Protests in Hong Kong Impact on Investors

Investors have been impacted by the protests currently taking place in Hong Kong. The protests have left their mark on those whose investment portfolios include exposure to Hong Kong in a range of ways.

Pro-democracy protestors have been occupying spaces outside government buildings in reaction to recent government decisions. The protestors are unhappy about reforms which allow future leaders to be democratically elected, but only by a comparatively small group of people who have been approved to vote by Beijing. Early on Monday morning, riot police fired tear gas at thousands of protestors, and there are concerns that the situation could further intensify before things come to an end. These protests are being called the most severe political unrest that Hong Kong has seen in the seventeen years since the former British territory was handed back to China in 1997.

The protests are having a significant economic impact, which is in turn having an effect on investors’ portfolios. A number of large banks have announced that their operations in Hong Kong are to be suspended. Many branches, cash withdrawal machines, and cash deposit machines are being closed amidst the unrest, and many staff are being instructed to go to secondary sites or to simply stay at home.

A number of businesses are also being affected by the unrest. It is believed that the most vulnerable business types will include retailers and those whose activities relate to tourism or benefit from tourist trade. This is particularly true with the approach of China’s National Day Holidays this week, usually a peak tourist season.

These economic factors are naturally impacting upon investments in the region. Those who hold investments in Hong Kong’s stock market, for example, have seen their portfolios affected by the unrest as the market suffers. By the end of Monday’s session, the Hang Seng index found itself 449 points lighter than it had been when it began. This represents a rapid 1.9% drop, with the market eventually closing at 23,229.21.

Forex traders with investments in Hong Kong have also been affected by the protests. In light of unrest, the value of the Hong Kong dollar against the US dollar plummeted. It ended up at a six month low of just 0.13 US dollars (GB£0.079).

According to IG Markets’ Ryan Huang: “The recent stream of China macro data has not been particularly strong to bolster investor confidence, and worsening sentiment will not do the markets any favours.”

Investor Confidence Growth in Worldwide Economy

The Dow Jones Industrial Average has for the first time closed above the 17,000 mark as confidence from investors grows in the world wide economy. The stock index for the US which consists of the biggest companies in business increased by 92 points to close for the day at 17,068.

 

A report which stated that in June there were 288,000 jobs added by the US economy had a positive effect leading investors to push shares higher. Moreover, low interest rates have played their part in the up rise as that has led to investors pouring in money. Among other US indexes to have increased is S&P which saw new heights this year. The Dow recently closed at its 13th highest for the year while on the other hand the S&P 500 reached a 24th highest close in 2014.  

Slowly but surely

An increase in acquisitions and mergers as well as a string of other positive economic news has fired up investors and earned their confidence. All in all making Wall Street a much brighter place to be. The latest positive job figures to be released in the US was the icing on the week for global positivity along with China’s manufacturing productivity reaching a six month high.

Benedict Willis who works for Princeton Securities stated in an interview “the economic data we continue to get is not exceptional, but it is still positive” making his position on the New York Stock Exchange a touch more comfortable.

The worry which many investors had earlier in the year was that the rising stock prices would not be supported by actual growth in the economy. However, Mr Willis stated that so long as the economic figure continue to rise then that should be sufficient to support investor confidence and not raise any concerns. He further expressed his personal confidence in saying that he expected the stock markets to continue rising.

While on this subject, it is important to give credit to the Federal Reserve who have heavily influenced the pouring of money into stocks over the past year and a half by keeping interest rates at rock bottom. The Fed has made tremendous efforts to keep the rates at record lows and have succeeded in their mission which was to encourage banks to provide loans in order to stimulate the economy and with it to progress growth.

German Economic Growth Due To Overseas Trade

Official statistics show that the economic growth of Germany in the last three months of 2013 has been driven to a huge extent by overseas trade.

The overall picture is that in the past two years, the performance of the German economy has deteriorated. This marked its slowest expansion since the beginning of the global financial crisis in 2008. According to the statistics, Germany’s GDP in the fourth quarter of 2013 was up with 1.3% compared with the same period in 2012.

A growth by 0.4% is observed in the quarter compared to the third quarter, according to German statistical agency. The main driver behind this increase is foreign trade which accounts for 1.1% points of the overall rise in gross domestic product. However, the figure was hurt with 0.7% by the weak domestic demand. Nevertheless, economic experts express their views that domestic demand will rise now, in the first months of 2014, compared with the end of last year. The reason for this expectation is that the high levels of job security, together with rising incomes will enhance consumer assurance. Also, very low inflation rates will further influence the expected stronger household spending growth in 2014. The government is forecasting a growth of 1.7%

Furthermore, the statistics show that the key economic mechanism in that specific period was the balance of export and imports.

The central German bank, Bundesbank, has stated that German economy is in good shape because of the low unemployment rate and wage growth which has reached normal levels again. Also, low interest rates had been boosting house building and private consumption in Germany, even though trade had been weakening.

Another factor which will assist German economy is other improvements that have been happening in the rest of the Eurozone and the US which are both big export markets. Thus, Germany might be able to outperform the rest of the Eurozone for the next coming years. It is important to note that despite some of these negative statistics, Germany’s economy continues to be a strong point of the Eurozone and has credit for the help it provided in the pulling the single currency bloc out of recession last year.

EUROZONE SLOWS TO A SNAIL’S PACE

The Eurozone economy has posted appalling growth figures for the months July to September with a growth of just 0.1% which is a decrease of 0.2% from the previous three months to that. This poor figures has marked only the second month which the Eurozone has posted a positive number, prior to which was an 18 month long recession which saw trade in the euro are contract month on month. The figure as well as showing further negativity, reveals the sensitivity of the recovery as well as the length of time it will take for the economic trade block to fully recover.

The European economy as a whole is taking a lot longer that expected to bounce back from the financial crisis in comparison to the other regions which suffered from the crash of 2008. With the Euro area having debt problems which bare similarities to those of the United Kingdom and the United States of America, for many of the Member States the debt level has a more political importance than its financial meaning.

Those less powerful members of the trade block have been bailed on unfavourable terms with conditions which lead to government cuts in spending with the overall objective to reduce the country’s debts. The implementation of such money saving policies have adversely affected voters who have been the victims of reduction in wages, an increase in taxes as well as job-cuts and changes to the provision of public services. The economic prospects for the Eurozone appear negative for the near future according to several economists who with high unemployment and a decrease in overall living standards cannot see now the economy can be driven to progression.

Nevertheless, a somewhat optimistic projection has been made for next year by the European Commission who predict at 1.1% growth and a progression of 1.7% in 2015. The US who are alike dealing with major government debt issues are however better at handling the economy with a growth rate for this year so far being 2.8% in comparison to the dismal 0.4% figure of the Eurozone.

No positives can be found either within Europe’s strongest and most influential countries, that of France and Germany. The growth of the German economy in the third quarter was down from 0.7% in the previous to 0.3% whereas France displayed a yet disappointing -0.1% which is identical to the third most important member state’s economy, that of Italy.

 

Calls For Less QE Cause Rising Tensions In Asian Markets

Last week, Brazil became the latest country to act in order to shore up its currency as investors piled out of emerging markets. The Brazilian currency’s value went down 20% against the dollar since the start of the year, while the rupee is down 15% and the Turkish lira down 10%. The situation reminds many investors of the catastrophic Asian financial crisis of 1997-98. During this crisis, Thailand was the first of the fast-growing “Asian tiger” economies forced to turn to the International Monetary Fund (IMF), as foreign investors lost heart and left and the nation’s thus  currency plunged, sparking a chain reaction.

Back in 1997, it was Alan Greenspan’s decision to push up interest rates that sparked investors to pull out their equity from riskier markets to take advantage of better returns back home. Today, it’s the announced intention of Ben Bernanke, the chairman of the Federal Reserve, to begin “tapering” its unprecedented $85bn a month programme of quantitative easing (QE), perhaps as soon as next month. The crisis, if there is one, may be caused by the change of heart by the Federal Reserve, thousands of miles away in Washington.

Under the QE project, the Federal Reserve buys up assets, mainly US government bonds or US treasury notes in a bid to push up their prices. This funded purchasing helps to reduce interest rates across the economy and create the conditions for recovery. The notable side-effect of the QE policy is that banks and other investors use the cheap cash to go on a global shopping spree, looking for tempting investment prospects from all over the world. When the money is starts to roll in, this inflates share prices and drives down the cost of government borrowing. It’s easy for authorities in third world countries to believe their own hype – political stability, the rising middle class, a large and growing workforce, huge untapped potential. But when the tide turns, they can suddenly become acutely vulnerable.

However, there are quite a few reasons that can be listed that can be a cause for us to stay optimistic. Many emerging economies have piled up vast stockpiles of foreign currency reserves in the past 15 years in a deliberate bid to avoid being forced into the hands of the dreaded IMF. Few are actually reliant on the type of loans that were a problem back then, and the Federal Reserve is acutely aware of the potential risk of sparking a new financial crisis.

Europeans Fight Against Debt Crisis

Government officials throughout Europe are trying to find a way to reverse the debt crisis. They have imposed deep budget cuts for a couple of years now. These austerity measures have had serious implications for citizens throughout the continent. Citizens throughout Europe are speaking out against austerity and hope governments will focus on improving economic conditions for the lower and middleclass.

State of the Eurozone Economy

According to Joseph Stiglitz, an economics professor from Columbia University, most of the Eurozone is suffering a deep depression. Policy makers are reluctant to use that word, but the people of Europe know how bad conditions are. Economists believe that the austerity measures are only making matters worse. Stiglitz warns that Europe will need a decade to recover from the damage caused by these budget cuts.

Most economists agree that the Eurozone needs some structural changes. However, they said that policymakers are focusing too heavily on reforms within the individual countries. They said that they are going to need to focus on fixing the framework of the euro itself.

Citizens have thrown austerity strikes over the last year. They are calling for their leaders to stand up to the ECB and the European Commission leaders demanding austerity. Pier Luigi Bersani is pledging to stand by their request. He recently said that Italy must “leave the austerity cage.”

Nevertheless, politicians like Bersani don’t appear to have enough political clout to convince other lawmakers to reverse austerity measures. Austerity will probably remain a reality until enough people support Bersani and other lawmakers who share his views.

Will Austerity Work?

Some experts speculate that the citizens of Europe will refuse to tolerate austerity in the very near future. They may side with Bersani and other leaders who promise to stand up against the budget cuts. Politicians may feel pressured to give into their demands and increase spending.

However, austerity could fail even if leaders don’t back down on their budget cuts. Revenues may continue to shrink in the coming months, which would make it more difficult for individual states to meet their debt obligations.

Some experts have called for alternate solutions, but feel that the government doesn’t want to consider them. Stiglitz said that Germany won’t even consider any of the sound ideas that many economists have proposed. He said that Germany seems adamant about protecting the sanctity of the single currency, even though Europe is struggling to survive. Mario Draghi, the president of the European Central Bank, agrees with his sentiments. The Guardian recently quoted Draghi stating that the ECB will do whatever it takes to save the euro.

Rapid Growth of China’s Economy

As China’s economic importance has grown, so has attention to the structure and health of the economy.

China is the world’s second largest economy by nominal GDP and by purchasing power party after the United States. It is the world’s fastest-growing major economy, with growth rates averaging 10% over the past 30 years.China is also the largest exporter and second largest importer of goods in the world. On a per capita income basis, China ranked 90th by nominal GDP and 91st by GDP (PPP) in 2011, according to the International Monetary Fund (IMF).

“The country’s gross domestic product rose by 7.9% from a year earlier in the fourth quarter”, the National Bureau of Statistics said Friday.That was up from 7.4% growth in the third quarter and slightly above expectations for a 7.8% rise, according to the median forecast in an earlier Wall Street Journal poll of 17 economists.

It was Xi Jinping’s accession to power that has raised hopes on China to restart economic reforms.In  2012,some Analysts estimated that bank loans will fall to their lowest level as a share of total funding in the economy, to around 55%.This is not because capital is drying up in China, total funding for the economy is up over 20% this year and is set to exceed an incredible 30% of GDP for the fourth year in a row.

However, the state-owned banks are the biggest buyers in the bond market. The most important thing to understand about China’s a financial market is that the big five state banks is nearly the only source of capital, simply because they control 70% of all retail deposits.These banks hold over 60% of all outstanding bonds, including government, policy-bank and corporate bonds. Other state-owned entities hold a further 30%.

China’s economic growth accelerated in the fourth quarter of 2012, confirming a rebound for the world’s second-largest economy after more than a two-year slowdown.

World Bank’s Forecast

The World Bank Headquarters

According to the World Bank on Tuesday, there has been a slow economic recovery among developed nations causing a hold back in the global economy. The World Bank has not been so optimistic about the global economic outlook, downgrading its growth forecasts. The forecast was not entirely reassuring the people.

A part of World Bank’s forecast, the global gross domestic product (GDP) will increase to 2.4 percent this year, from 2.3 last 2012. The forecast in June projected a global growth would reach 3.0 percent this year. The Bank also that said most developing countries were operating at or near a full capacity with additional efforts to boost the output risk hitting inflation speed bumps.

The lead author of the bank’s Global Economic Prospects report, Andrew Burns said that “a recovery the bank had anticipated last year was now expected “closer to the end of the first quarter and into the second quarter of 2013, rather than beginning a little earlier. “Burns has urged the developing countries to “maintain a steady hand on monetary policy” and not to react too forcefully to changes in developed countries. He said the developing nations “should focus on structural policies and investments to support sustained growth.”

The developing countries were chalking up growth rates of around 7.5 percent, with China growing at an annual rate of 10 percent before the global financial crisis hit in 2007. The World Bank forecast that the Chinese growth would already reach 8.4 percent this year.

Growth is expected to barely move at 2.4% in 2013, and gradually strengthen to 3.1% in 2014 and 3.31% in 2015.