By Ye Xie, Bloomberg markets live reporter and strategist
1. Beijing’s epic crackdownon tech giants ends with a fine. China imposed fines of more than $1 billion on Tencent and Ant Group, an affiliate of Alibaba, signaling an end to a years-long clampdown. The stocks soared as investors bet the fines pave the way for Ant to revive growth and eventually resurrect plans for an IPO.
The risk is that other damage has been done. It’s the weakness in the macro economy and competition, rather than regulatory overhang, that has led to the recent sluggish performance of the tech giants.
Indeed, hedge funds continued to retreat from China. They sold Chinese equities in June for a fifth consecutive month, unwinding more than 70% of their buying during the initial reopening euphoria between November and January, according to Goldman Sachs’s Prime Services unit. In contrast, their capital is being deployed to Japan.
2. The yuan’s selloff may slow as the PBOC sends clear signals of displeasure. The Chinese currency posted its biggest weekly advance since mid-March after a series of stronger-than-expected daily fixings from the central bank. On Friday, the reference rate was set 401pips stronger than the average estimate in a Bloomberg survey, taking the gap to the widest since November. The central bank also stepped up verbal intervention.
Meanwhile, the dollar suffered its first loss in three weeks after the US payrolls posted the smallest monthly gain since end-2020, a development that also helps the yuan. But the yield differential between US and China remains large. It means the yuan will stay under pressure.
3. Expectations for large stimulus are low. The Politburo meeting in July sets the tone for economic policy for the rest of the year. While calls for Beijing to step up support have grown louder, there seems to be a lack of consensus on how it will do so amid the constraints from a weak housing market and high debt load.
Premier Li Qiang said last week that it’s necessary to conduct a long-term analysis and keep a strategic focus. Reading between lines, it suggests any stimulus is likely to be modest and targeted. Beijing’s threshold for short-term pains is high.
