China Steps Up The Pressure On Technology Companies:
Last week an old man grumbled that kids these days have it too easy and are going soft. Unfortunately for China it was president Xi Jinping. He restricted the hours kids can play computer games and then banned boy bands and celebrity fan clubs. He also imposed measures targeting the western decadence that he obviously sees as threatening China’s rise to global hegemony. This crackdown on consumer and culture businesses may not turn out to be successful. But, it has certainly reminded us of the significant political risk that comes with investing in China.
Elsewhere in Japan we’ve something of a novelty. Prime Minister Suga has decided to resign following his poor handling of the coronavirus outbreak. There is an election coming in Japan and it increasingly looks like he jumped before being pushed. His polling has certainly sunk considerably. The country is struggling with a large surge in infections. So, the decision to press ahead with the delayed Tokyo Olympics was incredibly unpopular locally. Markets have been buoyed on the idea that a new PM might spend a bit more. However, this seems highly speculative.
Rise in inflation fuels an increase in bond yields
Inflation in the eurozone was estimated at 3 per cent last week. This naturally increased the pressure on the European Central Bank to pullback its bond purchases. The figures were up from 2.2 per cent in July and have risen the fastest seen since November 2011. The biggest contributions to growth came from energy prices, which rose to 15.4 per cent. Nevertheless, last year’s delayed start to summer clothing sales in France and Italy which were on time this year, are also reflected in the figures this time around.
Despite underlying pressures remaining muted, the recent jump has increased investor sentiment that central bankers will begin to slowdown support. Germany’s 10-year bond yield, the benchmark for debt across the euro area, rose to minus 0.37 per cent. The rise reflects a drop in prices. And this can be an indicator that investors are positioning for any potential tapering of government stimulus.
China playing good cop bad cop with its tech stocks
The downward plummet of Chinese technology stocks was reversed slightly last week. It came on the back of news that Beijing would increase stimulus support for its struggling economy. This change in policy aims to combat rising commodity prices and coronavirus which is still spreading in the region. It is estimated that $45bn will be pumped into the economy by the People’s Bank of China.
Some of the largest Chinese technology stocks have had billions of dollars shaved off their value. It’s undoubtedly a direct consequence of the government’s actions. The latest sector to be stifled by the increase in regulation is gaming, a $40bn industry in China. The two thirds of Chinese teenagers that play video games regularly will now face restrictions. The limitations include just one hour per night Friday to Sunday, with an extra hour on national holidays. Only time will tell if the next move from the Chinese government is to help or hinder its local corporations.