China’s August exports unexpectedly shrink, imports remain weak

Many analysts expect China’s export growth to slow further in coming months. (AFP)
Updated 08 September 2019

China’s August exports unexpectedly shrink, imports remain weak

  • Beijing is widely expected to announce more support measures in coming weeks to avert the risk of a sharper economic slowdown
  • There were expectations that looming tariffs may have prompted some Chinese exporters to bring forward or ‘front-load’ US-bound shipments into August

BEIJING: China’s exports unexpectedly fell in August while imports shrank for a fourth month, pointing to further weakness in the world’s second-largest economy and underlining a pressing need for more stimulus as the Sino-US trade war escalates.
Beijing is widely expected to announce more support measures in coming weeks to avert the risk of a sharper economic slowdown as the United States ratchets up trade pressure, including the first cuts in some key lending rates in four years.
On Friday, the central bank cut banks’ reserve requirements for the seventh time since early 2018 to free up more funds for lending, days after a cabinet meeting signaled that more policy loosening may be imminent.
August exports fell 1 percent from a year earlier, the biggest fall since June, when it fell 1.3 percent, customs data showed on Sunday. Analysts had expected a 2.0 percent rise in a Reuters poll after July’s 3.3 percent gain.
That’s despite analyst expectations that looming tariffs may have prompted some Chinese exporters to bring forward or “front-load” US-bound shipments into August, a trend seen earlier in the trade dispute.
Many analysts expect export growth to slow further in coming months, as evidenced by worsening export orders in both official and private factory surveys. More US tariff measures will take effect on Oct. 1 and Dec. 15.
Sunday’s data also showed China’s imports shrank for the fourth consecutive month since April. Imports dropped 5.6 percent on-year in August, slightly less than an expected 6.0 percent fall and unchanged from July’s 5.6 percent decline.
Sluggish domestic demand was likely the main factor in the decline, along with softening global commodity prices. China’s domestic consumption and investment have remained weak despite more than a year of growth boosting measures.
China reported a trade surplus of $34.84 billion last month, compared with a $45.06 billion surplus in July. Analysts had forecast a surplus of $43 billion for August.
August saw dramatic escalations in the bitter year-long trade row, with Washington announcing 15 percent tariffs on a wide range of Chinese goods from Sept. 1. Beijing hit back with retaliatory levies, and let its yuan currency fall sharply to offset some of the tariff pressure.
China and the United States on Thursday agreed to hold high-level talks in early October in Washington, the first in-person discussions since a failed US-China trade meeting at the end of July.
But there was no indication that any planned tariffs on Chinese goods would be halted, and markets expect a lasting peace between the two countries seems more elusive than ever.
White House economic adviser Larry Kudlow said on Friday the United States wants “near term” results from US-China trade talks in September and October but cautioned that the trade conflict could take years to resolve.
China’s trade surplus with the United States stood at $26.95 billion in August, narrowing from July’s $27.97 billion.
It still reached $195.45 billion in the first eight months of 2019, highlighting continued imbalances which have been a core complaint of Trump’s in his administration’s negotiations with Beijing.


Oil-rich wealth funds seen shedding up to $225 billion in stocks

Updated 30 March 2020

Oil-rich wealth funds seen shedding up to $225 billion in stocks

  • Risking more losses is not an option for some funds from oil-producing nations

LONDON: Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are on course to dump up to $225 billion in equities, a senior banker estimates, as plummeting oil prices and the coronavirus pandemic hit state finances.

The rapid spread of the virus has ravaged the global economy, sending markets into a tailspin and costing both oil and non-oil based sovereign wealth funds around $1 trillion in equity losses, according to JPMorgan strategist Nikolaos Panigirtzoglou.

His estimates are based on data from sovereign wealth funds and figures from the Sovereign Wealth Fund Institute, a research group.

Sticking with equity investments and risking more losses is not an option for some funds from oil-producing nations. Their governments are facing a financial double-whammy — falling revenues due to the spiraling oil price and rocketing spending as administrations rush out emergency budgets.

Around $100-$150 billion in stocks have likely been offloaded by oil-producer sovereign wealth funds, excluding Norway’s fund, in recent weeks, Panigirtzoglou said, and a further $50-$75 billion will likely be sold in the coming months.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” he said.

Most oil-based funds are required to keep substantial cash-buffers in place in case a collapse in oil prices triggers a request from the government for funding.

A source at an oil-based sovereign fund said it had been gradually raising its liquidity position since oil prices began drifting lower from their most recent peak above $70 a barrel in October 2018.

In addition to the cash reserves, additional liquidity was typically drawn firstly from short-term money market instruments like treasury bills and then from passively invested equity as a last resort, the source said.

It’s generally a similar trend for other funds.

“Our investor flows broadly show more resilience than market pricing would suggest,” said Elliot Hentov, head of policy research at State Street Global Advisers. “There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual.”

The sovereign fund source said the fund had made adjustments to its actively managed equity investments due to the market rout, both to stem losses and position for the recovery, when it comes.

Exactly how much sovereign wealth funds invest and with whom remain undisclosed. Many don’t even report the value of the assets they manage.

On Thursday, the Norwegian sovereign wealth fund said it had lost $124 billion so far this year as equity markets sunk but its outgoing CEO Yngve Slyngstad said it would, at some point, start buying stocks to get its portfolio back to its target equity allocation of 70 percent from 65 percent currently.

Slyngstad also said that any fiscal spending by the government this year would be financed by selling bonds in its portfolio.