Chinese financiers bet on volatility as US election heats up

The smart money in China is already pulling out of stocks. (AFP)
Short Url
Updated 24 September 2020

Chinese financiers bet on volatility as US election heats up

  • The trend is to move from New York-listed shares to Hong Kong-listed vehicles to counter the threat of delistings

SHANGHAI: Investors in China are betting on a bumpy ride until the end of the US presidential election and seeking to protect their assets from a long chill in Sino-US ties.

Global equity fund managers are shifting out of New York-listed shares in Chinese firms and into Hong Kong-listed vehicles to counter the risk of forced delistings, as both Democrat Joe Biden and Republican President Donald Trump promise a hard line on Beijing.

Currency investors have been fretting that a yuan hovering near sixteen-month highs is priced for a Biden win and a calmer tone in diplomacy, which could swiftly unwind if Trump is victorious.

Their bets are focused less on the outcome and more on what most expect to be a rollercoaster period until at least polling day on Nov. 3.

“It doesn’t matter if Biden or Trump will be elected. The bipartisan consensus is to be tough on China,” said Chen Jiabeng, fund manager of Xiamen Portfolio Management Co, which helps investors allocate assets through funds of funds.

“We will not bet on direction. We will bet on higher volatility,” he said.

Chen is allocating some 30-40 percent of his portfolio to funds with options and futures trading strategies that can profit from wild swings in underlying assets. A doubling in the volume of stock index option contracts traded on the Shanghai Stock Exchange in July, surpassing even March’s peak at the height of the coronavirus panic, and heavy volumes through August shows Chen is not alone.

Adam Coons, portfolio manager of Indianapolis-based Winthrop Capital Management, plans shifting his stake in Alibaba from its New York listing to Hong Kong as a “defensive move,” even though he thinks a US delisting is unlikely.

Even Hong Kong-listed shares of Tencent have been hit by a Trump ban on US downloads of its popular WeChat app.

A lack of momentum in Chinese equity markets, which have moved sideways in Shanghai and downwards in Hong Kong over recent weeks, belies shifts beneath the surface.

“It’s the calm before the storm,” said Allen Mo, chief investment officer of Ming Yue Asset, a Chinese hedge fund that, like Chen’s Xiamen, is using derivatives to bet on volatility.

The “smart money” in China is already pulling out of stocks, he said. China policy is a major campaign issue, regularly raised by both candidates on the stump and expected to feature in three scheduled televised debates, beginning on Sept. 29.

To be sure, some fund managers think the campaign rhetoric and the election outcome matter little to the long-term trends that form the basis of their investments in China.

“We are fully invested and are seeing green shoots arise in the Chinese economy,” said Sam Lecornu, chief executive of Stonehorn Global Partners in Hong Kong. “We see upside in markets as there’s ample liquidity in the system and central banks continue to drive real rates down.”

Yet some China bulls are holding back for now.

“Clients are very, very concerned about the next 50 days, which I think are very, very treacherous,” said Davis Hall, head of capital markets in Asia at Indosuez Wealth Management.

“It seems like dollar/CNY is reflecting the probability of a Biden victory,” he said.

“So what happens if we don’t get one? We could immediately give back a lot of this current move,” he said, advising investors long on yuan to trim their positions for safety.


Britain, EU tell each other to move on trade

Updated 20 October 2020

Britain, EU tell each other to move on trade

  • Both sides call on each other to protect billions of dollars of trade between the neighbors

BRUSSELS: Britain and the EU said on Monday the door was still open for a deal on their post-Brexit relationship, calling on each other to compromise to find a way to protect billions of dollars of trade between the neighbors.

With just over two months before Britain ends a status quo transition arrangement with the EU, talks on a trade deal are deadlocked, with neither wanting to move first to offer concessions.

A no-deal finale to Britain’s five-year Brexit drama would disrupt the operations of manufacturers, retailers, farmers and nearly every other sector — just as the economic hit from the coronavirus pandemic worsens.

European Commission Vice President Maros Sefcovic repeated on Monday that the EU still wanted a trade deal but not “at any cost” after British Prime Minister Boris Johnson said on Friday there was no point in continuing talks.

“It has to be a fair agreement for both sides — we are not going to sign an agreement at any cost,” Sefcovic told reporters after meeting Michael Gove, Britain’s point man on the existing divorce agreement, in London.

“The EU is ready to work until the last minute for a good agreement for both parties,” Sefcovic said.

Britain, increasingly frustrated by the EU’s refusal to start text-based talks, called on the bloc to make the first move, with its housing minister saying that Brussels only had to make “some relatively small but important changes.”

Housing Secretary Robert Jenrick called on the EU to “go that extra mile, to come closer to us on the points that remain for discussion.”

A spokesman for Johnson again ruled out prolonging any negotiation beyond the end of this year, when the transition period runs out, saying the EU “must be ready to discuss the detailed legal text of a treaty in all areas with a genuine wish to respect UK sovereignty and independence.”

EU chief negotiator Michel Barnier had been due in London for talks with British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks, Barnier’s spokesman said.

Negotiations broke down on Thursday, when the EU demanded Britain give ground. Issues still to be resolved include fair competition rules, including state aid and fisheries. EU diplomats and officials cast Johnson’s move as a frantic bid to secure concessions before a last-minute deal was done, and European leaders have asked Barnier to continue talks.

British officials have repeatedly said any deal has to honor Britain’s new status as a sovereign country and not try to tie it to EU rules and regulations.

German Chancellor Angela Merkel said compromises on both sides would be needed. French President Emmanuel Macron said Britain needed a deal more than the 27-nation EU.

Britain is launching a campaign this week urging businesses to step up preparations for a no-deal departure. In a statement accompanying the launch, Gove says: “Make no mistake, there are changes coming in just 75 days and time is running out for businesses to act.”

More than 70 British business groups representing over 7 million workers on Sunday urged politicians to get back to the negotiating table next week and strike a deal.