal and copper to meet Chinese demand.

Ominously, though, government spending rose by 56 percent the same year. With interest rates abnormally low, Mongolia was one of many not-so-creditworthy countries able to borrow on attractive terms as investors pursued higher yields. In 2012, it issued $1.5 billion in “Chinggis Bonds” to splurge on public works. It boosted pay for civil servants and subsidized mortgages. Politicians doled out cash. A flowering of luxury boutiques, fancy hotels and immodestly large statues dotted the steppe.

Then the good times ended, as they always must. China’s economy slowed, commodity prices plunged, and Mongolia found itself in a bind. Growth halted and debt mounted. With foreign-exchange reserves dwindling, a balance-of-payments crisis was staved off only with help from the People’s Bank of China.

A new IMF lifeline would avert an imminent default, but Mongolia needs more than that. Most of all, it must diversify an economy that depends on mining for nearly a quarter of its output and 90 percent of its exports. This in turn requires better schools and a new approach to foreign investors, whom the government has antagonized extravagantly in recent years. Reining in corruption would help. Budgets will have to be tightened so that revenue can be used to build up a sovereign wealth fund, which could eventually be used to smooth out the commodity boom-and-bust cycle.

Attend to all this, and Mongolia’s future still looks bright. It has a young population, a mostly stable democracy, and even an embryonic startup scene. The IMF reckons its mineral deposits may yield $3 trillion over time. An expansion of the immense Oyu Tolgoi mine, now under way, should soon pay hefty dividends. Accepting some pain today will help ensure those riches are well used. It might also bring Mongolia’s wild economic gyrations to an end.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.