Will the trade war spell the end of Chinese stock listings in America?

merican investors wanting a piece of Chinese firms, whether state-owned oil majors or tech stars, need not stray beyond Wall Street. Over the past two decades some 200 Chinese firms have gone public in America, more than from any other foreign country. (Most have their main listing there; a few have a “secondary” one, with a main listing in China.) These firms’ total market value is more than $1trn. For America’s stock exchanges, that is a great triumph. But trade hawks are starting to describe it as a great liability.

In a letter in April a bipartisan group of politicians led by Marco Rubio, a Republican senator, said American investors faced risks because of exposure to Chinese companies “that pose national-security dangers or are complicit in human-rights abuses”. Steve Bannon, President Donald Trump’s former chief strategist, expanded the focus to all Chinese stocks in America in an interview published on May 22nd in the South China Morning Post. “The next move we make is to cut off all the ipos [initial public offerings], unwind all the pension funds and insurance companies in the us that provide capital to the Chinese Communist Party,” he said.

 

Source: The Economist

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Brazil Jobless Rate Falls to 12.5% in 3-Month Period Through April

Brazil’s unemployment rate declined slightly in the three months through April as both the number of people with formal jobs and those working under the table increased.

Joblessness fell to 12.5% in the period, from 12.7% in the quarter ending March 31, the Brazilian Institute of Geography and Statistics, or IBGE said Friday.

Brazil’s weak economy, which shrank 0.2% in the first quarter from the fourth, has been struggling to create new jobs so far this year. Some economists say they expect growth to slowly recover in coming months, and that the pace of job creation should also gradually improve.

One issue holding back job creation has been that company plans for hiring and investment have often been on hold since the start of the year, as businesses wait to see the outcome of the new government’s efforts to overhaul Brazil’s insolvent pension system.

President Jair Bolsonaro sent a plan to Congress in February that his administration says will save the pension system more than 1 trillion reais ($251 billion) over 10 years, though most analysts expect the savings to be reduced by congressional haggling over the details of the proposal. The bill is still being debated in a committee in the lower house of the legislature.

The number of people employed in Brazil increased to 92.4 million in the three months through April, from 91.9 million in the three months through March. Workers with formally registered jobs rose to 33.1 million from 32.9 million, those working under the table increased to 11.2 million from 11.1 million and the number of self-employed increased to 23.9 million from 23.8 million, IBGE said.

Source: MorningStar

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International capital inflow to Brazil exceeds forecasts

Brazil posted a surprise current account deficit in April, central bank data showed on Monday, although as a share of national economic output Brazil’s balance of payments shortfall with the rest of the world is showing signs of stabilizing.

International capital continued to flow into Brazil too, with foreign direct investment exceeding forecasts and, measured as a share of the economy over a cumulative 12-month basis, hitting its highest level since 2001.

The US$62 million current account deficit was well short of a median forecast of economists of a US$ 450 million surplus, as the services deficit widened 11.9% to US$3 billion and other services-related income fell 18% to US$1.1 billion.

But in the year to April, the deficit was little changed at US$ 13.7 billion and held steady at 0.73% of gross domestic product, the central bank said.

According to the latest central bank ‘FOCUS’ survey of around 100 financial institutions published on Monday, investors expect Brazil will post a current account deficit of US$25 billion this year. An anticipated trade surplus of just over US$ 50 billion will be wiped out by a shortfall in financial payments.

The balance of payments deficit continues to be funded by strong capital inflows, central bank data showed. FDI in April nudged US$ 7 billion, up from US$ 6.8 billion in March. The central bank estimated that FDI in May will rise even further, up to US$7.5 billion.

 

Source: MercoPress.

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Trump hails ‘treasured alliance’ between US and Japan

President Trump on Monday quoted ancient Japanese poetry and called the relationship between the US and Japan a “treasured alliance” during a toast before a state banquet with newly crowned Emperor Naruhito in Tokyo.

The Imperial Household Orchestra played “The Star-Spangled Banner” at the Imperial Palace and the dinner crowd toasted and clapped.

​”​Good evening, we are profoundly honored to return to Japan as your nation​’​s first state guests following the enthronement of his majesty the emperor​,” Trump, wearing​ ​black tie, told the assembled guests.

“We thank the people of Japan for their incredible hospitality and warm welcome in this majestic land​,​”​ he said, adding that he values the “treasured alliance” between the US and Japan.

He also recited ancient Japanese poetry.

“It also reminds us that in times of change, we can take comfort in our inherited traditions. In the fifth book of the Manyoshu where the term Reiwa originates, the writings of two poets offer important insights​,” Trump said.

​“The second poet, a good friend of the first, reminds us of our solemn responsibilities to family and future generations. Both are beautiful lessons passed down from ancient wisdom​,” he continued. “Today we embrace the limitless potential before us.​”​

His reference to Reiwa, which means “beautiful harmony,” is the name of the new era that began with Naruhito’s ascension to the throne on May 1.

Trump is the first world leader to meet Naruhito and Empress Masako during his four-day visit to Japan.

Following his remarks, the orchestra played the Japanese national anthem, “Kimigayo,” and everyone stood.

Guests, including Trump and first lady Melania Trump and US Ambassador to Japan William Hagerty and his wife, Chrissy, dined on a six-course banquet.

The dishes featured consommé a la royale​, turbot a la meunière sauce tomate​, cote de boeuf rotie, salade de saison, glace Mont Fuji and a dessert of melon and grapes.

During his visit, Trump rekindled his relationship with Prime Minister Shinzo Abe.

The two spent hours talking trade and the threat from North Korea.

They also played 16 holes of golf and lunched afterward on double cheeseburgers.

The two leaders also attended a sumo match, with Trump presenting the champion with a US-made trophy called the “President’s Cup.”

In a news conference earlier Monday, Trump touted his relationship with Abe.

“This visit has also been a chance for Prime Minister Abe and me to strengthen our close friendship and the friendship between our two nations​,” he said. “​The alliance between the United States and Japan is a cornerstone of stability and prosperity in the region and all around the world.​”​

 

Source: New York Post

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Goldman Sachs cuts Brazil GDP forecasts, now sees Q1 contraction

Economists at Goldman Sachs on Wednesday cut their economic growth forecasts for Brazil, predicting that the economy shrank in the first quarter this year and will struggle to grow much faster in 2019 than it did in each of the last two years.

After a string of weak economic indicators, culminating in a fall in the central bank’s IBC-BR economic activity for March, they lowered their first-quarter gross domestic product growth forecast to -0.1% from +0.2% and their 2019 forecast to +1.2% from +1.7%.

“The economy continues to operate with a very high degree of slack in terms of resource utilization,” Alberto Ramos, head of Latin American economic research at Goldman Sachs in New York, wrote in a note on Wednesday.

“Progress towards fiscal consolidation … remains … quintessential to anchor market sentiment, support consumer and business sentiment, and leverage what has been so far a very shallow and disappointing recovery,” he said.

Ramos and colleagues revised their outlook immediately after the central bank’s monthly IBC-BR economic activity index showed a stronger-than-expected fall in March, giving a 0.68% decline in the Jan-March period.

Not only have first-quarter indicators been much weaker than anticipated, survey indicators continue to point towards sluggish activity in the second quarter. Echoing central bank policymakers, Ramos also said there will be a “negative statistical carry” over into the April-June quarter from Jan-March.

On Tuesday the central bank said there was a “relevant probability” that GDP contracted in the first quarter, and Economy Minister Paulo Guedes said the government will cut its 2019 growth forecast to 1.5% from 2.2%.

Goldman’s 2019 GDP growth forecast of 1.2% is lower than the average market consensus of around 1.5%, and barely above the 1.1% growth registered in 2018 and 2017.

 

Source: Reuters

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Why US-China trade war’s latest escalation could be good news for Brazil, Mexico and Vietnam

Brazil, Mexico and Vietnam are among the countries that could make marginal gains in areas such as manufacturing and agriculture should US-China tensions continue after they flared up again this week, analysts have said.

The trade war between Washington and Beijing has already caused shifts in global trade, and will continue to create winners and losers as businesses try to cope with increased uncertainty.

The United States officially raised tariffs on US$200 billion of Chinese goods from 10 to 25 per cent on Friday, in a new escalation of tensions even as China’s Vice-Premier Liu He visited Washington for talks.

Donald Trump had said last month that the two sides were “very close” to a deal that would end nearly a year of mutual tariff levies, but the introduction of new tariffs on Friday – as threatened by Trump last Sunday – may change the landscape.

Global trade networks have been rocked by the US-China tariff exchanges that began last July, but uncertainty for some has opened doors for others.

“So far, US-initiated tariffs have mainly hit lower-end and labour-intensive sectors,” said Rob Koepp, Hong Kong director of The Economist Corporate Network. “Economies that are well positioned on the sidelines, like

Vietnam and Brazil, then have an opportunity to jump in and offer goods that avoid the increasing tariffs.”

The latest official monthly figures from Vietnam for April showed a 29 per cent increase in US-bound exports year-on-year, while capital contributions from foreign investors were up 215 per cent, largely in manufacturing.

A study by The Economist Intelligence Unit late last year suggested that many countries around Asia could reap the benefits of filling China’s shoes in exports to the US. Malaysia and Vietnam were projected to be the biggest winners in IT equipment manufacturing, while Bangladesh, India and Vietnam were potentially able to enjoy a boost in exports of ready-made garments.

Tommy Wu, a senior economist at Oxford Economics, said: “Malaysia and Thailand could also be winners because they have relatively good infrastructure already in place and have a more business-friendly environment than places like the Philippines or Indonesia that have the advantage of lower wages but also poorer infrastructure.”

Wu warned, however, that renewed escalation of US-China trade tensions may generally have a negative effect on trade in Asia.

“There is some trade diversion where Asian economies have seen exports to the US rising, but that was not enough to offset the overall trade weakness.”

The Asian Development Bank downgraded its growth forecast for the Asian economy this year from 5.7 per cent to 5.6 per cent, citing US-China trade tensions as a factor along with other uncertainties such as Brexit.

US soybean growers expressed displeasure with Trump’s new tariffs, fearing that retaliatory tariffs placed by China on their beans last year may continue to cut sales to China. Brazil stepped in to deliver  record amounts of soybeans to China last year, along with an increase in other agricultural products.

US neighbour Mexico may also benefit from less US reliance on China and make a comeback in furniture, toys and textile manufacturing, in which it has lost out to China since China joined the World Trade Organisation, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“Even with the new Nafta [North American Free Trade Agreement] not signed, Mexico is moving up the rankings as a trading partner for the US,” he said. “The Mexican peso might be a beneficiary of the trade war.”

Source: South China Morning Post

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Brazil to cut import tariffs by 10 percentage points: economy minister

Brazil plans to reduce import tariffs by 10 percentage points during the new government’s four-year term, Economy Minister Paulo Guedes said on Friday, a move away from the direction currently being taken by countries such as the United States.

Guedes announced the average tariff reduction at an event in Rio de Janeiro, saying there will be a cut of 1 percentage point in the first year, 2 in the second, 3 in the third and 4 in the fourth.

“The opening of the economy has to be exponential or Brazilian industry will suffer,” he said.

Import tax rates in Brazil are mostly between 10% and 35%.

Guedes’ comments come as global trade war fears are on the rise again after the United States imposed a new set of tariffs on Chinese goods and negotiators entered a second day of talks looking for an agreement.

Guedes did not elaborate further on the plan but reiterated the government’s desire to push ahead with its economic reform agenda of widespread tax cuts, privatization and deregulation.

Before any of that, however, Congress must approve pension reform. Guedes said political support for the government’s flagship economic policy is rising but dialog with lawmakers is proving problematic and the path to approval is still not clear.

The government’s proposals include raising the minimum retirement age and increasing workers’ pension contributions, a package it says will save the public purse 1.237 trillion reais ($312 billion) over the next decade, boost investor sentiment and kick-start the economic recovery.

But public support for the bill is anything but stellar, as a poll published by the National Confederation of Industry showed earlier this week.

Guedes said pension reform is vital to ensure Brazil’s economy does not go the same way as Argentina’s, which he said is now in a critical state.

 

Source: Reuters

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Brazil Pivots Toward Economic Freedom

It is a fact that Brazil has been through a liberating change since President Jair Bolsonaro won the election. He gave the world a short demonstration of his intentions to take the country out of the socialist hole we found ourselves in when, a few weeks after winning, he declared that the Brazilian government would no longer subsidize the Cuban regime via the exploitative More Doctors program.

Bolsonaro’s administration recently completed its first 100 days, and numerous liberalizing measures came about during this period. Gun rights for civilians are expanding; homeschooling is poised to be legally recognized; some job-killing regulations were terminated; talks about the privatization of giant state-run companies such as Petrobras and Correios have gained ground; pension reform got its first approval in Congress, and so on. It looks like we are on our way toward replicating the Chilean miracle.

Yet, if I were to pick up only one action taken by his economic team to best demonstrate to my foreign friends the pro-liberty momentum Brazil is experiencing right now, it would be the so-called declaration of economic freedom that was just signed. Conceived by the founder of Instituto Mises Brasil, Hélio Beltrão, in collaboration with members of the Ministry of Economy, the Executive Provisional Act is a set of rules designed to boost free enterprise and impose limits to government intervention over small businesses. It has a 120-day validation period before Congress votes on its permanent implementation.

Here are the 17 freedom principles that drive the document:

  1. Freedom against bureaucracy—to eliminate unnecessary certifications required by state agents;
  2. Freedom to work and produce—to prevent actions from unions or agencies that restrict the operation of small businesses or intervene in their policies;
  3. Freedom to set prices—to prevent bills from being manipulated so that monopolies are not created;
  4. Freedom against arbitrariness—to avoid state agents benefiting one entrepreneur at the expense of others;
  5. Freedom to be presumed in good faith—to guarantee that contracts and private agreements are respected when the interpretation of a law or right is not clear;
  6. Freedom to modernize—outdated regulations cannot rule modern businesses;
  7. Freedom to innovate—no license may be required while the company is still testing, developing, or implementing a product or service that is not of high risk;
  8. Freedom to agree—if two parties agree in contract, no judiciary action can be taken to alter it;
  9. Freedom not to go unanswered—every license or application will have to have a maximum time, which, when passed, will mean approval in silence;
  10. Freedom to go digital—all papers will be digitalized so companies will not have costs in stocking documents;
  11. Freedom to grow—to guarantee small companies access to the capital market;
  12. Freedom to endeavor—to protect business owners and entrepreneurs from being pre-judged as villains before a clear demonstration of their guilt;
  13. Freedom to write contracts with international standards—to limit the cases in which judiciary decisions can alter contracts;
  14. Freedom against abuse—to prevent state agents from issuing abusive remarks and regulations;
  15. Freedom against economic regulation—no economic regulation may be issued without a consistent analysis of its impact;
  16. Freedom of corporate regulation—commercial associations will be legalized;
  17. Freedom of contractual risks—the right of two parts to agree to the allocation of risks in contracts will be licit and respected.

Besides the economic outcomes expected from the implementation of the decree, it will also have a positive impact on our mindset. For many decades, Brazilians have systematically been taught countless economic fallacies which say capitalism generates poverty and that the state is the only entity able to stimulate the economy.

Regardless of the numerous examples of successful free-market societies over the world, there are still people here (many of them Economics bachelors, I regret to tell) who cannot see the correlation between economic freedom and well being. Overcoming our long-standing anti-capitalistic mentality will certainly be the greatest aspect of implementing the 17 rules of the economic freedom declaration.

Undoubtedly, this new economic freedom provisional act is already the result of a whole process of pro-liberty education and awareness that started a couple of years ago when Brazil was still governed by diehard Marxists. It is rewarding to see the power of ideas reverberating in measures that will lift millions of Brazilians out of poverty and unemployment.

 

Source: Foundation For Economic Education

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Brazil lawmakers revisit pension bill as economic outlook dims

Brazil’s pension overhaul proposal returns to the congressional spotlight this week, with a committee of lower house lawmakers opening its analysis of the government’s bill just as the outlook for the economy is deteriorating rapidly.

The special committee convenes after weeks of political delay and a sprinkling of public holidays. From an economic and market perspective, the timing could not be more critical.

The central bank’s weekly survey of nearly 100 financial institutions on Monday showed the median gross domestic product forecast for 2019 fell sharply to 1.49 percent from 1.71 percent the week before.

That was the bleakest outlook so far this year for the Brazilian economy. The forecast in January was for 2.55 percent growth. A string of weak data suggested the economy may have shrunk in the first quarter and is still struggling.

On Monday, the latest purchasing managers index survey of Brazil’s services sector showed activity contracted in April for the first time since September.

The weakening outlook for 2019 suggests this year is something of a write-off economically, despite hopes that investors would be encouraged if social security reform makes progress in Congress.

But hopes on that front have faded also. The government recently increased the targeted savings from the overhaul to 1.237 trillion reais ($312 billion) over the next decade, but market expectations of what will eventually be delivered are around half that.

The Special Committee of some 40 lawmakers is expected to begin debate and analysis of the pension reform bill on Tuesday and hold 11 public hearings this month before submitting a report, possibly in early June.

Further discussions on the report’s recommendations would then follow, and if all goes smoothly, the committee could vote by the end of June, setting the stage for a vote by the lower house plenary in early July.

Most analysts are skeptical of that timeline, citing President Jair Bolsonaro’s struggles to build a coalition behind the bill.

“We see risks of delays pushing the (special committee) vote into July, depending on the level of political cooperation between the government and centrist parties,” Barclays analysts wrote in a note last week.

Investors have grown more pessimistic in recent weeks. The average estimate of expected savings over the next decade in a Morgan Stanley client poll is now 620 billion reais, compared with 690 billion reais only two months ago. Only 5 percent of respondents expect approval by the end of June.

The deteriorating outlook has also weighed on Brazilian markets. The real has hovered around 4.00 per dollar since late March, weaker than many analysts predicted earlier in the year.

 

Source: Reuters

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Newsletter – April & May

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