Monthly recap: German elections, hot UK inflation and NFP miss

We recap some of the key market movers from September in this monthly round-up. 

Monthly markets recap: September 2021

Germany waves goodbye to Angela Merkel in tight federal elections 

After sixteen years at the helm, Angela Merkel will step down as German Chancellor following late September’s closely contested German elections. 

It’s a hugely fragmented result. Pretty much all parties did worse than they thought. The SPD is the majority party, but they’re still very close to the CDU to really have a massive advantage. You could only separate them with a cigarette paper really.  

The Green’s, after topping the polls four months ago, came in third while the FDP came in fourth.  

Olaf Scholtz, the leader of the SPD, now has his work cut out trying to turn these close results into a working coalition. But what we’ve seen is what our political guru and Blonde Money CEO Helen Thomas calls a Code Red for Germany – that is a shift to the left with a bit of a green hint too. 

What the next German federal government looks like now is up for debate. The Green Party is probably going to be central, after doubling their Reichstag presence, but it’s out of the CDU and FDP to see who becomes the third coalition partner. See Helen Thomas’ election round-up below for more information. 

Nonfarm payrolls’ massive miss 

Nonfarm payrolls came in well below expectations in a wobbly US jobs report.  

In August, 275,000 new jobs were added to the US economy, falling far below the 750,000 forecast. 

The unemployment rate dropped to 5.2% while labour force participation stayed unchanged at 61.7%. Hourly earnings rose 0.6% in August, surpassing market predictions of a 0.3% rise. 

Jerome Powell and the Federal Reserve keeps a close eye on the jobs report. Labour market participation has been one of the key metrics the Fed has been looking at throughout the pandemic to decide on whether to start tapering economic support. 

We know that Jerome Powell and the Fed loves a strong jobs report. But we also know that tapering is on its way anyway – likely in November. August’s job data may not have impacted decision making too much, given the tapering signals were made long before its release.  

However, Fed Chair Powell still believes the US is still far from where he’d comfortably like employment to be. 

Speaking last week, Powell said: “What I said last week was that we had all but met the test for tapering. I made it clear that we are, in my view, a long way from meeting the test for maximum employment.” 

A recent survey taken by the National Association for Business Economics showed 67% of participating economists believed job levels won’t reach pre-pandemic levels until the end of 2022. 

UK inflation jumps 

August’s CPI data, released in September, showed UK inflation had reached 3.2%. That’s the highest level since 2012. 

Rising from 2% in July, the latest CPI print also showed a huge month-on-month rise in prices. Inflation soared well clear of the Bank of England’s 2% target – although the UK central bank did say it believed inflation would hit 4% in 2021. 

However, some market observers believe there is a risk that inflation will overshoot even the 4% level. 

The question is how will the BoE respond? A more hawkish tilt could be possible.  

Markets.com Chief Markets Analyst Neil Wilson said: “Unanchored inflation expectations are the worst possible outcome for a central bank they’ve been too slow to recognise the pandemic has completely changed the disinflationary world of 2008-2020. 

“My own view, for what it’s worth, is that the Bank, just like the Fed, has allowed inflation overshoots to allow for the recovery, but it’s been too slow and too generous. Much like the response to the pandemic itself, the medicine (QE, ZIRP) being administered may be doing more harm (inflation) than good (growth, jobs).” 

China intensifies its crypto crackdown 

Bitcoin was rocked towards the end of September after being hit with a body blow landed by the People’s Bank of China. 

The POBC has ruled that all cryptocurrency transactions in China are illegal. That includes all transactions made by Chinese citizens domestically and those coming from offshore and overseas exchanges. 

BTC lost over 8% and nearly dropped below the $40,000 mark on the news from Beijing. It has subsequently staged a comeback, but this latest move from China tells us a couple of important things about crypto. 

Number one: volatility is ridiculous. The fact that Bitcoin is still so susceptible to big swings on both positive and negative news shows it’s still very volatile. It seems hard to see a future driven by crypto right now if such price swings will be the norm. If this is the case, let’s hope it calms down in the future. 

Secondly, it’s that central banks are still wary of digital finance. In China’s case, it loves control.  

Beijing’s official stance is that cryptocurrency is a) illegitimate, b) an environmental disaster, and c) something it cannot control completely. Freeing finances from government oversight is the entire point of decentralised finance (DeFi) after all. In a country as centralised as China, that’s a no-go.  

China has pledged to step up its anti-crypto, anti-mining efforts further. This could cause major ripples for Bitcoin and the digital finance sector as a whole. A significant chunk of global token supply comes from Chinese miners. Someone else will have to pick up the slack. 

Oil & gas prices stage major rally 

A global gas shortage and tighter oil supplies pushed prices into overdrive towards the end of September. 

Natural gas, in particular, was flourishing. At one point, gas had climbed above $6.30, reaching highs not seen for three years. Basically, there’s not enough gas to go around. High demand from the UK and EU is pushing prices up, while the US, which is meant to be in injection season, is also suffering. Asian demand is also intensifying. 

In terms of oil, a supply squeeze coupled with higher demand caused by major economies reopening is putting a support under oil prices.  

Traders are also confident. Energy markets are the place to be right now. As such, trader activity appears to be pushing these new highs and is confident regarding the market’s overall strength. 

Goldman Sachs has also revised its oil price targets upwards. 

Goldman said: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts. 

“The current oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.” 

Bitcoin battered by POBC crypto punch

Bitcoin has taken a major body blow after the latest Chinese crypto crackdown was announced this morning.

People’s Bank of China rules crypto transactions are illegal

Volatility and Bitcoin: name a more iconic duo.

With the token starting the day in the green, traders were hoping to see a reversal to the bearish patterns and price action seen in September so far.

A fresh ruling from the People’s Bank of China put paid to that.

China’s central bank has said that all cryptocurrency transactions in the country are illegal and must be banned. As anti-crypto signals go, they don’t come much tougher than that.

A statement by the POBC said that all cryptocurrencies, including Bitcoin, Tether and Ether, are not fiat currency, thus they should not be circulated on the market.

The ban includes services provided by offshore and international exchanges to domestic Chinese citizens.

China’s crackdown on digital currencies has been rumbling along across the year, but this is the most overt statement yet.

The nation already moved to ban crypto mining earlier in the year. China’s economic planning agency said efforts to completely root mining out are underway, which could pose big problems for the global BTC supply.

Additionally, the POBC is stepping up its monitoring of cryptocurrency transactions, including speculative investing.

“Financial institutions and non-bank payment institutions cannot offer services to activities and operations related to virtual currencies,” the bank said

Bitcoin’s response

Bitcoin, as well as other tokens such as Ethereum, have been sent reeling by this news. Associated stocks such as Coinbase and MicroStrategy have also begun to slide on the PBOC’s comments.

BTC had been trading over $45,000 prior to the bank’s proclamation. At the time of writing, it had lost 5% as it spirals back into the red. Bitcoin is now being traded for around $42,500 but will likely slide further as the day progresses.

Some analysts were expecting higher prices towards the weekend with talk of $47,000. Now, it looks like BTC is going to continue to trend downwards into next week.

Looking at crypto boards just shows red. Ethereum is down nearly 10% and so is Litecoin. Polkadot has dropped over 11% while Ripple has also dropped by 8%.

Consternation over another market drop has never been far away from the Bitcoin sector after it tumbled from all-time highs of over $65,000 earlier in the year.

Arcane’s Fear & Greed index, which measures general market attitudes regarding BTC performance, was flashing bearish signals at the start of the week and this has continued.

On a scale of 0-100, with 0 being extreme fear and 100 being extreme greed, BTC registered a 27 rating on Tuesday, suggesting fears the market may bottom out are coming to fruition.

Realistically, this move should have probably been spotted earlier. As mentioned above, China has not exactly been subtle in its government-led distaste for decentralised finance. This is a nation where pretty much everything passes through government control after all.

But just when things were looking good for BTC, it’s down once more. It only goes to show just how volatile cryptocurrency trading is and how susceptible the market is to external pressures.

Perhaps wider global regulation may cause stabilisation across the board, but for now, cryptocurrencies are probably going to continue to pitch on volatile seas.

China risks weigh on stocks, Fed meeting ahead

Rough day for equities: China risks to the fore at the start of the week as the fallout from the collapse of Evergrande weighed on the Hong Kong market. The Hang Seng fell 3.5%, with Evergrande down another 12%. Basic resources are feeling the heat as a slowdown in demand from Chinese property developers would be a negative. Luxury also hit – Chinese investors are seeing portfolios hammered, which means less for fur coats. Hong Kong’s weakness was all the more noticeable with Japan, China and South Korea on holiday. Spiking natural gas prices and a European energy crisis, talk of produce shortages and surging inflation don’t provide an encouraging backdrop. Meanwhile a Federal Reserve meeting this week and Sunday’s German election both offer macro uncertainty.

Contagion risks from the Evergrande meltdown are the prime cause of today’s sell-off. You’ve got all kinds of banks and insurers caught in the net but ultimately, I don’t see this as a Lehman’s moment right now. But combined with the tech crackdown it’s probably another reason why investors will be seeking to avoid China in the near term. What we are seeing today is how risks get priced gradually then suddenly. It is definitely though a major cause for investor concern right now and it is possible we see further losses before the dip finally gets bought. A market so well-conditioned to buying the dip will find it hard to resist. But the Fed meeting this week will be of particular importance – does a Chinese property collapse and energy crisis collide with expectations for a Fed rate hike next year and biting inflationary pressures? That would be a pretty nasty cocktail for risk appetite and I think these are the risks being priced into today’s (and possible further) selling.

European equities took the weak handover and limped to a decline of more than 1% in early trade. The blue-chip index is now testing its 200-day simple moving average at 6,880. Rolls-Royce and AstraZeneca gained 2% each but the rest of the board is nasty looking, led lower by basic resources and financials. Prudential fell 4% after placing 130m shares in Hong Kong following the demerger of its US business Jackson Financial. A very soft start for the DAX’s brave new world – 10 more companies added as of this morning but down more than 2% at the start of the session. Airline stocks are just about the only bright spot on the Stoxx 600 as investors bet that looser restrictions will drive up demand over the winter. Also, Lufthansa’s decision to launch a capital raise to pay back the €2.1bn state bailout it received during the pandemic is also being viewed as a positive – clearly, the company feels the medium-term prospects allow it to think about paying back the state. All sectors on the Stoxx 600 are lower.

Wall Street suffered a third straight down week, with the S&P 500 failing to hold its 50-day SMA support and declining 0.9% on Friday to 4,432.99. Futures indicate the market will open about 1% lower around 4,390. The Dow Jones industrial average was lower by 0.5% on a day of veay volume – the highest since July on quad witching day. Although the S&P 500 has traded through its 50-day SMA before and bounced in the last year, we’re dealing with a set of financial fears (China) rather than ‘concerns’ about a variant weighing on growth.

Conspiracy theory: Handy timing for Fed officials to be forced to sell their stocks a week or two ago because of ‘ethics’, not perhaps because they wanted out at the top? The Fed haters and many more think it’s more than a coincidence that their stock trading was revealed, leading to voluntary liquidation just in time to avoid a fallout. Better that than selling out at the top and people finding out later.

Metals weaker – copper down 2% and testing its 200-day SMA, gold treading water at $1,750 after last week’s steep losses, hitting its lowest since mid-August earlier this morning. Silver – once a darling of the Reddit crowd – dropped to its weakest since Nov 2020.

Natural gas prices in the US have come back after spiking last week above $5.60 – top called? Expected rise in demand going into the winter may be well priced. Remember what is happening in Europe with gas prices and the infrastructure problems are not directly correlated to the Henry Hub contract.

Natural Gas Chart 20.09.2021

The USD is finding all this risk-off sentiment a positive – fresh three-week highs for DXY. GBPUSD declined to a new three-week low at 1.36650, towards the bottom of the YTD range, whilst EURUSD is testing a 4-week low at 1.170.

GBP USD Chart 20.09.2021

Cryptocurrencies also markedly weaker on the general risk-off liquidation we are seeing across global markets. Bitcoin took a leg lower in early European trade and may want to test the Sep 13th lows around $44k.

Bitcoin Chart 20.09.2021

Little in the way of data today so all the China contagion/fallout stories will be the prime driver of sentiment. Looking ahead we have the Federal Reserve meeting on Wednesday – key question is whether it announces plan to taper QE or sits on its hands a little longer. But actually, the key risk lies in what the dots (if you still look at them) tell us about when Fed policymakers (increasingly hawkish?) think the lift-off date for rate hikes will be. Meanwhile, the Bank of England will need to respond to biggest jump in inflation on record when it convenes this week. Does is call time on QE now and prepare the market for a rate hike soon? Surging inflation is not going away and the MPC risks all kinds of trouble by not administering some medicine early.

Stocks start September strongly, OPEC+ ahead

European stocks kicked off September with a strong start, with the major bourses back towards the tops of recent ranges. The DAX rose close to 1% in early trade to 15,980 as German bond yields hit a 6-week high, whilst the FTSE rose to 7,177 at the start. Wall Street dipped slightly on Tuesday in quiet trade ahead of Friday’s key jobs report but nevertheless managed to eke out a 7th straight monthly gain like its European and global peers. SPX now up 20% for the year without any sizeable drawdown – the 50-day SMA holding the line every time it’s tested and it’s now breezed through 4,500 without a glance back. The question now is after 7 months of gains, valuations stretched and economic growth struggling to retain the kind of perkiness it had on the initial rebound, can the market continue to glide higher? A combination of ongoing earnings strength, normalisation of the economic situation as reopening proceeds, and ongoing support from a dovish Fed suggest there is more upside, but not without some larger pullbacks along the way.

Stagflation: Manufacturing activity across all seven countries in the ASEAN block contracted for the first time since May 2020. PMIs for the region remained firmly in contraction territory, whilst inflationary pressures also remained high. “Input costs increased markedly again, with firms raising their average charges at an accelerated pace as a result,” IHS said. China’s Caixin PMI also registered a drop, marking the first time it has been in contraction for a year and a half. In Europe, German retail sales plunged by 5% – after yesterday’s 3% inflation print for the EZ. PMIs for the Eurozone already showing declining momentum + deeper supply chain problems + accelerating inflation pressures.

Crude oil remains with a slight bullish bias with WTI (spot) holding $69 after a larger-than-expected draw on US inventories, while traders are also looking towards today’s OPEC+ meeting. The API reported a draw of more than 4m barrels for last week, with EIA figures today expected to show a draw of around 2.5m barrels.

OPEC’s meeting today with allies should be simple – agree to raise output by 400k bpd as they have already set out the schedule through to December. Delta has increased downside risks for oil demand but prices have stabilised around $70 and the physical market remains tight even if speculative sentiment rolled over in July and August. Note WH Smith seeing encouraging signs of much stronger demand in Travel though still some way to go to get back to 2019 levels.

Spot Oil Chart 01.09.2021

Also looking at the crypto space, particularly COIN, after the SEC boss Gary Gensler said crypto platforms need to be regulated ahead of his testimony before the European Parliament later today.

On the tape today – US ISM manufacturing PMI called at 58.5 but we will be looking for weakness in sentiment and, of course, inflation pressures.

Cryptocurrency update: BTC slides as China intensifies mining crackdown

Bad news for Bitcoin. Earlier Chinese efforts to limit crypto mining have turned into a full-scale purge, hitting BTC prices with a significant body blow.

Cryptocurrency update

Bitcoin tumbles as China puts the squeeze on crypto mining

China has intensified its crackdown on cryptocurrency mining operations sending Bitcoin reeling.

As of Monday 21st June, BTC was trading for around $32,000 – some $32,000 lower than the $65,000 highs seen in April. Just last week, Bitcoin had climbed to around $40,000, but China’s efforts to curb mining activity has stunted recovery.

Authorities in China’s key crypto mining provinces are following Inner Mongolia’s lead by banning the energy-hungry practice. China has major climate change goals, so limiting mining for digital tokens from energy consumption chains is part of the strategy to reduce its CO2 emissions.

Every year, crypto mining globally consumers more energy than Sweden.

China is not content with limiting or halting mining operations. In May, the government moved to ban financial institutions and payment companies from providing services related to cryptocurrency transactions. Authorities also warned investors against speculative crypto trading.

The hash rate, the rate at which new Bitcoin tokens are minted, has dropped considerably with these latest measures. Bitcoin tokens are already scarce, it’s partly what gives them value, but authorities moving against miners, and kicking them out of China, is the real issue here.

China’s authoritarian stance is not unexpected – it’s a government that thrives on control of pretty much every industry – but it fits into a wider cautionary attitude displayed by regulatory bodies and governments worldwide.

We’ve heard Governor Bailey of the Bank of England speak out against cryptocurrencies, for example. Regulators in Thailand, India, and Turkey have been mulling over full-on bans too. Retail crypto trading is unavailable for UK customers.

While institutional support from banks and corporations like Tesla continues to mount, it’s being met by stiff resistance from governments.

How can Bitcoin recover? No doubt miners will be setting up shop elsewhere. El Salvador has an ambitious plan to turn itself into Central America’s crypto mining hub, harnessing the geothermic power of volcanos to run its mining operations. Will we see a spike in El Salvador-sourced tokens?

Bitcoin has been struggling to regain its massive April gains across May and June. It looks like its path to recovery just got longer.

Over 90% of UK financial advisors would avoid cryptocurrency

A survey of UK independent financial advisers (IFAs) undertaken by Opinium reveals 93% would never recommend investing in cryptocurrency to their clients.

A further 91% said they would be concerned if they were investing in such assets.

Retail clients are unable to trade digital tokens in the UK anyway, but this is still an interesting development. According to Opinium, crypto’s inherent volatility and close regulatory scrutiny turn IFAs against cryptocurrency investing.

Only a third of those surveyed said they had noticed an increase in interest regarding crypto trading and investing.

A new crypto unicorn emerges

A new unicorn, a tech firm valued at a minimum of $1bn, has emerged in the cryptoverse.

Amber Group (AG), an Asian crypto trading and technology firm, is the latest subject of venture capitalist interest, as they continue to pour capital into the space.

The Group dubs itself as “an integrated crypto financial services firm that offers 24/7 services ranging from market making to asset management and structured products”.

It passed the $1bn mark after a successful investment round raising $100m from China Renaissance, with participation from Tiger Brokers, Tiger Global Management, and other new investors. Its existing investors, such as Pantera Capital, Coinbase Ventures, and Blockchain.com have also joined the round.

Michael Wu, Co-Founder and CEO of Amber Group, says the company now accounts for 2%-3% of total trading volumes in the crypto spot and derivative market. AG’s cumulative trading volumes have doubled from $250bn since the beginning of the year to over $500bn as of June 2021.

“We have been profitable since inception, and with growing revenues across all business lines, we are now annualizing USD 500m in revenues based on January to April 2021 figures,” Wu said in an announcement.

Volgende week: focus op resultaten Apple en Tesla, vergadering Fed en Amerikaans GDP

Het belooft een interessante week te worden. We beginnen met de Fed, al verwachten we geen vuurwerk. De Amerikaanse BBP-verwachtingen zijn op basis van de eerste indicatoren van het consumentenvertrouwen desondanks positief.

Na dertien maanden van doorlopende groei staat ook de nieuwe Chinese producentenindex weer op de planning.

Daarnaast kijken we weer naar cijfers: op Wall Street zullen Apple, Facebook, Tesla, Alphabet en Microsoft allemaal hun kwartaalresultaten presenteren.

Vergadering Fed: geen grote wijzigingen

Amerika keert langzaamaan weer terug naar de normaliteit. De uitrol van het vaccin verloopt voorspoedig, mensen gaan weer aan het werk en de lockdowns worden afgezwakt, waardoor de economische groei versnelt.

“We zien dat de economie heropent, het aantal passagiers van luchtvaartmaatschappijen toeneemt en men de weg naar restaurants weer weet te vinden,” aldus Jerome Powell, voorzitter van de Fed, in een recent interview met de Economic Club. “Ik denk dat we aan de vooravond staan van een periode van snelle groei en veel nieuwe banen, dat is een goede ontwikkeling.”

Wat betekent dit voor het rentebesluit van de Fed deze week? De FOMC gaat om de tafel zitten ten midden van speculatie dat de huidige ‘snel geld’-strategie misschien niet de juiste keuze is.

Nu drie stimuleringspakketten meer liquiditeit in de economie pompen en de rentevoeten historisch laag zijn, klinkt de oorlogstrommel van inflatie voor sommigen onheilspellend. Het ziet er echter niet naar uit dat er deze week grote veranderingen zullen worden aangekondigd: de rente zal naar verwachting tot ten minste 2023 ongewijzigd blijven en de obligatieaankopen zullen in het huidige tempo ten minste tot later dit jaar worden voortgezet.

Powell heeft drie criteria voor een ingrijpende beleidswijziging uiteengezet:

  • Volledig en effectief herstel van de arbeidsmarkt
  • Inflatie boven 2 procent
  • Inflatie boven 2 procent gedurende een langere tijdsperiode

Tot dusver wordt aan geen enkele van deze criteria voldaan. Toch zien we een verbetering van de banencijfers. Het werkloosheidscijfer daalde tot 6 procent met de laatste niet-agrarische salarisstroken. De extra liquiditeit die de stimuleringsmaatregelen van Biden opleveren, kunnen ook de prijzen van consumptiegoederen opdrijven. De voorwaarden voor een wijziging van het rentebeleid zijn duidelijk.

Maar verwacht niet dat de persconferentie van de FOMC een stortvloed van nieuwe beleidswijzigingen zal opleveren. De boodschap is op dit punt vooral een van stabiliteit.

Driemaandelijks BBP VS stijgt door opleving economie

Nu de Amerikaanse economie weer opkrabbelt, zijn de BBP-prognoses voor het eerste kwartaal uitzinnig.

In het vierde kwartaal van 2020 is de BBP-groei opwaarts bijgesteld van 4,1 procent naar 4,3 procent, omdat de Amerikaanse consumenten hun stimuleringscheques enthousiast weten te besteden. De consumentenbestedingen zijn de belangrijkste maatstaaf, maar ook andere bedrijfsinvesteringen dragen bij aan de economische opleving. De export steeg met 22,3 procent. Ook de bedrijfsinvesteringen in intellectueel eigendom, voorraden en woningen zijn gestegen.

Allemaal goed nieuws, maar de echte opleving moet nog beginnen. BBP-vooruitzichten voor het eerste kwartaal van 2021 zijn buitengewoon positief.

De federale bank van Atlanta voorspelt in haar nieuwste BBP-ramingen van 16 april maar liefst 8,3 procent groei. Het besteedbaar inkomen is de drijvende kracht hierachter. In januari is het geld van huishoudens met maar liefst 2 biljoen dollar toegenomen, naast een stijging van de bestedingen met 2,4 procent. In combinatie met andere belangrijke factoren zoals hogere lonen, consumentenbestedingen en industriële productie, zijn de ingrediënten voor een hoge BBP-groei aanwezig.

Extra stimuluscheques zijn in aantocht. Naarmate de uitrol van vaccins vordert en er meer sectoren worden opengesteld voor consumenten, zal de groei van het BBP waarschijnlijk sterk toenemen. De uitdaging is vervolgens om deze groei vast te houden.

Kan het consumentenvertrouwen in de VS hoog blijven?

Dat lijkt zeer waarschijnlijk: het consumentenvertrouwen bereikte in maart het hoogste peil in één jaar en sindsdien is het er alleen maar beter op geworden wat vaccins, heropeningen en stimuli betreft. Gezien de snelheid waarmee vaccinaties worden gezet en de economie presteert, zal dit waarschijnlijk ook in april het geval zijn.

Laten we eens kijken naar de gegevens van maart om het sentiment van april te peilen. Vorige maand waren consumenten optimistisch over de banenmarkt. Het sentiment was goed nu de beperkingen voor kleine bedrijven steeds meer worden opgeheven. Het vooruitzicht van extra geld in de vorm van stimuluscheques draagt bij aan de goede stemming.

Grote aankopen zoals auto’s, huizen en witgoed staan weer op de boodschappenlijstjes van de Amerikaanse consumenten, aangezien een overvloed aan spaargeld en extra overheidsgeld de koopkracht hebben verhoogd.

In punten uitgedrukt is de enquête van het Confidence Board in maart met 19,3 punten gestegen tot 109,7. Dat is de hoogste stand in een jaar en de hoogste toename van punten sinds april 2004.

Kortom, de stemming in maart was goed. Zullen we hetzelfde zien in april?

Chinese producentenindex: weet de sector te herstellen?

De Chinese producentenindex wordt deze week gepubliceerd ten midden van toenemend economisch herstel.

De index van maart is ten opzichte van februari gestegen van 50,6 tot 51,9. Hoewel de groei van de Chinese verwerkende industrie nog steeds historisch laag is, wijst een waarde van meer dan 50 erop dat de sector nog steeds aan het uitbreiden is. De PMI’s laten zelfs al dertien maanden op rij groei zien.

De productiecapaciteit was beperkt tijdens het Maanfestival, maar is nu weer helemaal online. Dit is deels verantwoordelijk voor de stijging van de PMI, maar er spelen meer belangrijke factoren mee: met name het wereldwijde economisch herstel.

Bestellingen nemen toe, wat betekent dat het weer drukker wordt in de Chinese fabrieken. De Amerikaanse stimuluscheques leiden tot een grotere vraag naar consumptiegoederen – goed nieuws voor Chinese fabriekseigenaars. Bovendien dragen binnenlandse en internationale orders voor zwaar materiaal zoals graafmachines bij tot de groei van de sector.

De vooruitzichten voor de toekomst worden gestuwd door grote geplande buitenlandse projecten. Het enorme infrastructuurplan van Joe Biden wordt, als het wordt aangenomen, met argusogen gevolgd door Chinese fabrikanten van bouwmachines en -materialen. Amerika is nu waar winst kan worden gemaakt.

Volgens het Chinese bureau voor de statistiek stevent China af op een goed eerste kwartaal. De groei van het BBP heeft een recordniveau van 18,3 procent bereikt, na een economische opleving die de groei van de VS volledig overtreft.

Hoewel de vooruitzichten op korte termijn bemoedigend zijn, blijven er vragen bestaan over de duurzaamheid ervan. De export, de brandstof van de Chinese productie, steeg in het eerste kwartaal van 2021 in totaal met 38,7 procent, maar die oogverblindende cijfers zijn enigszins getemperd door een daling van de exportactiviteit tussen februari en maart. Een reden tot bezorgdheid, dus de PMI-gegevens van deze week zullen interessant zijn.

Een tech-zware week luidt het cijferseizoen in

Wall Street bereidt zich voor op de nieuwe kwartaalresultaten. Zoals altijd wordt het cijferseizoen ingeluid met veel belangrijke rapporten.

Deze week gaat de aandacht vooral uit naar de technologische zwaargewichten. Apple, Amazon, Facebook en Tesla zullen allemaal met cijfers komen. Tesla zal interessant zijn, al was het maar om te zien welke impact de beslissing om miljarden in Bitcoin te investeren heeft gehad op de financiële resultaten. Eerdere rapporten suggereren dat het dit jaar meer winst heeft gemaakt met crypto dan met de verkoop van auto’s.

De cijfers van Apple komen kort na de eerste productlanceringen van 2021. Er is een glimmende nieuwe kleur voor iPhone 12 bedacht, plus een regenboog aan kleuren voor iMacs, Apple TV-updates en nog veel meer – maar de focus ligt toch vooral op de verkoop van de iPhone 12. Aangezien zes op de tien verkochte smartphones in het eerste kwartaal een iPhone waren, zou Apple wel eens een nieuw recordkwartaal tegemoet kunnen zien.

Ook de oliereuzen ExxonMobil, BP, Shell, TOTAL en Chevron zullen hun winstcijfers delen, die waarschijnlijk niet zo reusachtig zullen zijn als die van Apple. ExxonMobil zegt dat de heropleving van de olieprijzen betekent dat de cijfers beter kunnen zijn dan verwacht, maar dat er een ijzingwekkend verlies van $ 800 miljoen kan worden geleden als gevolg van de koudegolf in Texas. Zullen we meer zware verliezen zien voor de majors?

Zie hieronder voor een overzicht van de large caps die deze week met cijfers komen.

Belangrijke economische data

Date  Time (GMT+1)  Currency  Event 
Mon 26-Apr  9.00am  EUR  German IFO Business Climate 
       
Tue 27-Apr  Tentative  JPY  BOJ Outlook Report 
  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Press Conference 
  3.00pm  USD  CB Consumer Confidence 
       
Wed 28-Apr  All day  All  OPEC-JMMC Meeting 
  2.30am  AUD  CPI q/q 
  2.30am  AUD   Trimmed Mean CPI q/q 
  1.30pm  CAD  Core Retail Sales m/m 
  1.30pm  CAD  Retail Sales m/m 
  3.30pm  USD  US Crude Oil Inventories 
  7.00pm  USD  FOMC Statement 
  7.00pm  USD  Federal Funds Rate 
  7.30pm  USD  FOMC Press Conference 
       
Thu 29-Apr  2.00am  NZD  Final ANZ Business Confidence 
  1.30pm  USD  Advance GDP q/q 
  1.30pm  USD  Advance GPD Index q/q 
  1.30pm  USD  Unemployment claims 
  3.00pm  USD   Pending House Sales 
       
Fri 30-Apr  2.00am  CNY  Manufacturing PMI 
  9.00am  EUR  Germany Prelim GDP q/q 
  1.30pm  CAD  GDP m/m 

 

Belangrijke cijfers deze week

Date  Company  Event 
Mon 26-Apr  Tesla  Q1 2021 Earnings 
  Vale  Q1 2021 Earnings 
  Canadian National Railway Co.  Q1 2021 Earnings 
  Philips  Q1 2021 Earnings 
     
Tue 27-Apr  Microsoft  Q3 2021 Earnings 
  Alphabet (Google)  Q1 2021 Earnings 
  Visa  Q2 2021 Earnings 
  Novartis  Q1 2021 Earnings 
  Texas Instruments  Q1 2021 Earnings 
  Starbucks  Q2 2021 Earnings 
  HSBC  Q1 2021 Earnings 
  GE  Q1 2021 Earnings 
  3M  Q1 2021 Earnings 
  AMD  Q1 2021 Earnings 
  BP  Q1 2021 Earnings 
  Mondalez  Q1 2021 Earnings 
  Chubb  Q1 2021 Earnings 
  Capital One  Q1 2021 Earnings 
     
     
Wed 28-Apr  Facebook  Q1 2021 Earnings 
  Apple  Q1 2021 Earnings 
  QUALCOMM  Q2 2021 Earnings 
  Boeing  Q1 2021 Earnings 
  Moody’s  Q1 2021 Earnings 
  NOVATEK  Q1 2021 Earnings 
  Spotify  Q1 2021 Earnings 
  Ford Motor Corp  Q1 2021 Earnings 
     
Thu 29-Apr  Amazon  Q1 2021 Earnings 
  Samsung  Q1 2021 Earnings 
  MasterCard  Q1 2021 Earnings 
  China Construction Bank  Q1 2021 Earnings 
  McDonald’s  Q1 2021 Earnings 
  Royal Dutch Shell  Q1 2021 Earnings 
  Bank of China  Q1 2021 Earnings 
  Sony  Q4 2020 Earnings 
  Caterpillar  Q1 2021 Earnings 
  TOTAL  Q1 2021 Earnings 
  Airbus  Q1 2021 Earnings 
  S&P Global  Q1 2021 Earnings 
  Gilead  Q1 2021 Earnings 
  Sinopec  Q1 2021 Earnings 
  BASF  Q1 2021 Earnings 
  Baidu  Q1 2021 Earnings 
  Equinor  Q1 2021 Earnings 
     
Fri 30-Apr  Alibaba  Q4 2020 Earnings 
  ExxonMobil  Q1 2020 Earnings 
  AstraZeneca  Q1 2021 Earnings 
  BNP Paribas  Q1 2021 Earnings 
  Colgate-Palmolive  Q1 2021 Earnings 

How you can invest in emerging markets

Emerging economies can offer investing and trading opportunities you may have missed. As such, you might want to consider investing in emerging markets to diversify your portfolio. Here’s how to do it.

Investing in emerging markets

What are emerging markets?

Emerging markets (EMs) are simply economies that are becoming more involved with the global market as their prosperity and GDP grows. They usually share, or are starting to show, characteristics common with developed economies.

That means they will have some liquidity in local debt and equity markets, increasing trade volumes and foreign direct investment, and internal development of domestic financial and regulatory institutions, and stock exchanges.

How are EMs different to developed markets?

While they are on track to reach the same levels of economic complexity as their developed peers, there are some differences that set emerging markets apart from their developed peers:

Characteristic Developed economy Emerging economy
Industrialisation Developed nations tend to have already heavily industrialised and have transferred into service-led economies. Emerging markets tend to rapidly expand their industrial base.
Growth Growth in developed economies is often slow but steady. Emerging economies’ GDP growth is usually higher-than-average.
Demographics Population growth has slowed in most developed markets while the middle class has been firmly established. GDP per capita tends to be high. Emerging markets usually have rapidly growing populations and a developing middle class, however GDP per capita is lower than the developed average.
Currency Developed market currencies are less volatile than their emerging counterparts and are easily exchangeable. Currencies in emerging markets are more volatile. Exchange rate mechanisms are being developed to discourage citizens from sending cash overseas and encouraging FDI.
Commodities Developed economies are not as vulnerable to swings in commodity prices. Many emerging markets are dependent on commodities for their economic prosperity, thus are susceptible to price swings.

 

One of the key takeaways here is rapid growth but high volatility. Take Russia for instance. Its economy is intrinsically linked to oil & gas.

40% of government revenues come from its hydrocarbons industries. While it has prepared measures to encourage financial investment, such as localisation deals for car manufacturers and oil & gas equipment producers, its economy is still highly susceptible to oil price volatility.

PwC forecasts the Emerging 7, i.e. the most prominent emerging economies, will experience annual average growth of around 3.5% between 2016 and 2050, well ahead of the G7’s forecasted growth of 1.6%.

Which countries are considered emerging markets?

Developing economies are found across the globe, but if you’re looking to invest in emerging markets, you may want to start with the Emerging 7. These are seven countries identified by PricewaterhouseCoopers in 2006 as future global economic powerhouses, as a counterpoint to the traditional Group of Seven (G7) economies that dominated the 20th century (US, UK, France, Germany, Canada, Japan & Italy).

The Emerging 7, and their current GDPs, are:

  • China – $14.9 trillion
  • India – $2.59 trillion
  • Russia – $1.72 trillion
  • Brazil – $1.36 trillion
  • Mexico – $1.32 trillion
  • Indonesia – $1.08 trillion
  • Turkey – $761.4 billion

Certainly, these countries grab the emerging economy headlines – especially China. Investors are increasingly looking at how to invest in China because it’s predicted that the country will overtake the US as the world’s preeminent economic power at some point this century.

How to invest in emerging markets

There are plenty of options open to invest and traders who are looking at investing in emerging economies.

As ever, it’s very important to do thorough research if you plan on trading and investing. Doing thorough analysis on stocks, emerging market ETFs, and so on will help you pick stocks or assets suitable for your investment or trading strategy.

Historically, returns from EM equities have been relatively low. According to JPMorgan, EM equity returns have only averaged +3.6% per year from 2010 to 2019. But 2020 was different.  The MSCI Emerging Markets Index outperformed the S&P 500 for the first time since 2017 (EM gained +18.5% versus the S&P 500’s +18.4%).

Past performance is not indicative of future results, but the above rise could be encouraging for investors looking to put capital into emerging economies.

So, how can you get involved? You may wish to invest in companies based in emerging markets. Taking South Korea as an example, Samsung and Hyundai are viable, internationally renowned large caps helping power the South Korean economy.

In China, Alibaba, Tencent, and Geely Motors are all tech-related stocks that have performed well over the past year.

Emerging markets investors may also use ETFs. Exchange traded funds group together stocks and assets into a single fund, giving investors exposure with lower risk.

On our Marketsx trading platform, for instance, we offer the Wisdom Tree Emerging Markets High Dividend ETF (DEM). This draws its constituents from a Wisdom Tree index that measures the performance of EM stocks that offer high dividend returns.

It is composed of mainly Russian and Chinese firms, including Rosneft and the Industrial Commercial Bank of China, but also includes other big hitters like Brazil’s Vale, one of the largest mining companies in the world, Taiwanese plastics giant Formosa Plastic Group.

You may also consider bonds. Bonds are fixed-income instruments representing a fixed amount of debt. They are most often issued by governments or corporations, paying regular interest payments until the loan the bond is drawn from is repaid.

There are several different varieties of bond, so you could potentially create a diverse portfolio of just bonds issued by governments of emerging economies. Bonds are generally considered a more secure investment than equities too.

Risks of investing in emerging markets

One important thing to remember is volatility is more likely in emerging economies than developed ones. Economic conditions may change more suddenly in an emerging market than a developed one, so bear that in mind when investing. You may end up losing more than you initially invested.

We spoke earlier about how emerging markets are often more susceptible to commodity price swings. Russia is a good case study here. In 2015, the oil price dropped significantly.

As mentioned earlier, Russia relies heavily on oil & gas for revenues and the performance of its hydrocarbons industry has major ramifications for its economy as a whole. During this time, the value of rouble effectively halved, making Russia less attractive for oil & gas investment and development for international firms.

It’s these type of market trends you have to fully consider when investing in emerging markets. However, the purpose of investing in emerging markets is to trade higher risk with potentially higher rewards.

If you are planning on investing in emerging markets, it’s a good idea to ensure you have a diverse portfolio of stocks and assets. You may wish to include an emerging market ETF, plus several stocks from one country, a mixture of stocks from one country and so on.

Diversifying your portfolio is way to help you mitigate risk. You’re aiming to lower the effects of under or negatively performing assets. Gains in one asset may help offset losses in another. An example diversified portfolio, based around EMs, might look something like this:

  • 20% developed economy stocks
  • 22% foreign stocks from emerging markets
  • 22% bonds from emerging markets
  • 22% bonds from developed markets
  • 9% commodities
  • 5% long-term investments

This example portfolio draws heavily on stocks from EMs, but it also balances that out with capital allocated to equities and bonds in developed markets. In theory, any losses caused by market volatility in emerging economies could be offset by steady performance from the developed economies.

Investing vs trading: what’s the difference?

Before investing in an emerging market, it’s important to know the difference between investing and trading as distinct practices.

The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments. You hold onto them in the hope they will grow in value over the long-term.

Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. Many trading services, such as ours, run using products like CFDs or spread betting.

Unlike investing, you do not own the underlying asset here. Instead, you are trading on its price movements. CFD trades use leverage, so you can get exposure to a stock or market for the fraction of the initial cost it would take to invest. However, because you are trading on margin, your losses can be increased too.

Both practices require you to mitigate risk as best you can. Trading and investing are risky and can result in capital loss. Always do your research and due diligence prior to committing any funds, and always ensure you can afford any losses you may occur.

Volgende week: NFP’s, OPEC & PMI’s

OPEC+ vergadert deze week tegen de achtergrond van zwakkere olieprijzen. De data uit niet-agrarische loonlijsten (NFP’s) wordt ook vrijgegeven. Zullen we opnieuw een sterke maand zien, of was de opleving in februari eenmalig? Als het gaat om de productie, kruisen de VS en China de degens wat betreft belangrijke PMI’s. Deliveroo, een van de meest spraakmakende beursintroducties van het VK, gaat ook live.

Vergadering OPEC+: verdere productiebeperking of blijvende koers?

Het steunen van de olieprijzen gedurende de lockdown en de terugkeer naar normaal, heeft altijd bovenaan de OPEC-agenda gestaan. Dit is ook weer belangrijk bij de vergadering in april, nu de prijzen van ruwe olie gedaald zijn, nadat ze in de afgelopen weken een hoogtepunt van $70 bereikten.

Op het moment van schrijven waren de prijzen het hoogste in zes weken, hoewel de EIA hoger dan verwachte opslagvolumes meldde in de VS. WTI verhandelt voor ongeveer $60 en Brent voor $63.

Beperkingen zullen waarschijnlijk in stand blijven. OPEC en zijn bondgenoten hebben 7% van de voor-pandemische voorraad uit de circulatie gehaald, en voorzitter Saoedi-Arabië heeft een beperking beloofd met 1 miljoen bpd.

In de EU gaat het niet van een leien dakje.

De uitrol van vaccins, of het gebrek daaraan, in Europa zet de olieprijzen ook onder druk. Politiek gemotiveerde strubbelingen rond voorraden en nieuwe vragen over de effectiviteit van het AstraZeneca-vaccin hadden samen impact op de vraag naar olie, terwijl speculanten long-posities afwikkelden die ze genomen hadden op hogere vraag door groeiend reisverkeer in de zomer.

De vaccinatieperikelen en een nieuwe golf covid-19-gevallen in Europa, leidden tot strengere lockdowns. Frankrijk en Duitsland bijvoorbeeld, kondigden extra restricties af, evenals Polen. Het Verenigd Koninkrijk meldde ook zijn vaccinatieprogramma te moeten vertragen, tot nu toe een van de meest efficiënte programma’s in de wereld, als gevolg van toeleveringsproblemen.

Voor het tweede kwartaal van 2021 schat de EIA de Brent-prijzen op gemiddeld $64 per vat en in de tweede helft van 2021 op gemiddeld $58 per vat, omdat er als gevolg van balancering van de oliemarkt meer neerwaartse prijsdruk wordt verwacht in de komende maanden.

De volgende stap van OPEC zal cruciaal zijn, als de organisatie haar leden aan betere prijzen wil helpen in 2021.

Amerikaanse niet-agrarische loonlijsten – wat doet de arbeidsmarkt na de opleving in februari?

De Amerikaanse niet-agrarische loonlijsten worden vrijdag gepubliceerd. Na de opleving in februari zal de markt de nieuwe cijfers nauwlettend volgen, in de hoop nieuwe signalen op te pikken dat de Amerikaanse economie bezig is zich te herstellen.

Het aantal banen steeg in februari met 379.000, veel meer dan de verwachte 210.000 en de werkloosheid daalde naar 6,2%.

De geplaagde hospitality- en vrijetijdsector waren goed voor de meeste nieuwe banen, maar liefst 355.000 in februari. Hieronder vallen bioscopen, hotels, museums, resorts en amusement, maar het waren maaltijdservices die de sector stutten met 285.900 nieuwe banen.

Bidens stimuleringspakket zal naar verwachting ook de banengroei stimuleren. Als onderdeel van het stimuleringspakket van $1,9 biljoen, krijgen kleine bedrijven steun om a) bestaande banen in stand te houden en b) mogelijk nieuwe werknemers aan te nemen. Er gaat $25 miljard naar restaurants en cafés; $15 miljard naar vliegmaatschappijen en nog eens $8 naar luchthavens; $30 miljard naar doorvoer; $1,5 miljard naar Amtrak en $3 miljard naar vliegtuigproducenten.

Als gevolg van het stimuleringspakket hebben andere bedrijven hun ontslagrondes stilgelegd. United Airlines bijvoorbeeld, had 14.000 ontslagen gepland in februari. Volgens een bericht in de Washington Times is dit plan geannuleerd nu er extra overheidsgeld naar United komt.

De plaatselijke vervoersbedrijven, vooral de Metropolitan Transportation Authority in New York, ontvangen miljarden dollars om banen te behouden. New York krijgt $6 miljard bijvoorbeeld, zodat er geen ontslagen meer vallen en services in stand kunnen blijven.

Uiteraard gaat het vooral om het beschermen van bestaande banen. Het zal interessant zijn te zien welk effect dit heeft op de niet-agrarische loonlijsten van maart. Als het MKB anticipeert op de extra overheidsgeld, kan dat leiden tot extra banen omdat er wellicht weer geld is om nieuwe mensen aan te nemen.

Productie PMI’s VS en China

De twee economische reuzen komen deze week met hun meest recente PMI-data.

In de VS hebben we de IHS Markit productie-PMI voor maart al gezien en die gaf het beeld van een sterke maand voor de productie in het land. Het cijfer steeg naar 59 in maart, ten opzichte van 58,6 in februari, wat inhoudt dat de productiesector met stevige snelheid uitbreidt. De output was iets lager dan de 59,3 waar de markt op had gerekend, maar dat is geen reden tot zorg.

We wachten op de PMI-data van het Institute of Supply Management (ISM) deze week. Februari was een succes voor de productiesector volgens ISM, met een PMI van 60,8, het hoogste punt in drie jaar tijd. Als we de IHS-data als indicator nemen, zullen we waarschijnlijk eerder gestage expansie zien dan nogmaals een sterke opleving zoals in februari. Nog steeds bemoedigende signalen voor de productieniveaus in de VS.

De Amerikaanse economie verkeert sinds in de eerste maanden van dit jaar in een gezondere toestand. Door stimulering vloeide er meer geld naar consumenten en we weten dat er nog meer aankomt. Dat die liquiditeit weer in de economie gepompt wordt, kan er de oorzaak van zijn dat de productie er zo goed voor staat. De uitrol van vaccins in de VS gaat ook niet slecht, wat het hernieuwde vertrouwen in het land kan versterken.

Aan de andere kant liet de Chinese output in februari een vertraging zien volgens de Caixin PMI van maart, een van de belangrijkste productiviteitstrackers van het land. Zal die vertraging doorzetten in april?

Volgens de laatste Caixin PMI daalde de index van 51,5 in januari naar 50,9 in februari – het laagste niveau in 9 maanden. Boven de 50 betekent nog steeds groei, maar het feit dat de PMI daalt, wijst op een krimp.

Hoe komt dat? Binnenlandse opleving van covid-19 en afnemende wereldwijde vraag naar geïmporteerde Chinese goederen zetten de Chinese productiecentra onder druk. Fabrieken ontsloegen werknemers en hadden geen haast met het aannemen van nieuwe mensen.

Analisten verwachten nog steeds een sterk jaar voor China, aangezien het een van de weinige landen was die reële economische groei lieten zien in 2020, tijdens het hoogtepunt van de pandemie. De vertraging van de productie in februari wijst echter op kwetsbaarheid in het voortgaande economisch herstel in China. We krijgen een duidelijker beeld als de PMI van maart is gepubliceerd.

Beursgang Deliveroo – save the date

Deliveroo gaat op 31 maart naar de beurs, hoewel onbeperkt handelen niet mogelijk tot 7 april.

Deliveroo heeft de aandelen geprijsd tussen 3,90 en 4,60 GBP per aandeel, wat een geschatte marktkapitalisatie van tussen 7,6 en 8,8 miljard GBP betekent.

Het bedrijf zal 384.615.384 aandelen uitgeven (exclusief eventuele overtoewijzing) en wil 1 miljard GBP ophalen met de beursgang. Zelfs als de meest bescheiden voorspellingen uitkomen, gaat het om grootste beursnotering in Londen in tien jaar tijd, en in Europa voor dit jaar.

Amazon heeft een aandeel van 15,8% in het bedrijf, maar wil 23.302.240 aandelen verkopen voor een bedrag tussen 90,8 en 107,2 miljoen GBP, afhankelijk van de prijs bij de beursgang. CEO en oprichter Will Shu verkoop 6,7 miljoen aandelen, waarna hij een aandeel van 6,2% in het bedrijf overhoudt, ter waarde van 500 miljoen GBP.

 

Belangrijke economische data deze week

 

Date  Time (GMT)  Currency  Event 
Tue 30 Mar  3.00pm  USD  CB Consumer Confidence 
       
Wed 31 Mar  2.00am  CNH  Manufacturing PMI 
  1.15pm  USD  ADP Nonfarm Employment Change 
  1.30pm  CAD  GDP m/m 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu 1 Apr  All Day  All  OPEC+ Meetings 
  3.00pm  USD  ISM Manufacturing PMI 
  3.30pm  USD  US Natural Gas Inventories 
       
Fri 2 Apr  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Rate 

Belangrijke cijfers deze week

 

Date  Company  Event 
Mon 29 Mar  Sinopec  Q4 2020 Earnings 
     
Tue 30 Mar  Bank of China  Q4 2020 Earnings 
  Carnival  Q1 2021 Earnings 
     
Wed 31 Mar  Micron  Q2 2021 Earnings 
  Walgreens  Q2 2021 Earnings 

As a China spending boom looms are these global stocks must buys?

Analysts at the Bank of America has chosen luxury fashion stocks moving from one to watch to investor must-buys as Chinese spending boom is forecast. 

Millions of Chinese consumers are rushing to buy high-end fashion items and accessories online. BofA expects two stocks to benefit from this growing trend. China’s middle class already outnumbers the entirety of the US’ population, totalling approximately 700 million people. Their habits may point towards which stocks are must picks now and in the near future. 

“China is the most exciting opportunity in online luxury,” BofA wrote. The bank expects Chinese shoppers to spend $48.9 billion buying luxury goods online in 2025 – four times more than was spent in 2020. 

So which companies are set to benefit most from this boom? According to the George de Mendez-led analysts at the Bank of America Farfetch and Richemont are in the frame to potentially make some big gains. 

Farfetch 

The British-Portuguese brand has been dubbed a “big deal” by the bank in the past, and now its set to become a major juggernaut, according to BofA analysis, thanks to Chinese shopping habits. Farfetch has established a partnership with China’s e-commerce juggernaut Alibaba, and will start selling via the Tmall Luxury Pavilion, as well as on designer outlet platform Luxury Soho. Through the deal that will help Farfetch get access to a potential market of 780 million customers. 

Richemont 

Swiss luxury conglomerate is BofA’s second pick. The Cartier owner has pumped money in Farfetch, and has also partnered with Alibaba to launch a new entity: Farfetch China. 

Richemont’s Yoox Net-A-Porter online fashion business already has a partnership with Tmall and is showing impressive growth in the jewellery segment as highlighted by Bank of America. 

Partnering with Alibaba is crucial here. For Western firms, it can be difficult to crack the Chinese market.  As well as the economy featuring protectionist measures favouring domestic companies, Chinese consumers prefer to shop online or via so called “super apps”. It’s pretty much essential to partner with app owners to get access to markets. 

With an Alibaba partnership, Farfetch gets access to its massive user base. Chinese customers will be will subsequently get access to broader selection of designer labels than what other platforms currently offer. 

Farfetch currently has 3,500 brands available including Gucci, Off-White and Balmain. Comparatively, the Tmall Luxury Pavilion only stocks about 200 designers. 

Yoox Net-A-Porter and Farfetch are competitors, but the Chinese deal has “multiple advantages” for all of the players, according to the BofA analysts.  

Richemont already has access to the Chinese market via its Net-A-Porter Tmall Luxury Pavilion store, but the joint venture with Farfetch will give it access to a wider audience. 

The renewed focus on e-commerce follows a year in which consumers were forced to shop for luxury apparel and accessories online during coronavirus lockdowns.  

Bank of America said the online luxury sector had an “exceptional” 2020 and expects the global market to grow to 100 billion euros in 2025, 15 billion euros more than previous forecasts. 

What about Chinese stocks? 

Some Chinese stocks have great potential. The country’s rapid economic growth is nothing short of breath-taking, and several stocks have been identified as potential must buys. 

Alibaba   

Alibaba Group Holdings Limited is the largest retailer and e-commerce company in China. Alibaba operates some of the largest shopping platforms like Taobao and the aforementioned Tmall 

Very few of those investing in Chinese stocks haven’t heard of Alibaba. It is currently trading at a price over $266 per share, thanks to its cloud division becoming profitable for the first time according to its latest earnings call. Its core commercial revenues grew 38% year-on-year, Alibaba reported in January 2021, with total quarterly revenues clocking in at $33.88bn, beating market expectation.  

JD.com   

JD is one of the biggest B2C e-commerce service providers in China and in the world in general. It’s also one of Alibaba’s chief competitors. It was represented in 85 hedge funds om 2020, with a total hedge fund holding value of $13.57bn.  

Tencent  

Tencent is one of China’s internet kings, operating QQ, the country’s largest social media platform, as well as popular messaging services Weixin and WeChat. Over 1 billion users use Tencent’s messaging services each month, and it boasts over 500m social media users too.  

Recently, its shares tumbled after nearing a $1 trillion valuation, but quickly bounced back, gaining over $230bn following listings, as mainland investors hoover up Tencent contracts on the Hong Kong Stock Exchange. Growing proliferation of smartphone users in China, thanks to its massive middle class, and higher internet penetration rates, make Tencent a very attractive prospect to Chinese and international traders.  

How to invest in China

 China’s a divisive place for investors, but its enormous economic growth suggests it holds great potential. Want to invest in China? Here’s what to watch out for. 

Here’s how to invest in China 

China’s rapidly growing economy 

The first thing that attracts those who want to invest in China is its economy. The next 100 years are very much shaping up to be the Century of the Dragon, thanks to China’s rapid economic and industrial growth. Since the late 20th century, Asia’s foremost economy has been expanding at a rate of knots. 

China was the only major economy to expand in 2020; a year when the Covid-19 pandemic stunted growth in economies around the world, particularly the developed markets in the US and Europe. During 2020, Chinese GDP grew 2.3%. 

The prospects are bright for continued Chinese expansion, and that’s why many choose to invest in China. Fitch recently upgraded its 2021 outlook for Asia’s largest economy, predicting annual GDP growth of 8% – very impressive in a year when the global economy is forecast to contract 4.4% by Fitch estimates. 

Here are some Chinese key stats: 

  • GDP – $14.9 trillion (2020) 
  • GDP per capita – $10,389 (2020) 
  • Population – 1.4 billion est. (2020) 

China’s economic transformation 

Initially, China’s massive growth was down to manufacturing with its old nickname as the Workshop of the World. A vast assortment of goods, from construction materials and heavy machinery, to children’s toys and everything in between, is cranked out of China’s factories and sold to markets globally. But, while exports remain huge, China is the largest exporter in the world, it is gradually shifting its economic focus, transitioning away from its export economy, and looking internally to drive growth.  

Shifting demographics, rapid urbanisation, and wage growth mean China has the largest middle class in the world, with estimates suggesting total middle-class population sits at 707 million people. For context, Europe’s total population stands at about 741 million. Some 50% of China’s GDP now comes internal consumption, driven by this massive social group. 

Coupled with that high number of middle-class consumers are China’s protectionist measures meaning a lot of Western-produced products are not available on the Chinese market. Those that are tend to be more luxurious or high-end items, like designer clothes, smartphones, and luxury cars.  

Domestically produced alternatives essentially have free reign there. One only has to look at the Chinese automobile sector and notice how many Chinese marques have models that look very similar to BMWs, Audis, and Mercedes to see the protectionist measures in action. 

Technology is a major focus for Chinese industry now. Designing and manufacturing more sophisticated technology is all part of the Chinese government’s “Made in China 2025” plan – a policy that aims to move towards sophisticated industries and services, doing away with the old Made in China export model it was previously based on. The fourth industrial revolution is very much on in China, with robotics, 5G internet, and AI all being developed there, alongside electric vehicles and battery tech. 

China could overtake the US in the next two decades if present trends continue, which may power Chinese equities on a strong upward swing.  

JPMorgan has predicted they will continue to deliver close to double-digit annual returns over the next 10-15 years. Using the past five years’ performance as an indicator, MSC China All Shares has delivered an average annual return of 10.34% (although past performance is not indicative of future performance). 

International criticism of Chinese economic expansion 

Economic growth is one thing, and certainly attractive to those who want to invest in China, but not everyone is so enamoured with China. 

The Trump-led US-China trade war is the perfect example of that. To curb Chinese global influence, the US and allies have been trying their best to limit Chinese access to key markets and have been calling into question what they perceive as negative business practices backed by the Chinese government. 

The US has been the most vocal critic of Chinese business. For instance, it believes the practice of China’s government subsidising domestic firms so they can compete on a global scale, and leveraging state-owned enterprises, is not in line with international trading standards.  

There have also been allegations of intellectual property and tech theft thrown at China. It seems any foreign company wanting to do business in china has to form a joint venture with a Chinese firm with virtually no exceptions. The foreign firm also has to share IP and tech with its Chinese partner – something the US claims gives China license to steal secrets for their own use. 

Could it be insecurity on the US part? Its status as the world’s largest economy and political power may be being eroded by China’s continued growth. If China is protectionist, then surely the US too. After all, Trump’s trade war was all about protecting US jobs and companies, even if that didn’t necessarily pay off. 

It should be pointed out that many of the world’s most developed economies are out for themselves too, having historically benefited from access to free markets, or their own relatively shady dealings around the globe. 

But there are moral objections at play here too. 

The case of the Uighur population’s ongoing plight has rightly been met with international condemnation, yet no sanctions on trade have really been put in place to halt that Chinese policy. China’s clampdown on Hong Kong has also earned it worldwide condemnation. The conditions in Chinese factories have been heavily called into question too, as much of the economic growth comes from very cheap labour working in less than savoury environments. 

If you’d like to invest in China, it’s advised you do some with careful thinking. If you are comfortable with the above, by all means continue, but be warned. 

China can be risky 

All investment and trading is risky, but sometimes Chinese opportunities might present greater risk than in other markets. 

As of December 2020, the Shanghai Index was actually performing down across the last five years, and only marginally up across the decade. Compared with US exchanges like the Nasdaq and S&P 500 hitting record highs, that may take a bit of the sheen off China for investors. That comes despite Chinese equities giving investors double digit returns.  

Chinese accounting practices have been called into question too which can cause some stocks to be delisted from international exchanges. In October 2020, sixteen Chinese firms, including supposed Starbucks rival Luckin Coffee, were delisted from US exchanges after investigators found many discrepancies in the Chinese company’s accounts.  

But China’s growth cannot be overlooked. It is also still classified as an emerging market. You have to remember US and European markets and stocks have been steadily developed over centuries. China is still playing catch up.  

Pros & cons of investing in China 

Pros 

  • Rapid economic growth 
  • Emerging market 
  • Rising global status 
  • Potential for double digit returns on equities 

Cons 

  • Authoritarian government 
  • Rapidly changing demographics 
  • Historic stock market underperformance 
  • International criticism of business practices 

Chinese stocks to watch 

If you want to invest in China, you may consider adding the below Chinese stocks to your portfolio: 

Alibaba  

Alibaba Group Holdings Limited is the largest retailer and e-commerce company in China. Alibaba operates some of the largest shopping platforms like Taobao and Tmall. Very few of those investing in Chinese stocks haven’t heard of Alibaba. It is currently trading at a price over $266 per share, thanks to its cloud division becoming profitable for the first time according to its latest earnings call. Its core commercial revenues grew 38% year-on-year, Alibaba reported in January 2021, with total quarterly revenues clocking in at $33.88bn, beating market expectation. 

JD.com  

JD is one of the biggest B2C e-commerce service providers in China and in the world in general. It’s also one of Alibaba’s chief competitors. It was represented in 85 hedge funds om 2020, with a total hedge fund holding value of $13.57bn. 

GDS Holdings  

GDS Holdings is a datacentre technology provider focussed mainly on the domestic market. 2020 has been a year of sustained growth for GDS with revenue growing 43% year-over-year in Q3 2020 to hit $224.6m. As one of the fastest growers in its sector, GDS’ organic sales also completely surpassed 2019 totals by Q3. 

Baidu 

Baidu owns China’s search engine. It’s China’s Google equivalent, generating revenue from its advertising sales, as well as developing advanced technologies. On the face of it, Baidu appears to be struggling, with 2020’s ad revenues being a bit of a disappointment, but that doesn’t really tell the whole story, as analysts forecast 15% revenue growth across 2021. Importantly, the stock as risen 90% in the last year too, making it one to watch for investors. 

Tencent 

Tencent is one of China’s internet kings, operating QQ, the country’s largest social media platform, as well as popular messaging services Weixin and WeChat. Over 1 billion users use Tencent’s messaging services each month, and it boasts over 500m social media users too. Recently, its shares tumbled after nearing a $1 trillion valuation, but quickly bounced back, gaining over $230bn following listings, as mainland investors hoover up Tencent contracts on the Hong Kong Stock Exchange. Growing proliferation of smartphone users in China, thanks to its massive middle class, and higher internet penetration rates, make Tencent a very attractive prospect to Chinese and international traders. 

Geely Automobile 

China is one of, if not the biggest, vehicle markets on Earth and Geely Motors is the largest of its domestic carmakers, selling over a million cars annually. While the bulk of its sales are restricted to China, it has been enjoying success exporting vehicles to the Middle East, Africa and Eastern Europe. Geely’s long term goal is to expand its EV offering, as well as investing in foreign marques like Volvo and Daimler and it even has eyes on Aston Martin. 

EV builder Nio, Fast Food firm Yum! Holdings, tutoring service TAL Education Group, and video streaming platform BiliBili Inc. 

Picking the best Chinese stocks for you will depend on your preferences, your trading strategy, and so on. But make sure you do your research before you choose. Be sure to use fundamental and technical analysis on stocks to ensure you’re informed as best as can be before committing any capital. Also be sure to invest only if you can afford any potential losses. 

Investing vs trading Chinese stocks 

There is an important distinction between investing and trading Chinese stocks you need to know. You can do both with markets.com, but you will need to open a couple of different accounts, as we have different platforms for different functions. 

Investing is the act of buying shares and owning them in the hopes they rise in price. To invest with us, you will need a Marketsi account. This gives you access to our Share Dealing platform*, and access to thousands of stocks including major and minor Chinese companies. 

Some Chinese stocks are listed on US exchanges. If you’re in the UK, and wish to trade these, you will need to complete a W-8BEN form. They’re required by the US Inland Revenue Service to confirm that you’re not a resident of the United States for tax purposes. 

Trading is done using derivatives like stock CFDs. You do not own the underlying asset, instead trading on the asset’s price movements. That means you can take a long or a short position and still make a profit. However, it does mean your losses could be higher too as you are trading using leverage. 

To trade, you will need a Marketsx account. 

We can help you invest in China and Chinese stocks. 

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