Most Asia benchmarks rise


Investors mull US-China trade talks; Australia releases its budget report
Chief Investment Office09 May 2018
Photo credit: AFP Photo


CHINA & HONG KONG

Two days of trade negotiations between Beijing and the US trade delegation led by Treasury Secretary Steven Mnuchin ended with no tangible agreements. DBS has long argued that the chance for a deal is slim given the intense rivalry in all strategic spaces. At the core of the rivalry is the “Made in China 2025” blueprint that aims at making China a global superpower in 10 strategic industries, namely: robotics, new-energy vehicles, biotechnology, aerospace, high-end shipping, advanced rail equipment, electric power equipment, new materials (such as those used in screens and solar cells), new generation information technology and software (including integrated circuits and telecommunications devices), as well as agricultural machinery.

From the US perspective, this 2025 blueprint violates the pledges China made for the accession to the World Trade Organization. The practice of forced intellectual property transfers, such as industrial designs and patents alongside the extent of state subsidies, do not constitute a level playing field for US companies. On the other hand, it is difficult for China to cede any ground because the shift into higher-tech manufacturing is a crucial part of the nation’s development strategy.

To hedge against actions by the Trump Administration, Beijing may deepen cooperation with Europe in key areas such as investment and connectivity. Reasons are plenty. First and foremost, European Union is a common market built on the spirits of free trade and open markets. Regulators are less likely to bar bids or investments.

Take 5G network as an example. While US policymakers are considering to nationalise the country’s planned 5G network over China-related security fears, Chinese companies have already owned some of the sensitive companies in Europe. Denmark’s mobile phone network, for example, is operated by Huawei. The company also provides mobile telephony infrastructure in Germany, Spain, and the UK.

Meanwhile, European economies have a wide range of assets that Chinese investors seek, such as cutting-edge technology. Home to the largest share of the top 100 artificial intelligence (AI) research institutions worldwide, deep tech (e.g. AI, robotics, as well as virtual and augmented reality) in Europe is thriving and diversifying across sectors. – DBS Group Research

Click here to read DBS Group Research’s full report.

The Shanghai Composite Index finished 0.79% higher at 3,161.50. The Hang Seng Index climbed 1.36% to 30,402.81.

 

REST OF ASIA

Australia’s government will balance its books earlier than expected thanks to a revenue windfall ahead of a looming general election. In its annual budget released in Canberra Tuesday (8 May), the government burnished its economic credentials by forecasting a AUD2.2b (USD1.6b) surplus in fiscal 2020 – that would be the first since the global financial crisis. The reward for voters: modest tax cuts for low and middle-income earners and some financial perks for baby boomers heading for retirement.

“This budget is providing tax relief to encourage and reward hardworking Australians,” Treasurer Scott Morrison said Tuesday. “Through disciplined fiscal management and improved receipts from stronger economic growth, the budget position is improving.”

In its path to surplus, the government relies on some heroic assumptions: it has positioned Australia’s economy as defying the experiences of developed-world peers. The budget projects wages growth will accelerate even while spare capacity remains in the jobs market, in contrast with the US example of unemployment falling well below assumed full employment and pay packets still seeing slow gains.

Returning to the black a year earlier than expected is a political boon for Prime Minister Malcolm Turnbull, ahead of a ballot that has to be called within a year. Australian voters generally judge a government’s economic performance by whether it manages to deliver a budget surplus. Furthermore, net debt is forecast to peak in the current fiscal year, also earlier than expected.

The headline numbers do not show the full story. Morrison, in his speech to parliament, lauded the retention of the nation’s AAA credit rating from the three main agencies. But of the 10 holders of such a distinction, Australia is in the weakest fiscal position. While the economy is entering its twenty-seventh year without a recession, that is also an indictment on governments from both sides for running a decade of deficits.

For the central bank, the budget’s stimulus is unlikely to be sufficient to change an economic equation that has had interest rates wedged on hold at a record-low 1.5% since 2016. It is waiting for a tighter labour market to drive up wages and inflation.

Australia’s budget is currently benefiting from unexpected commodity price strength, due to synchronised global growth that has boosted corporate profits and tax receipts; and a hiring bonanza last year that lifted the personal tax take and reduced welfare costs. – Bloomberg News.

Shares in Sydney rose in early Wednesday (9 May) trading. The S&P/ASX 200 was up 0.19% to 6,103.70, after adding 0.12% to 6,091.88 on Tuesday.

South Korea’s Kospi Index was down 0.12% to 2,446.90 early Wednesday morning, extending the previous session’s 0.47% slide to 2,449.81.

The Taiwan Stock Exchange Weighted Index (Taiex) climbed 0.82% to 10,691.38.

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