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China to buy Chicago Stock Exchange

China clears key hurdle to buy Chicago Stock Exchange

China just moved a step closer to acquiring one of America’s oldest stock exchanges, despite security concerns raised by some in Congress.

This week a U.S. panel that examines foreign deals for potential national security concerns cleared the purchase of the 134-year-old Chicago Stock Exchange by a China-led group of investors.

The Chicago Stock Exchange said the Committee on Foreign Investment in the United States (CFIUS) decided there are “no unresolved national security concerns” over the deal, which was first announced in February.

A U.S. Treasury spokesperson declined to comment, citing policy not to disclose information about specific CFIUS cases.

Representatives for CFIUS did not respond to a request for comment on the news, which was first reported by Reuters.

The acquisition by China’s Chongqing Casin Enterprise Group still faces SEC approval. If cleared, the deal would give China a foothold in the vast American stock market, the largest in the world.

The struggling Chicago Stock Exchange is far smaller than the Nasdaq (NDAQ) and the iconic New York Stock Exchange. Earlier this year it accounted for just 0.5% of U.S. trading.

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Mark Schlarbaum, Irvine, California

China Meitu App Goes Public

HONG KONG — Your phone can make your face whiter. A touch can taper your jaw. It can slim your cheeks. Widen your eyes. Of course, it can make you thinner.

In China, beauty — of a particular kind — can come from a swipe. A photo app called Meitu gives its users the power to create idealized versions of their real-world selves and share them with others. Its makers say: “Our mission is to make the world a more beautiful place.”

Meitu and its related apps are hugely popular in China. The apps have 446 million users, and Meitu says more than half of the photos circulated on social media there in June were filtered using its editing app.

“Meitu makes everybody look more beautiful in an easy way,” says Du Sha, 26, a graduate student who uses it mainly to erase acne and to smooth and brighten her skin. “It’s a good technology for people to be more social or improve their self-confidence.”
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Meitu of China, Built on the Selfie, Could Be Worth $5.23 Billion in I.P.O. DEC. 2, 2016

Meitu, the company, now hopes its app will have appeal elsewhere. This week it completed a $629 million initial public offering in Hong Kong, long a gateway for Chinese companies seeking foreign money, and is exploring taking its selfie apps to other parts of the world. Its shares traded modestly lower on their first day on the market, valuing Meitu at $4.6 billion.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

China’s Newly Extended Tax Cut

Why Auto Execs Are Cheering China’s Newly Extended Tax Cut

“Any policy support is good for the industry under current circumstances.”

China extended a tax cut on small-engine vehicles by one year on Thursday, a move industry executives said would help keep demand for automobiles stable and prevent sharp short-term fluctuations in the world’s biggest auto market.

China’s Ministry of Finance said on its official website the tax rate on small-engine vehicles, currently at 5%, will rise, but only to 7.5%. That rate, taking effect on Jan. 1, 2017, is still below its normal 10%.

The ministry said it plans to levy the normal 10% tax on small-engine cars starting on Jan 1, 2018.

“Any policy support is good for the industry under current circumstances,” said the China head of a global premium brand, adding that a relatively weak market is being propped up by the tax cut as well as discounts and other purchase incentives by automakers.

Normally, consumers would rush to make last-minute vehicle purchases if they sensed a tax rebate would expire, boosting sales significantly, only to result in an equally significant fall in demand once the benefit is eliminated.

“At least this time we will unlikely undergo that type of wild year-end ride in sales,” the executive told Reuters. The executive declined to be named because he is not authorized to speak to reporters.

Yale Zhang, managing director of Shanghai-based consulting firm Automotive Foresight, said demand for passenger cars as a result of Thursday’s announcement will likely be weaker but still manage to grow 3% to 5% next year, compared to the 16% growth he predicts for China’s passenger car market for this year.

“This is good news to the market,” Zhang said. “At least car demand will remain steady to relatively robust,” he said, adding the market would have shown no growth next year if the tax cut on small-engine cars was discontinued.

China’s auto market struggled with weak sales in 2015 amid an economic slowdown, but has rebounded strongly since the purchase tax rate for vehicles with 1.6-liter engines or below was halved to 5% in October 2015.

A particularly significant beneficiary of the rebound has been German Volkswagen VLKAY 0.18% whose product lineup is tilted heavily towards small sedans with engines smaller than 1.6 liter, Zhang said.

Experts and auto industry associations had predicted a steep drop in growth if the tax cut was allowed to expire as planned at the end of this year. Industry officials, though, had said China was considering extending the cut.

Earlier this week an official at the China Association of Automobile Manufacturers told reporters that China’s overall automobile sales could increase 13% this year from 2015.

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Mark Schlarbaum, Irvine, California

Chinese Buyers Find Bargains in Gold

Gold investors have rushed to the exits since Donald Trump’s surprise victory in the U.S. presidential election, dragging prices to a nine-month low. Now Chinese retail buyers are stepping in to take advantage of the low prices.

Gold sellers in Hong Kong, where mainland Chinese often buy gold, report an increase in purchases, some of it for weddings around this month. Some of the buying is also because of the Lunar New Year period next month, a time when buying normally picks up. Changes in buying patterns in China are felt in the world-wide because it is the world’s top gold consumer, accounting for about 30% of global demand.

The surge in buying in China is providing a layer of support to gold prices, which are under pressure from expectations that the U.S. Federal Reserve will raise interest rates next week, a move that would likely boost the dollar. A stronger dollar tends to weigh on gold as it is priced internationally in dollars and becomes more expensive for foreign buyers when the currency appreciates.

“Our sales are up by around 20%-25% in the past one month,” said Alex Cheung, manager at Hong Kong’s Wo Shing Goldsmith, a large retailer, adding that sales had largely been disappointing in previous months this year. “People are now more willing to buy because of the low prices.”

It isn’t only jewelry buyers flocking to shops, but also Chinese grandparents who want to buy gold bars as gifts for their grandchildren, said Mr. Cheung.

Gold is trading at around $1,167 an ounce, a level last seen in early February this year. Gold reached its peak this year in early July at $1,375 a troy ounce.

The slide in prices of the precious metal surprised analysts, most of whom had predicted gold to skyrocket if Mr. Trump won because of uncertainty about his policies. But investors pulled out of the haven asset on hopes that Mr. Trump’s policies would benefit the economy.

Increased Chinese demand for the precious metal has prompted banks to charge a premium of $30 a troy ounce for customers who want to secure deliveries quickly. Such premiums haven’t hit that level in three years.

“Most of the demand is coming from investors, motivated either out of fear of the uncertain times ahead and increased [U.S. dollar] strength or seizing what they perceive to be an opportune moment to buy,” said Padraig Seif, chief executive of Finemetal Asia Ltd., a large Hong Kong-based bullion dealer.

Kilogram-size bars have been most sought after, but there also has been demand for smaller bars favored by retail buyers, Mr. Seif said. Asian investors are seeking to move their investments into gold because a strengthening of dollar has reduced the relative value of Asian currencies, he added.

“The weakening of the [yuan against the dollar] has also led new investors onto the gold bandwagon as a hedge,” said a Hong Kong-based head of the bullion desk of a large international bank.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

Meitu of China, Built on the Selfie, Could Be Worth $5.23 Billion in I.P.O.

HONG KONG — For users of Meitu’s signature app, a beautiful touch-up at the press of a button is free.

But Meitu is hoping that investors in the company, which wants to “make the world a more beautiful place,” will value it somewhere between $4.6 billion and $5.23 billion.

Meitu plans to offer shares at between 8.5 Hong Kong dollars and 9.6 Hong Kong dollars, raising $629 million to $710 million.

The company is known for its eponymous selfie app, which allows users to digitally alter their photos, as well as its livestreaming app, Meipai. It also makes smartphones, designed to improve selfie-taking, which are endorsed by the Chinese actress Angelababy.

The share listing will offer a rare gauge of whether global investors agree with the sky-high valuations often found in China’s tech start-up scene. Venture capitalists and private investors have leapt into the field, which has given rise to successful app- and gadget-makers amid an e-commerce and financial technology boom.

But many of China’s hottest start-ups have been snapped up by its three major internet companies — the e-commerce giant Alibaba Group, the social media and gaming conglomerate Tencent Holdings and the search provider Baidu — before they go public. That leaves it unclear whether the high valuations of many Chinese start-ups can be sustained.

The Hong Kong Exchange has not seen a technology offering of this size in nearly a decade. The biggest previous I.P.O. of this type was Alibaba’s listing of its business-to-business e-commerce unit in 2007, in which it raised $1.7 billion, according to data from Dealogic.

In general, 2016 has been a quieter year globally for listings. ZTO Express, a Chinese delivery company whose growth was underpinned by its links with Alibaba, raised $1.4 billion when it listed on the New York Stock Exchange in October. Line, the Japanese messaging company, raised about $1.3 billion in July.

Meitu said in a news release that it planned to use the proceeds from the offering to expand its smartphone business, buy or invest in other businesses and bolster its marketing.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

Thanks to Trump, China is poised to dominate

This has been a very good month for Xi Jinping. The Chinese president appointed a new finance minister, who immediately began a crackdown on the hidden incomes of the country’s superrich. He struck a deal in which Facebook agreed to censor its content.

And most importantly, on Nov. 8, Mr. Xi learned that his country was about to become unchallenged as the economic leader of at least half the world’s people.

The election of Donald Trump could not have been better news for the economic and political ambitions of China. Suddenly, across most of Asia, Africa and much of South America and Europe, all economic, energy, diplomatic and non-metaphorical infrastructure roads lead to Beijing.

Or so it seems. For countries like Canada with carefully negotiated links to both superpowers, this is a delicate moment requiring considerable care. The U.S. retreat has the potential to make China considerably more important and more influential internationally, but also more controversial to be engaged with politically, even if the gains are considerable.

And it’s happening now: The world order has shifted even before the presidency has changed. Mr. Trump’s announcement this week that on his first day in office he will “withdraw from” the Trans-Pacific Partnership, the huge and not-yet-ratified trade and investment deal between the Americas and Asia (but not with China), was one of the least surprising things he has done. The letters TPP have become a little more than an easily-spat curse among protectionist Republicans and Democrats, seen widely as a corporate sop that offers little to working people.

Politically, walking away from the deal is almost cost-free for Americans. Economically, the United States was projected to gain only slightly in growth and jobs as a result of the deal, as was Canada. On the other hand, the people of Japan and Southeast Asian countries such as Vietnam and Malaysia were gambling their futures on it: The TPP promised to improve the lives of hundreds of millions of people in the eastern hemisphere by clearing a tariff-clogged pathway between the world’s largest economies. Without it, they are solely dependent on China.

The response has been almost immediate: Days after the U.S. election, countries lept into action to make deals with China. Vietnam, Malaysia, Chile and Peru announced last week that they would turn away from the U.S.-led deal and instead work on joining China’s 16-country trade bloc, the Regional Comprehensive Economic Partnership – a less stringent pact that affects three billion people. Australia announced plans to tighten its pacts with China, Japan, India and Southeast Asia (but not the U.S.).

And Beijing is preparing to step into the vacuum with an unprecedented bid to build a world economy around itself. China’s “One Belt, One Road” infrastructure-investment strategy resembles nothing so much as the Marshall Plan pursued by the United States after the Second World War. Chinese-led institutions, including the newly created Infrastructure Investment Bank, have pledged to spend $1.2-trillion in 60 countries to create railway lines, oil and gas pipelines, highways and major ports to link China with central and Southeast Asia, Russia, parts of Europe, and potentially much of Africa.

On top of that, China this week pledged to take over leadership of climate-change reduction and green-energy infrastructure if the U.S. follows Mr. Trump’s pledge to walk away from the Paris Agreement, potentially making it a post-fossil-energy superpower.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

Fed Rate Hike Imminent

Mark Schlarbaum on Next Rate Hike

2016 has been the year of unexpected outcomes in the markets according to. No one was anticipating a yes vote on Brexit, and fewer still expected a Donald Trump presidential victory. One of the next major global financial events the markets are watching is whether the U.S. Federal Reserve (the Fed) will raise interest rates during its two-day meeting scheduled for December 13^th and December 14^th. Wall Street Analysts, the media, and even we here at KraneShares, all expect the Fed will raise rates by 0.25%, which will have a huge, yet predictable effect on the markets. However, as 2016 – the year of unexpected outcomes – has taught us, we are still watching for any event that could possibly delay the rate hike very closely.

Why Mark Schlarbaum believes the rate hike will happen

Fed Chairwoman Yellen in her most recent testimony before the Joint Economic Committee on November 17^th indicated that a rate hike is coming soon. In response to a question about impact of the election, Yellen stated, “evidence so far on the economy is consistent with the judgment that the Federal Open Market Committee (FOMC) reached in November, namely, a rate hike is likely to come soon.” Additionally, Chairwoman Yellen indicated in her testimony that the Fed would act quickly to raise rates in a more stimulative spending environment, which is consistent with president-elect Trump’s stated policy objectives.

According to one of the most reliable Federal Reserve predictors, the Fed futures market, a U.S. rate hike appears to be one of the few certainties of the year. Fed futures are used by futures traders to express their view on what interest rates will be on a month to month basis. Depending on where the futures are pricing interest rates, the market derives the probability of whether the Fed will raise or lower rates at the next meeting. The Fed Futures have priced in a 100% chance of a rate hike at the next Fed announcement scheduled for December 14^th.

Possible causes for delay

In the minutes from November’s Fed meeting there was some fear of the uncertainty of the markets’ reaction to a Trump win, but the broad stock market has risen strongly with the S&P 500 up 3% since the election and the Dow up 4.5%, alleviating concern of a negative market reaction to Trump’s unexpected victory.

There are also several Fed Governors speaking over the next two weeks who all have their own independent view of the economy and can express their own opinions, which adds an element of uncertainty to the probability of a rate hike.

A U.S. jobs report this Friday looms as a potential detractor should the numbers prove weaker than expected. However, the market backdrop is incredibly strong leading up to the decision. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, is up 3.9% this month and 1.8% this year. The dollar has gained 3.5% in November to $1.0593 per euro and 7.3% to 113.06 yen. The 10-year note yield was little changed last week 2.36%, after reaching the highest level since July 2015, according to Bloomberg Bond Trader data. The 2% security due in November 2026 traded at 96 26/32. The yield on the two-year note reached 1.17%, the highest since 2010. It would take a very negative jobs number to raise doubt in traders that the rate hike would not happen this year.

We believe the one possible detractor with the most gravity is lingering uncertainty around the new Presidential administration taking office on January 20th. There is potential the Fed could push the decision until their next meeting in order to monitor what happens to the economy when President-elect Trump takes office. While we view this as the most plausible cause for a potential delay, the likelihood of it actually having an effect is small.

Future rate hikes likely

With the market seeing a rate hike at the Fed’s Dec. 13-14 meeting as a certainty, attention is shifting to next year, where futures show a more than 65 percent chance of further rate hikes by June. The market will carefully analyze the December Fed statement which should provide insights into 2017 and set the stage for another very interesting year in the Global equities, fixed income and currency markets. As an investor getting the direction of U.S. interest rates and determining the strength or weakness of the U.S. dollar are perhaps the most important elements in determining market returns all over the world right now.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

Bottled fresh air from Canada over $30 in smoggy China

Bottled fresh air’ from Canada, NZ fetches over $30 in smog-hit China

How much are people in smog-hit China prepared to pay for fresh air? At least 219 yuan ($31.80) for a 7.7-litre bottle of “pure, hand-bottled, pollution-free, oxygen-rich air from New Zealand” – which works out to 1.2 yuan per breath, according to Chinese media.

The bottled fresh air offered by about half a dozen online retailers is become a “thriving business” as people struggle with choking smog in the northern areas of the country this winter, the Beijing Youth Daily reported.

The report said retailers were selling “unpolluted air” from New Zealand and Canada in bottles. The bottles even come with breathing masks attached.

Prices of bottled air varied according to their places of origin, according to the report.

A 7.7-liter bottle of “pure, hand-bottled, pollution-free and oxygen-rich air from New Zealand” normally costs 699 yuan, but thanks to a hefty discount it is being sold for 219 yuan per bottle.

This worked out to 1.2 yuan per breath based on the retailer’s claim that each bottle contained enough air for the buyer to take at least 180 gulps, the report said.

At least two bottles of the New Zealand air have been bought in the past month.

Another 7.2-litre bottle of “Vitality Air”, reportedly collected in Canada, costs a mere 108 yuan.

More from the South China Morning Post :
China’s polluted capital may be scaling back its smog clean-up
Scientists find bacteria in Beijing smog that lead to antibiotic resistance
Beijingto end foreign investment ‘shopping spree’

Retailers are offering an even cheaper alternative – a bottle of air collected in the coastal city of Weihai, eastern Shandong province, which costs only 5 yuan.

“No smog, absolutely pure air,” one online retail store’s advertisement read. “[Sourced] from the sea or the mountain, options available at no extra charge.”

Customers living in the nation’s heavily polluted area are being offered big discounts.

Those people living in Beijing, which reportedly suffers from the worst pollution, could be offered discounts of up to 75 per cent on the normal price of the bottled air, while people in other areas can expect to receive discounts of up to 50 per cent, the report said.

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Mark Schlarbaum

Mark Schlarbaum resides in Irvine, California

China is creating the world’s second biggest stock market

A long-awaited trading link in China is close to becoming a reality, and that’s got people talking about the country’s heavyweight status in financial markets.

A link connecting the Shenzhen and Hong Kong stock exchanges is slated to open Dec. 5, making hundreds of China’s fastest-growing companies available to foreign investors.

The Shenzhen-Hong Kong Stock Connect also “will essentially create the 2nd largest equity market globally by market cap,” said Goldman Sachs analysts, according to the Daily Shot newsletter.

The No. 2 ranking comes from grouping together the market capitalization of the exchanges in Shenzhen, Shanghai and Hong Kong.

The New York Stock Exchange ranks No. 1, while the Nasdaq exchange is third, as show in the chart below. The chart comes from the Financial Times and is based on data from the World Federation of Exchanges.

The Shenzhen-Hong Kong link — which follows a similar Shanghai-Hong Kong link that opened in 2014 — could force money managers to allocate more capital to China’s massive stock market, according to the Goldman analysts.

That’s partly because the new link will strengthen the case for including certain Chinese shares known as A-shares in global equity benchmarks in part because size matters, the analysts wrote.

There is buzz about how the Shenzhen exchange represents a “New China.” It is “a powerhouse of private enterprise, tech companies and strategic emerging companies,” said Stephen Sun, HSBC’s head of China and Hong Kong equity strategy, according to a South China Morning Post report.

The Shenzhen exchange is also criticized for being “rife with speculative trading in small-cap stocks with little institutional research coverage,” as a Wall Street Journal report put it.

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Mark Schlarbaum

Mark Schlarbaum, Irvine, California

China to invest $174 billion in hydro and wind

China will spend at least 1.2 trillion yuan ($174 billion) on hydro and wind energy infrastructure between 2016 and 2020, the National Energy Administration (NEA) said in blueprint document for the two industries.

NEA said construction of new wind farms would provide about 300,000 new jobs by 2020. In addition, the country aims to have a market-based subsidy system for the wind industry.

(Reporting by Meng Meng and Michael Martina; Editing by Mark Potter)

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Mark Schlarbaum resides and works in Irvine, California.

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Mark Schlarbaum

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