Asian Bears Maul China’s Shanghai, Japan’s Nikkei and the Philippine PSEi!

Rampaging bears continue to wreak havoc on a growing number of Asian equities

Chinese stocks represented by the Shanghai index went into a wild intraday rollercoaster ride before succumbing to the bears. The Shanghai index sank 3.23%

Yet one of the biggest cash injections in three years by the central bank today has only had a momentary effect. This failed to stop bears from dominating the day's session.

From Bloomberg

Chinese stocks tumbled as the central bank’s biggest cash injection in the financial system in three years failed to ease concern that the nation’s economic slowdown will deepen.

The Shanghai Composite Index slid 3.2 percent to 2,880.48 at the close. Hong Kong’s Hang Seng China Enterprises dropped 2.2 percent to the lowest level since March 2009. Hong Kong stocks fell below the value of their net assets for the first time since 1998. Property developers led declines on concern higher borrowing costs will crimp earnings after the three-month Hong Kong Inter-Bank Offered Rate climbed to the highest level in more than six years.

China cranked up cash injections in its money-market operations after a gauge of interbank funding availability in the mainland jumped the most in 13 months on Wednesday. The government is trying to hold borrowing costs down to support its economy without spurring an exodus of funds that drove the yuan to a five-year low this month. The People’s Bank of China said Thursday it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts.

Part of the reason for today’s loss may likely be due to the ascent by the USD CNH.

Today’s loss essentially erased the 3% jump predicated on the bad news (lower GDP) equals good news (MORRREEE stimulus) last Tuesday. Today's loss dragged the Shanghai index to its lowest level since December 2014.

Meanwhile, Japan’s benchmark, the Nikkei's entry to the bear market yesterday was followed up today by another selling spree.

Like China's Shanghai, the Nikkei 225 had a tumultuous intraday action. The Nikkei soared at the early going, to reach almost 2%, and unfortunately in seeming coincidence with the Shanghai, plunged towards the close.

The Nikkei has now fallen to late 2014 levels.

Asian equities were mostly red today as shown by the Reuters monitor

Among emerging Asia, the Philippine PSEi suffered the largest drubbing; down 2.8%.

Since the record high last April 2015, as of today the PSEi has shed a remarkable 25.14%! The PSEi seems to be having a China's Shanghai index moment.

One Philippine official indirectly blames 'irrationality' to the ferocious bear market activities. He stated that current actions “did not arise from a careful evaluation of corporate returns”, so he concludes that "Eventually, investors will begin differentiating emerging economies as the dust of uncertainty settles down"

Stock markets are supposed to work as forward discounting mechanism, so whatever G-R-O-W-T-H that had happened in the past may not be the future—which is what the current bear market seems all about.

Yet today's performance, as indicated on the table above, already suggests that markets have been differentiating. Unfortunately, they are pointing to the opposite direction than the one suggested by the official. 

Of course, the official’s perspective could most likely be the sentiment of establishment consensus.

Oh by the way, I forgot to add another Asian bear market recruit: as of yesterday, Taiwan's equity benchmark, the TWSE, enlisted to became a member. 

The entry to the bear market by the TWSE suggest that there won't likely be a post election honeymoon for first female president Tsai Ing-wen, who represented the opposition and won by a landslide last weekend.

Asian Crisis Watch: Taiwan’s 3Q GDP Contracts, Government Launches Stimulus

Impact from a strong USD, China’s economic slump and domestic property bubble? 

From Focus Taiwan:

Taiwan's gross domestic product (GDP) recorded a negative year-on-year growth of 1.01 percent in the third quarter of the year, failing to meet a government forecast of 0.1 percent growth, according to government data released Friday.

The Directorate General of Budget, Accounting and Statistics (DGBAS) said that the third-quarter GDP figure was the lowest since the second quarter of 2009, when the country's economy fell 1.24 percent from a year earlier amid a global financial crisis.

The GDP data for the July-September period reflected a poor export performance resulting from weak global demand and worse-than-expected domestic demand, the DGBAS said. 

In August, the DGBAS predicted a year-on-year GDP growth of 0.1 percent for the three-month period.

After seasonal adjustments, the country's third-quarter GDP registered a 0.05 percent quarterly growth.

Exports Down…

In the third quarter, Taiwan's merchandise exports fell 13.86 percent from a year earlier in U.S. dollar terms, with outbound sales of electronics devices, the backbone of the country's exports, down 7.88 percent.

After inflationary adjustments, Taiwan's real goods and services exports in the July-September period dropped 2.85 percent year-on-year, missing an earlier projection of a 0.39 percent increase.

In the three month period, Taiwan's real merchandise and services imports fell 1.47 percent from a year earlier, missing the projected 1.64 percent increase by a wide mark. The DGBAS said the weaker exports and imports dragged down the entire GDP growth by 1.11 percentage points for the third quarter.

Slower outbound sales resulted in lower income, which affected private consumption in the third quarter, the DGBAS said. Private consumption in the third quarter grew only 0.89 percent year-on-year, far short of the estimated 2.94 percent increase, the government agency said.

And so with domestic investments…

It said capital formation, which includes public and private investments, fell 1.25 percent from a year earlier, missing an earlier government forecast of a 0.04 percent increase.

The firming USD relative to Taiwan's Dollar as seen in the US/TWD chart above from investing.com

Taiwan’s annual GDP crumbled during the past 2 Quarters

With exports down, manufacturing have also shrank in 4 months from May to August

Retail sales (year on year) have been in contraction from July to September

Loan growth has been in a cascade.

And with loan growth down, property inflation has turned the corner. The annual housing growth rates and the nominal index exhibits this downshift.

In fear of a bubble, part of the slowdown has been due to property curbs too imposed by the national government, according to Global Property Guide and  by DBS

 

Taiwan’s stock market, as measured by the TWSE, entered the bear market zone last August 2015 (down 25% peak to trough). 

The ‘bad news is good news’ rally which powered the TWSE away from the bear market still shows the index down by 14% from the August bottoms.

And so, Taiwan’s government have  been in a dilemma.

All these market and economic signals had earlier prompted Taiwan’s central bank to cut policy interest rate last September the first since 2011.

And like any conventional pious Keynesian abiding government, the response on the economic contraction has been to use politics: a NT $4 Billion (USD $123 million) stimulus. Political solution to economic problems.

From another Focus Taiwan article

The Cabinet on Friday announced a series of short-term stimulus measures, including subsidies for the purchase of energy-efficient home appliances and for domestic travel, in a bid to boost Taiwan's flagging economy.

The package, which will be effective Nov. 7 to Feb. 29, also includes a subsidy for buyers who replace their second-generation (2G) cell phone with a 4G smartphone.

The measures were announced by Premier Mao Chi-kuo at a press conference, which was attended by Vice Premier Chang San-cheng and other top officials.

It is estimated that the package will cost the government NT$4 billion and add NT$1.54 billion to the gross domestic product (GDP). Money needed for the measures will come from the Cabinet's special reserve fund so Legislative approval is not required.

The measures include a subsidy of NT$2,000 per person for the purchase of air conditioners, refrigerators, television sets or water heaters certified with Grade 1 or Grade 2 energy-efficiency performance.

And political response almost always fixates at the short term.

But if the political fixes fail, and the downturn is sustained, economic contraction will imply of the amplification of financial losses that would have ramifications on the credit channel. And increased credit woes will boomerang back on economic activities. The escalation of the feedback mechanism may lead to insolvencies. And snowballing insolvencies heighten the risks of a crisis.

Will economic contraction be limited  to Taiwan? Or will other nations within the region suffer the same dynamic wherein Taiwan leads the pack? Singapore barely escaped a technical 3Q GDP recession.

Interesting turn of events.

 

The Parallel Universe: Asian Edition

From Bloomberg:

Japanese and South Korean industrial output was less than estimates in March and Taiwan’s first-quarter growth was half the forecast pace as weakness in global demand limits recoveries in Asian economies.

In Japan, production climbed 0.2 percent from the previous month, the trade ministry said in Tokyo today. That was less than the median 0.4 percent forecast in a Bloomberg News survey of 27 economists. South Korea’s output fell 2.6 percent, a separate report showed. Taiwan’s gross domestic product rose 1.54 percent.

Today’s data add to signs of a cooling global economy after U.S. gross domestic product rose less than forecast in the first quarter and China reported an unexpected slowdown. While Japan is already rolling out unprecedented monetary easing, the latest numbers may fuel calls for South Korea’s central bank to cut interest rates.

The following charts should tell of the impact of the current direction of policies. 

All charts are from tradingeconomics.com and starts with reference point of the year 2008. The reason for this is to exhibit trends in Asia, or the relationship and developments between stock markets and industrial output emanating from the post-US crisis.

Taiwan’s Industrial production and Taiwan’s Stock Market have been headed in opposite directions.

Taiwan’s TWII has been marginally up by about 4% from Friday’s close year to date

South Korea shows of the same conspicuous divergences between stock markets and industrial production.

The Korea’s equity benchmark, the KOSPI has been marginally down by 2.63% as of Friday’s close year to date. Nevertheless the general trend has been up since 2008.

Japan’s stock market as seen from the Nikkei has been consolidating in 2009-2012.

"Abenomics" has recently spurred a stock market price blitzkrieg. The Nikkei 225 has been up by a stupendous 33.5% y-t-d as of Friday's close. 

Ironically, industrial production continues to wobble and has even worsened with the recent announcement of doubling of the nation’s monetary base.

Worshipers of Abenomics selectively focus on rising stocks, which they see as 'signs of progress'. Yet they ignore that the sputtering of the real economy seem to be accelerating in the face of Abenomics.

Rising stocks in Japan are really yield chasing boom-bust cycles from policy steroids, whose major beneficiaries are the politically privileged financial institutions.

Yet such grand reckless “doing the same things over and over again and expecting different results” experiment are bound to bring to the fore a crisis, perhaps sooner than later.

Meanwhile media wants to portray that the weakness in Developed Asian economies as requiring more support from central banks. They seem blinded to the recent developments.

They fail to see that all such cumulative easing policies signifies as one of the major causes of the decline in the real economy. Price instability or volatility from inflationism and various forms and degrees of interventions have only clouded economic calculations and thus has incented people to go yield chasing instead of investing in productive enterprises.

This is aside from the implied and direct central bank ‘PUT’ or "guarantees" on financial markets which has also meaningfully contributed to the public’s preference to speculate on financial markets than to invest in the real economy.

Such parallel universe dynamics are signs of bubbles or illusions caused by the massive distortions of the marketplace from growing political desperation as seen through the deepening of interventions. 

Nevertheless, rest assured that what is unsustainable, because they are founded on superficialities, won’t last. Worst, the longer this goes on, the greater the harm when imbalances, built up from such environments, unravels.