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Macroscopei

Daily insight on the hottest topics in the global economy, central bank policymaking and international trade flows, putting developments in their perspective for a China-oriented audience.

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  • The apparent inability of markets to see more than one step ahead is alarming at a time when stocks are surging and markets chase quick profits above all
  • Multiple underlying problems are being overlooked, and a market failure to comprehend the fundamental causes of rising costs could spell financial disaster

Bitcoin has staged a comeback from a difficult 2022, with its price rising higher than US$73,000 on the back of support from US regulators. The approval of spot bitcoin ETFs is driving interest but also raising fears of the cryptocurrency losing its status as an unregulated, decentralised product.

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China’s growing dominance in solar panels, electric cars and batteries is putting US and European manufacturers at a disadvantage and is attracting defensive hostility.

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Li Qiang admitting Beijing will have a hard time delivering on its pledge of 5 per cent GDP growth is a wild understatement given China’s economic struggles. The government’s policy response has been piecemeal, equivocal and confusing, frustrating investors and sapping confidence among domestic consumers.

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Investors around the world have been dazzled by the performance of the “Magnificent Seven” US tech stocks and, to a lesser degree, Europe’s “Granolas”. The size and influence of these giants are taking investment away from essential socioeconomic causes such as climate change, infrastructure and more.

Just months after investors were convinced interest rates would come down sharply this year, expectations have been significantly reduced. The experience of Australia and New Zealand shows that when inflation remains sticky and employment holds up, there is little room for central bankers to consider rate cuts.

The mountain of global debt is of particular concern because of the sharp series of interest rate increases in the US. The threat that debt levels in different sectors of the economy pose to financial markets should be more clearly communicated.

The Magnificent Seven’s dominance of US stocks and its outsize impact on the performance of global equity markets has amplified fears of a new tech bubble. These fears ignore that the grouping is built on sound fundamentals and is driving structural mega trends rather than being a threat to financial stability.

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The country’s sizzling stock market and high-profile push for governance reforms are spurring optimism that the economy is finally turning around. However, investors would be well advised to look more closely at its economic fundamentals.

While Donald Trump has taken credit for the fall in Chinese stocks, the truth is that domestic, not external, factors are at play in China. Instead, the focus should be on Trump’s threat to US democracy, the rule of law and the credibility of American economic policy should he be re-elected.

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Despite the gloom, there is a glaring lack of consensus about the outlook as Beijing signals more aggressive support. Critically, Wall Street banks are not ready to give up on China.

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Stock market prices in Japan, the US and elsewhere are being inflated by stimulus, suggesting a picture of economic health. But a correction delayed is not a correction averted.

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The US, the largest commercial property market in the world, has seen prices tumble since the Federal Reserve started raising interest rates. The knock-on impact of falling property prices on the banking system, securities markets and real economy could be serious, and reverberate into international financial markets.

Tokyo has overtaken Shanghai to become Asia’s largest stock exchange, driven by investors keen to get exposure to the region while mitigating risks in China. However, China is an important source of revenue for Japanese firms in crucial industries, which would be hard hit by a deeper downturn in the world’s second-largest economy.

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China’s grand infrastructure initiative needs wider ownership, a stronger institutional structure and more money. It could gain these if it were incorporated into the newly enlarged Brics grouping.

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The Fed must make the tough call on when to ease rates. Amid heightened risks of a major policy blunder, the impact of its decision on Asia – where the case for a looser policy is stronger – cannot be ignored.

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Much of Asia’s growth in recent years has been built on a foundation of strategic stability, but that under threat in a series of potential flashpoints. Leaders and policymakers must know it is dangerously irresponsible to risk lives and livelihoods in the hope of scoring points against their opponents.

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The 2024 electoral calendar is jam-packed as more than 4 billion people around the world will go to the polls, but one election has world-changing potential. The return of Donald Trump to the White House would be a gift to US adversaries while eviscerating its security commitments and crippling climate change efforts.

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Whether we call it belief in God or a guiding external force or simply superstition, inculcating faith or the conviction that we are accountable to someone or something greater than ourselves can both defeat nihilism and provoke great creative actions.

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From decoupling efforts to unfavourable demographic trends, the impact of the most-cited factors affecting China’s growth prospects is overstated. Instead, the recent weakness of China’s economic performance largely reflects the temporary costs of necessary policy interventions.

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A growing number of investors in developing economies are carving China out of their portfolios, but they are merely trading one set of risks for another. Fund managers cannot ignore the influence China has over emerging markets, especially in Asia, and alternatives are not as cheap as they used to be.

While certain countries are trying to entrench the current world order, there is a vast transition taking place that will alter the global balance of power and efforts to stop it are akin to putting a finger in the proverbial dyke.

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The prospect of positive spillovers from mainland China’s economy stabilising and the US Federal Reserve’s dovish turn could mean a brighter 2024 for Hong Kong.

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Prime Minister Fumio Kishida and his party are flailing in response to a fundraising scandal, shaking Japan’s image as an island of stability. Japan’s political structure has clearly not matured and stabilised in the post-war period to the same extent that its institutional and economic structure has.

There is reason for optimism after the Federal Reserve’s surprise interest rate decision, but there are also still plenty of reasons for caution. The fact that markets are expecting the smoothest of touchdowns for the US economy next year should be ringing alarm bells.

Despite concerns about China’s economy and markets, some prominent strategists and fund managers are optimistic about the prospects for Chinese stocks. There is a sense that the economy has stabilised amid the property sector’s struggles, Chinese shares are affordable and parts of the market have proven resilient.

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It is no exaggeration to say that the fate of the global economy, sentiment in financial markets, the future of liberal democracy and the scope for further geopolitical tensions and shocks will be almost entirely determined by events in the US next year.

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China’s property crisis is just one of many signs that Asia’s housing sector troubles are far from over. Japan could be in for a shock if a shift from years of ultra-loose monetary policy pushes up lending rates, hitting home loans hard.

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Global warming cannot be met by anything other than a coordinated global response, but logic stands little chance against politics and nationalism, as seen at Cop28.

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The main issue concerning investors is whether central banks are done raising interest rates and, if so, how large any cuts that happen will be. The spotlight shifting from China could offer policymakers more breathing room to act but also risks lulling investors into a false sense of security.

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