Give a more longer term perspective of Economic trends and the Macroeconomic and Monetary Interdependence of the Global Economy.
With the Background of this approach the blog will deal with the implications for Investment decisions.
The author believes that China and the Asia Pacific Region are and will be the powerhouse for the
global economic growth for years to come.
It will also cover IT because of its momentum driver for economic growth.
U.S. crude oil futures inched down on Monday following gains in the previous session, dragged lower by signs of increased supply from Libya and on easing tensions over Ukraine.
FUNDAMENTALS
* U.S. crude futures for September delivery <CLc1> had fallen 45 cents to $96.90 a barrel by 0007 GMT, after jumping $1.77 on Friday.
* Brent crude futures for October delivery <LCOc1> dropped 62 cents to $102.91 a barrel.
* Libya's oil production has risen to 535,000 barrels a day
(bpd) due to a higher output at the southwestern El Sharara, El Feel fields, a spokesman for National Oil Corp (NOC) said on Sunday.
* A delivery of crude oil from Iraqi Kurdistan has arrived at Croatia's Adriatic sea port of Omisalj, a Croatian government source said on Sunday, confirming a report by daily newspaper Jutarnji List late on Saturday.
* German Foreign Minister Frank-Walter Steinmeier said on Sunday after a meeting with his counterparts from Ukraine, Russia and France that they would report back to leaders in their capitals and possibly agree on Monday or Tuesday how to continue talks.
* U.N. nuclear agency chief Yukiya Amano said that he was very glad to hear a firm commitment from Iran to resolve outstanding issues through cooperation during a visit to Tehran on Sunday that he described as "useful".
MARKETS NEWS
* Sterling rose on Monday after the Bank of England indicated that UK interest rates may have to rise even before wage growth recovers, backtracking from earlier comments that prompted markets to push out the risk of a rate hike.
* U.S. equities ended mixed on Friday, paring an earlier selloff sparked by reports of Ukraine shelling a Russian armoured column
China's retail sales maintained steady growth in July, rising 12.2 percent year on year to 2.08 trillion yuan (338.2 billion U.S. dollars), according to data released by the National Bureau of Statistics (NBS) on Wednesday.
The rate was slightly down from the 12.4-percent rise in June, the data showed. In the first seven months, retail sales went up 12.1 percent to 14.5 trillion yuan.
Income from the catering sector increased 9.4 percent to 218.7 billion yuan in July, while sales of consumer goods amounted to 1.86 trillion yuan, up 12.6 percent year on year, the NBS said.
Retail sales growth in rural areas continued to outpace that in urban China. In July, sales in rural regions rose 13.2 percent from a year ago to 281.7 billion yuan, while that in urban areas climbed 12.1 percent.
New credit flowing into the Chinese economy dropped surprisingly in July, spooking economists and raising concerns that the world's second-largest economy may be stuck in a period of weak demand.
China's new yuan-denominated lending marked its slowest growth since November 2011 to reach 385.2 billion yuan (62.6 billion U.S. dollars) in July, down by 314.5 billion yuan from a year earlier, the People's Bank of China (PBOC, or the central bank) said Wednesday.
The decline in July's new lending was much lower compared with the 1.08 trillion yuan in new loans issued in June.
The total social financing aggregate, a broad measure of liquidity in the economy, fell to 273.1 billion yuan in July, which accounted for less than one-seventh of that in June and about one-third of the same period last year, according to the PBOC.
The social financing data also marked the lowest monthly reading since the depths of the global financial crisis in October 2008.
M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 13.5 percent year on year to 119.42 trillion yuan at the end of July. The growth rate also slowed by 1.2 percentage points from June.
"The social financing figures in July were truly jaw-dropping," said Lu Zhengwei, chief economist of the Industrial Bank. "They were equal to just a tiny piece of normal months in the past."
After releasing the credit data, the PBOC shortly followed with a two-page statement trying to explain the sharp declines in a bid to soothe the market.
The central bank attributed the plunge in July new credit to multiple factors, including the unexpectedly strong financing data in June, flagging demand for loans amid downward pressures on economic growth, drops in deposits, and risk control by banks in the face of rising bad loans.
Non-performing loans have now risen for 11 straight quarters, according to the PBOC statement.
"A further analysis showed the growth of new credit and social financing still remains in the reasonable range," the PBOC noted in the statement, saying the central bank's monetary policy to "keep total volume stable and optimize the structure" remains unchanged.
"We should not cling to just short-term fluctuation in a single month," the PBOC said, forecasting that credit will keep growing steadily in the future as banks have made loans of between 30 billion and 50 billion yuan each day since the beginning of August.
Lu said that as the government increased investment to stabilize the economy, banks were restrained by the tight capital adequacy ratio regulation, rather than by demand.
He urged regulators to speed up the approval of banks' issuance of preference stocks to replenish their capital.
In the statement, the PBOC vowed to create a "stable monetary environment" for economic restructuring and upgrading and to appropriately fine-tune its monetary policy in a timely way.
Source: Xinhua
Japan's GDP contracted at a 6.8% annualized rate in Q2,the higher sales taxe hit consumers who've seen litlle growth in incomes and rising consumer prices which rose 3.6% in June year/year.
Tencent Holdings Ltd. (700) faces the prospect of losing its position as Asia’s most-valuable Internet company this year after Alibaba Group Holding Ltd. (BABA) goes public. The Shenzhen-based company isn’t going to concede quietly.
Tencent
is taking on Alibaba in almost every business related to the Web, from
games to security to search. In the latest escalation of the battle,
Tencent is expanding in messaging services and using the technology to
drive customers to its e-commerce partners -- in a direct challenge to
its rival.
The fight exposes a rare vulnerability for Alibaba,
which is planning an initial public offering that may be the largest in
U.S. history. Tencent has an enormous lead in messaging, with about a
billion users for its QQ and WeChat products, compared with Alibaba’s
last target of 100 million for its offerings. Tencent is projected to
report a 52 percent surge in profit when it announces second-quarter
results today, bolstered by messaging.
“Tencent is using Mobile
QQ and WeChat to take traffic away from Alibaba and direct people to
e-commerce platforms backed by itself,” said Bill Fan, a Hong Kong-based
analyst at China
Securities Co. “Instant messaging hasn’t been Alibaba’s strong point,
but it sees the viral effect that Tencent’s app is having so it’s trying
to develop similar services.”
Tencent’s two technologies let people trade messages over mobile phones and tablets, akin to the WhatsApp service that Facebook Inc. (FB)
agreed to acquire this year for $19 billion. QQ, which began as an
instant-messaging service on desktop computers and was repurposed for
use on mobile devices, has about 848 million monthly active users.
WeChat, known as Weixin in China, has 396 million.
The success of the messaging services has helped boost Tencent’s market value to about $161 billion,
making it the most valuable Internet company in Asia. Alibaba will
compete for that title after it goes public. The latest estimate is that
after the IPO the company could be valued at $187 billion, according to
a survey of 11 analysts by Bloomberg. Tencent shares declined 0.2
percent as of 9:52 a.m. in Hong Kong trading, while the benchmark Hang Seng Index was unchanged.
Alibaba
is trying to close the gap in messaging. In September, it started
offering a service called Laiwang. Still, Tencent has continued to
expand the features available through its apps to maintain its lead. “In the latest version of QQ, we have upgraded it to a
platform for food, drinking and entertainment, and the number of cities
we cover is also expanding,” said Dowson Tong, president of the
company’s social network group that oversees QQ, in a recent interview. Tencent has integrated games more tightly into its messaging services
to capitalize on the China online gaming market, which IResearch projects will expand to 225 billion yuan
by 2017. QQ and WeChat helped triple Tencent’s mobile-game revenue to
1.8 billion yuan in the first quarter from the previous three months. That
trend likely continued in the second quarter. Tencent’s profit rose to
5.59 billion yuan in the three months ended June, according to the
average of 11 analysts’ estimates compiled by Bloomberg. That would make the second successive quarter with profit growth of more than 50 percent. Earnings climbed 61 percent in the three months ended March 2011.
QQ was the first iconic product billionaire Ma Huateng created at Tencent in 1999, two years after AOL Inc. (AOL)’s
messaging service took off. As more Chinese accessed the Internet,
instant messaging became the most popular online app. Ma restructured
QQ’s divisions in 2012 to take it mobile and the effort paid off.
Last
year, 83 percent of China’s Internet users subscribed to Mobile QQ and
80 percent to WeChat, compared with Laiwang’s 23 percent, according to a survey among almost 4,000 people by Shanghai-based IResearch in June.
Tencent is now leveraging its vast user base to go after a bigger share of the China e-commerce market, which IResearch estimates will more than double from last year to 21.6 trillion yuan ($3.5 trillion) in 2017.
The
company in March took a 15 percent stake in JD.com Inc., a direct
competitor to Alibaba, and folded its own e-commerce assets into the
venture. This year, Tencent has also agreed to buy 19.9 percent of
Craigslist-like 58.com Inc. and take a 20 percent stake in Dianping.com,
a website similar to Yelp Inc. that users review restaurants in China.
Tencent has been working closely with JD.com and Dianping, directing
traffic from Mobile QQ and WeChat to the websites, said Tong.
Those
steps are beginning to yield results. A new single-click link to JD.com
from Weixin produced an eightfold increase in daily transaction volumes
compared with an earlier access that took two clicks, JD.com said in
June. This month a similar integration with JD.com was provided to users
of Mobile QQ.
Still, Tencent and its partners are far behind in
e-commerce. Alibaba, which operates platforms including Taobao
Marketplace and Tmall.com that connect retail brands with consumers,
accounted for 76.4 percent of total mobile retail transactions in China,
according to its IPO filing to the U.S. Securities and Exchange Commission.
The
fact that Tencent wrapped its e-commerce assets into JD.com shows it
wants to limit its investment in the segment, said Yao Yue, a
Shenzhen-based analyst with Morningstar Inc.
“Even if Tencent’s
instant messaging apps can direct a lot of traffic to JD.com, at the end
of the day it still depends on who has the better shopping service, and
Alibaba’s Taobao is dominant,” said Yao.
Alibaba hasn’t been
able to achieve the same success in mobile messaging so far. The company
in 2004 started Aliwangwang, a PC-based instant messenger for buyers
and sellers, that is now used for negotiating prices, customer services
and delivery notifications on its Taobao marketplace. It also has a
mobile version called Wangxin.
Laiwang
was started by Alibaba to broaden its reach, after billionaire founder
Jack Ma alluded to Tencent being ahead in the messaging race at a Credit
Suisse conference in March 2013.
“We also invested heavily, but
we are not that lucky and not creative, so creative like Tencent, which
has WeChat, such a powerful thing,” Ma said at the conference.
Ma
has vigorously tried to promote Laiwang and said the company wouldn’t
pay bonuses to staff who didn’t get 100 clients for the app before Nov.
30 last year, according to a post on the company’s microblog.
In
an attempt to generate revenue from Laiwang, Alibaba said in January it
would offer games on the app. A month later Alibaba’s Ma said the
company’s achievement on mobile applications wasn’t satisfactory.
Alibaba spokeswoman Florence Shih declined to comment on the company’s mobile strategies, citing pre-IPO restrictions.
The WSJ reports,"tensions eased slightly in Iraq on Tuesday as local factions called for calm and many welcomed the nomination of a new prime minister—including the country's most powerful Shiite militia—offering early signs of a potentially peaceful way forward in forming a new government.
The reprieve comes a day after a high-stakes political confrontation that raised the prospect of violence as Nouri al-Maliki, who sought a third term as prime minister, aggressively rejected the nomination of Haider al-Abadi and vowed to dispute it in the courts. Deployment of security forces in Baghdad also raised concerns that Mr. Maliki might resort to the use of force.
But on Tuesday, a spectrum of voices came out in support of the president's decision and his nominee, Mr. Abadi, and Mr. Maliki himself urged security forces not to take sides in the political confrontation. Mr. Maliki stays on in his position as caretaker prime minister until Mr. Abadi, a member of Mr. Maliki's own Dawa party, tries to form a government within a 30-day time frame outlined in the constitution.
In a statement, Mr. Maliki's office said he met with security chiefs and urged them "to distance from the political crisis." A picture showed him sitting at the head of a long table with some 30 uniformed police and army personnel, whom the statement said he instructed "not to interfere, and to leave this matter to the people, the politicians and the law."
But in the same statement, Mr. Maliki continued to defend the constitution as the only way to preserve Iraq, a reference to his own bid to serve a third four-year term as prime minister, which he views as a constitutional right. He warned otherwise of a "setback" that would be "no less dangerous than that of Mosul," the northern city seized by Islamic militants on June 10—the event that sent Iraq into its worst political and military crisis in years and began to polarize national opinion on Mr. Maliki.
The caretaker prime minister, who alienated the Sunni political community and alarmed Shiites with an increasingly personal bid for power, showed no sign on Monday of backing down, using two television appearances to slam the president's decision and vow to push through his constitutional right.
In a sign of the broad rejection of—and warning against—his defiance, support poured in from international governments in the hours that followed for Mr. Abadi as he begins the difficult process of forming a cabinet. U.S. President Barack Obama interrupted a vacation to make a brief announcement to praise what he said was a positive step toward a more inclusive government in Iraq.
In the semiautonomous Kurdish region of Iraq, where a push by the group calling itself the Islamic State toward the regional capital Erbil drew in U.S. airstrikes, officials also said they supported Mr. Abadi. In part, some officials said, that was just because it meant getting closer to seeing the end of Mr. Maliki's tenure".
The WSJ reports,"the euro slid and German shares deepened
their recent slump Tuesday as fears intensified that a downturn in
Germany's economy could threaten the euro zone's economic recovery.
The
moves came after an unexpected slump in German economic sentiment
became the latest sign that the economic standoff with Russia over the
conflict in Ukraine is hurting Europe's largest economy.
Germany's
ZEW index of economic expectations, a survey of analysts and investors,
fell to 8.6 in August from 27.1 in July, its lowest level since
December 2012. And there may be more bad news this week as data on
Thursday are expected to show a contraction in Europe's largest economy.
Germany's DAX stock index closed 1.2% lower, compared with a fall of just 0.2% in the pan-European Stoxx Europe 600 index.
The euro fell 0.3% against the dollar to $1.3336, close to the nine-month low it touched last week.
Germany's main stock index has fallen out of favor during the Ukraine crisis, as investors worry about the country's close trade links with Russia.
In
bond markets, yields on safe-harbor German 10-year debt edged lower to
1.06%, not far above the all-time low of 1.02% also hit last week. Lower
yields mean higher prices.
"The
question to what extent the European economy will be affected by these
tensions has increasingly become an issue amongst investors," said
Lutz Karpowitz,
a currency strategist at Commerzbank.
Growth
data for the euro zone are due on Thursday. Economists expect Germany
to lag behind the paltry 0.1% quarter-on-quarter expansion they predict
for the currency bloc as a whole, with a 0.1% loss of output.
"The ZEW index is good at predicting turning points of the economic
trajectory and the uninterrupted decline since the end of last year has
well flagged the loss of momentum of the economy in the second quarter,"
said
Christian Schulz,
senior economist at Berenberg".
Gold prices rose on Tuesday as signs emerged that the stand-off between Russia and Ukraine was hurting confidence in the euro zone economy, and as U.S. bond yields held near their lowest in 14 months.
Spot gold was up 0.3 percent at $1,314.80 an ounce at 1351 GMT, while U.S. gold futures for December delivery were up $6.00 an ounce at $1,316.50.
Anxieties over the Ukraine crisis and how this might impact future business hit economic sentiment in Germany, the ZEW think-tank said on Tuesday as it reported a fall in investor morale to its lowest level since December 2012. [
That helped push the euro lower, while boosting German Bund futures. While jitters over Ukraine have fuelled some buying of gold as a safe store of value, the resulting strength in the dollar has kept it within a narrow range, analysts said.
"While gold may rise and fall with the ebb and flow of geopolitical news, we're still stuck in this range between $1,280 and $1,340, as we have been for the last month and a half," Mitsubishi analyst Jonathan Butler said.
"Unless we see another major change, I don't think the current news is going to lead us to break out of that range," he said. "We'll be watching geopolitical situation carefully."
Russia said a convoy of 280 trucks had left for Ukraine on Tuesday carrying humanitarian aid, amid Western warnings against using help as a pretext for an invasion.
Elsewhere, Iraq's new prime minister-designate won swift endorsements from uneasy mutual allies the United States and Iran as he called on political leaders to end crippling feuds that have let jihadists seize a third of the country. Source: Reuters
- Brent crude oil fell below $104 a barrel on Tuesday, its lowest level in nine months as steady supplies dispelled concerns over potential disruptions in producers such as Iraq and Libya.
The International Energy Agency (IEA) said that while the situation in several producer countries was "more at risk than ever", supplies were ample and the Atlantic Basin was even reported to be facing a glut.
OPEC output hit a five-month high of 30.44 million barrels per day (bpd) in July with a rise of 300,000 bpd led by Saudi Arabia and Libya, the IEA said.
"In terms of the physical side of things, particularly for Brent, there are pretty high inventories at the Atlantic Basin at the moment and that's holding back gains," said Ankit Pahuja, a commodity strategist at investment bank ANZ.
September Brent crude was down 94 cents at $103.74 per barrel by 1349 GMT after touching $103.35, its lowest level since November 2013. The contract closed on Monday at $104.68, off 34 cents.
U.S. crude was trading down 79 cents to $97.29 a barrel.
Brent is down about 10 percent from a June peak of $115 per barrel despite concerns over supply disruptions.
Production in Iraqi Kurdistan remains largely unaffected and July exports from the south of Iraq held at near record levels of around 2.5 million bpd.
In Libya, despite clashes between armed factions in Tripoli and Benghazi, output remains around 450,000 bpd, a National Oil Company spokesman said on Monday.
The IEA said Libya's output rose by 190,000 bpd in July to 430,000 bpd.
Sanctions placed on Russia by the United States and European Union over the crisis in Ukraine have also failed to impact oil markets for now.
"Short‐term supply disruptions do not seem on the cards, while on the other hand the sanctions (which are not limited to the oil sector) are expected to trim Russian demand," the IEA said.
A Russian convoy carrying food, water and other aid set off for eastern Ukraine on Tuesday, but Kiev said it would not allow the vehicles to enter the country.
Oil markets awaited weekly U.S. oil stocks data, due to be published later on Tuesday and on Wednesday.
U.S. commercial crude oil stocks were forecast to have fallen 2.2 million barrels in the week to Aug. 8, a preliminary Reuters survey of six analysts showed on Monday.
- Brent crude oil slipped below $105 a barrel on Monday as U.S. intervention in Iraq eased concerns over the risk of disruption to supply from OPEC's second-largest producer.
Oil jumped sharply at the end of last week as Islamic State fighters made rapid gains in parts of northern Iraq and came within striking distance of more of the country's oilfields.
But U.S. air strikes on the Sunni insurgency calmed market worries over the risk to oil production, helping pull prices lower again.
Oil exports from southern Iraq are near record levels and the Kurdistan Regional Government's (KRG) oil pipeline via Turkey is operating normally and pumping 120,000 barrels per day
(bpd) of crude oil.
Iraqi Kurdistan said on Friday its oil output remained unaffected.
Brent was down 12 cents at $104.90 a barrel by 1255 GMT. The contract jumped more than $1 to hit a weekly high of $106.85 on Friday before settling 42 cents lower.
U.S. crude was up 7 cents to $97.72 a barrel.
"The oil market is not as worried now about what is happening in Iraq," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.
"The market has become more complacent about supply again. But complacency is dangerous. Given the geopolitical tensions, a spike in oil prices cannot and should not be ruled out."
Oil markets are well supplied in most parts of the world, and North Sea crude oil for immediate delivery is trading at a discount of $1 to $2 below the Brent futures front month.
Simon Wardell, analyst at Global Insight, said the market's focus was on how fast-moving events in Iraq might unfold.
"There's talk of changes in Baghdad. The oil market is sort of waiting to see what happens," Wardell said.
Prompt Brent prices are unlikely to move higher unless there's a significant disruption in supply, analysts argue, although prices have risen in the future months on concerns about future output growth.
"Oil markets are now well supplied, but forward futures prices suggest the low prices won’t last," Fritsch said.
Ample OPEC production has also weighed on oil prices. OPEC said its members increased output in July despite violence in Iraq and Libya while trimming its 2014 demand growth forecast. Source: Reuters
Copper prices rose slightly on Monday as tensions eased between Russia and Ukraine and on optimism about the outlook for China's economy and metals demand, though expectations of rising copper supplies put a brake on gains.
Three-month copper on the London Metal Exchange
(LME) traded at $7,005 in official rings, up 0.2 percent. It ended the previous week lower for the second week in a row, down 1.1 percent.
Russia's defence ministry said on Friday it had finished military exercises in southern Russia, which the United States had criticized as a provocative step in the Ukraine crisis.
European shares bounced back from a sharp two-week slide, in a move that helped support risk appetite. [.EU]
"There are indications of some easing in geopolitical tension over the weekend, and that is helping the equity markets. Base metals are benefiting from that," said Nic Brown, head of commodity research at Natixis.
Investors were monitoring the situation in the Middle East, with a focus on turmoil in Iraq and on talks in Cairo between Israel and the Palestinians on ending the month-old Gaza conflict.
Robust Chinese export numbers on Friday pointed towards healthy metals use. But solid trade data has yet to be seen globally, with particular questions over the impact of Russian sanctions on the European economy and demand for metals.
This week, industrial production data from China and the United States should paint a clearer picture about the health of the global economy.
"The data from China has been improving for a while now, and the gradual loosening of monetary conditions has been supportive to growth," Brown said.
Investors are concerned, however, that prices for the metal used in power and construction are likely to come under pressure in the second half due to rising supply.
The copper market is expected to be in a 226,000 tonne surplus by the end of 2014, a Reuters poll in July showed, with the surplus seen rising to 285,000 tonnes in 2015
Reflecting a drop in enthusiasm for copper holdings, hedge funds and money managers cut their bullish bets in copper markets in the week to Aug. 5, the Commodity Futures Trading Commission said on Friday.
In other metals, aluminium traded at $2,033 a tonne, up 0.4 percent. The discount to three-month prices narrowed to $4.25 per tonne on Friday, its biggest discount since December 2012, reflecting tightening supplies.
Zinc , untraded in official rings, was bid at $2,311 a tonne, up 0.7 percent, rose 0.9 percent, rebounding after hitting its lowest in more than three weeks in the previous session. Prices have been weighed down by rising inventories, with LME stocks increasing by more than 5 percent this month.
Lead traded at $2,255 a tonne, up 0.7 percent and nickel traded flat at $18,560 a tonne. Tin , untraded in official rings, was bid at $22,350, down 0.1 percent.
In industry news, Michael Farmer, among the world's most famous metals traders, said he had no intention of abandoning the market that earned him his fortune after he was named baron of the British House of Lords. Source: Reuters
"Investors are driving up valuations on Chinese Internet companies as an almost threefold surge in Alibaba Group Holding Ltd. (BABA)’s profits buoyed the earnings outlook for the industry.
Online companies includingVipshop Holdings Ltd. (VIPS), a fashion retailer, and YY Inc. (YY), a social entertainment website, have led gains this year on the Bloomberg China-US Equity Index. The gauge, with about half of its members focused on web business, trades at 18 times forward earnings, near a four-year high reached July 28 and up from a multiple of 11 in February.
Investor confidence is growing in companies that provide online services to the world’s largest pool of Internet users -- some 632 million people -- after Alibaba said in June that net income rose to about 23.1 billion yuan ($3.7 billion) in the 12 months through March from 8.4 billion yuan a year earlier. Alibaba,China’s largest e-commerce operator, is preparing its U.S. listing in a deal that analysts estimate may value the company at $198 billion, three times what it was in May last year.
“The surge in Alibaba’s valuation along with its booming sales and profit help bring people’s attention to the quick growth in China’s Internet sector and its potential,” Tan Chiheng, an analyst at Granite Point Capital Inc., which invests in Chinese equities, said by phone from Boston. “The giant has made quite a few acquisitions that have lifted the targets’ valuations. More mobile-focused web companies can become buying targets.”
Alibaba’s profit soared as sales jumped with shopping promotions and new acquisitions bolstering mobile services. The Hangzhou-based company said in a filing for its initial public offering that it will make investments and acquisitions in areas of mobile, digital media and logistics after announcing 26 deals worth $16 billion since the start of 2012, for companies ranging from online mapping and video to web browsers.
Companies in the KraneShares CSI China Internet Fund (KWEB), an exchange-traded fund that tracks web companies with listings abroad, boosted sales by 41 percent and earnings by 30 percent on average in the first quarter, compared with sales growth of 19 percent and 24 percent profit increase for U.S. web-focused companies, according to Brendan Ahern, managing director at New York-based Krane Fund Advisors LLC. The ETF has rallied 16 percent in 2014.
Sales Surge
Guangzhou-based Vipshop’s net income surged fourfold in the first quarter this year as sales jumped 126 percent to $701.9 million. YY, also based in Guangzhou, said profit rose 139 percent in the April-June period while revenue doubled to $135.6 million.
“The Internet is picking up momentum in China, the population is vast and the language, regulation and cultural barriers have made it good for local companies,” Gustavo Galindo, senior emerging markets portfolio manager at Russell Investments, said by e-mail Aug. 1.
While Chinese Internet company shares have done “tremendously well,” the prices may not reflect the risk that more and more mergers and acquisitions make differentiation more difficult, according to Devan Kaloo, head of global emerging markets at Aberdeen Asset Management Plc.
Margin Compression
“The boundary between Internet companies is blurred,” Kaloo said in an interview at Bloomberg’s headquarters in New York on Aug. 6. “They are going to fight each other out. That means there potentially a big risk to margin compression because of that.”
SOURCE: BLOOMBERG
In a complacent market it is always prudent to take a cautious approach,and a measured risk.
Bloomberg’s new China Monetary Conditions Index -- a weighted average of loan growth, real interest rates and China’s real effective exchange rate -- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012.
New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by Aug. 15, suggesting officials are keeping the credit spigot open even as debt risks mount. While consumer inflation below the government’s goal allows room for more easing, economic data will determine how far policy makers go.
“The central bank worries more about inflation and financial risks, but the government is worried more about growth and employment,” said Ding Shuang, senior China economist at Citigroup Inc. (C) in Hong Kong. “Growth will rebound in the second half, so that will give the central bank some support in not expanding credit and liquidity further.”
Each $1 in new credit added the equivalent of an extra 20 cents in GDP in the first half of 2014, according to data compiled by Bloomberg. That compares with 29 cents in full-year 2012 and 2013 and 83 cents in 2007, when global money markets began to freeze.
Inflation figures released Aug. 9 suggest monetary easing has yet to trigger price gains in the broader economy. The consumer price index rose 2.3 percent in July from a year earlier, the same pace as in June and below the government’s 3.5 percent target. The producer price index fell 0.9 percent, the 29th straight decline.
Bloomberg’s monetary index was introduced in July, with the data series compiled back to 2003. The gauge peaked at 148.02 in November 2009 amid China’s 4 trillion-yuan stimulus plan during the global financial crisis.
This index gives you a handy one-shot explanation of what China’s doing on its monetary policy and its relationship with growth,” said Fielding Chen, a Bloomberg economist in Hong Kong who created the gauge. “It’s showing us that the current pickup in growth momentum, which is likely to be a little stronger in the coming few months, is underpinned by accommodative monetary conditions.”
While economic expansion picked up to 7.5 percent in the April-June period from a year earlier, growth in the third and fourth quarters will dip back to 7.4 percent, according to median estimates in Bloomberg News surveys of analysts.
Data due Aug. 13 from the statistics bureau will provide more indications of the impact of Li’s easing. Industrial output growth in July kept pace with June’s 9.2 percent gain, which was the biggest for a single month since December, while growth in fixed-asset investment excluding rural households picked up to 17.4 percent in the first seven months, according to Bloomberg News surveys.
Total debt reached 251 percent of gross domestic product as of June, up from 234 percent in 2013 and 160 percent in 2008, according to Standard Chartered estimates. Bad loans at China’s commercial banks rose to 1.08 percent of total lending at the end of June, the highest in three years, government data show.
“The government set the growth target at 7.5 percent and they want to keep their promise, so they are prepared to keep policy accommodative even at the cost of rising leverage,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “But they are very likely to lower the target next year -- China just can’t grow at 7.5 percent without government stimulus and without adding leverage.”
The WSJ reports,"Chinese e-commerce company Alibaba Group Holding Ltd. is rolling out a powerful new incentive to attract luxury brands: removing some listings from its online shopping sites.
Like many premium brands, Burberry PLC had been fretting about a flood of discount Burberry products—some of them fakes—on Alibaba's two big marketplaces, which accounted for 80% of China's estimated $300 billion in online shopping last year. Burberry hadn't authorized any of those vendors to sell its goods.
Alibaba would do its best to get those products off its sites if Burberry opened its own shop on Alibaba's online mall, Burberry was told, according to people familiar with the talks. Burberry opened a store on Alibaba's Tmall in April.
Cos., hoping they would embrace Tmall, China's main online venue for big brands. Alibaba has promised that once they open their own stores, it will purge goods sold on Tmall by retailers not authorized by the brands or do more to fight fakes on Taobao, Alibaba's online huge online bazaar, according to people familiar with the matter.
Alibaba has been eager to woo high-end brands ahead of a listing on the New York Stock Exchange that is expected to be one of the largest initial public offerings in U.S. history. The presence of luxury brands lends a luster that can draw shoppers, other brands and potentially investors.
Alibaba told many shops on its sites that they had to stop selling the U.K. brand's products. It blocked some stores from posting Burberry items, and checked more frequently to make sure vendors weren't using Burberry copyrighted images, sellers said.
"Tmall is having a change of strategy," said Vincent Wong, chairman of Hong Kong-based Pompei Holdings Ltd., which specializes in selling luxury items at discounted prices and was told to pull Burberry-branded goods from its Tmall shop. "When a global brand opens its store, we are not allowed to display that brand."
Alibaba's offer to crack down on gray-market goods for brands that open Tmall stores provides a powerful incentive for brands to join the site, said Scott Galloway, chief executive of L2 Inc., a New York-based research firm. Alibaba's websites are a door to China's 300 million online shoppers. In 2012, the combined transaction volume of Taobao and Tmall topped one trillion yuan, or about $160 billion, more than Amazon.com and eBay combined.
Alibaba's intervention can be extremely effective.
In contrast, the number of third-party vendors selling products from Gucci, which doesn't have a Tmall store, rose to 69 in June from 63 in April. Third-party vendors of Giorgio Armani SpA and Ralph Lauren Corp. —two other brands without a Tmall store—also increased. Gucci and Ralph Lauren declined to comment. An Armani spokesman said the company "engages in various activities around the world to protect [its brands'] integrity," but isn't commenting on the situation in China.
In July, Gucci, Yves Saint Laurent and other luxury brands under Kering SAKER.FR -0.66% filed suit against Alibaba, saying that the Internet company's shopping, marketing and payment platforms "knowingly make it possible for an army of counterfeiters to sell their illegal wares." Two weeks later, the luxury brands withdrew their claims against Alibaba, saying in a joint statement with Alibaba that the parties had "agreed to work together in good faith. to further reduce counterfeiting of Kering brands."
Brands also have complained about counterfeits on Alibaba's other website, Taobao, an online bazaar with eight million sellers offering 800 million products. Alibaba has stepped up efforts to deal with the issue, and in the past has signed agreements with Coach Inc.COH +5.43% and LVMH Moët Hennessy Louis Vuitton SA, among others, to crack down on fakes.
People familiar with Alibaba's marketplaces said its efforts to eliminate unauthorized sellers while recruiting brands to Tmall have intensified in recent months.
In December, Alibaba signed an agreement with the British government and said it would remove gray-market products for U.K. brands that opened official shops on Tmall, according to a spokesman for the country's Trade & Investment division. The French and Italian governments have also signed agreements with Alibaba, but haven't said whether Tmall promised to clear gray-market goods.
Some Western mass-market brands that already had Tmall shops, such as Nike Inc.NKE +0.93% and New Balance Athletic Shoe Inc. also are starting to see gray-market goods cleared away, according to YipitData. That pushes more sales to their official stores.
In April, 12.6% of Nike athletic shoes sales on Tmall came from the brand's flagship store. That percentage had nearly doubled by July, according to YipitData.
Nike said the brand has devoted "considerable resources" to fighting gray-market goods offline and online, including working with Tmall to address the issue.
Dan McKinnon, senior counsel of trademarks and global brand protection at New Balance, said the company has spoken to Alibaba "many times" about its concerns about gray-market goods and counterfeits on its shopping platforms. This year, the company noticed fewer gray-market New Balance shoes on Tmall, he said. The percentage of New Balance sales on the site coming from the brand's store climbed to 69% from 57% between April and July.
Analysts said it may be harder for Alibaba to crack down on unauthorized sales for things like sneakers, since unlike the luxury firms, mass-market brands often have authorized distributors on Tmall, making it harder to winnow out the problem shops. Doing so might also hurt Tmall's sales and traffic.
"They need to clean their ecosystem to please the highest-end brands, but on the other hand, the counterfeit and gray-market goods generate a good amount of sales," said Alex Misseri, head of e-commerce at digital-consulting firm Razorfish.
For the gray-market vendors, the selective bans on sales of some brands has been frustrating.
"In an ideal scenario, they don't want people like us, they want the brand owners," Mr. Wong said. "They allow people like us because it generates sales and demand."
