| The U.S. rejects Beijing's claims to the South China Sea. Chinese stocks inch towards a $10 trillion milestone. And Huawei records 13% revenue growth, despite everything. Here are some of the things people in markets are talking about today. The Trump administration rejected China's expansive claims in the South China Sea, reversing a previous policy of not taking sides in territorial disputes in the region and escalating tensions with Beijing on yet another front. "We are making clear: Beijing's claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them," Secretary of State Michael Pompeo said in a statement Monday. In the past, the U.S. has called for protecting "freedom of navigation" in the contested waterway while stopping short of taking a position on specific territorial claims. Intensification of the long-simmering maritime dispute adds to conflicts over issues from trade and technology to cybersecurity and President Donald Trump's efforts to blame China for the coronavirus pandemic that began there. Most recently, the U.S. had raised concerns over China's decision to conduct military exercises in the contested waters around the Paracel Islands in the South China Sea. The Defense Department last week called the actions "unlawful." Most Asian stocks looked ready to follow their U.S. peers lower Tuesday amid fresh Sino-American tensions and ongoing coronavirus concerns. Crude oil retreated, and futures pointed to declines in Tokyo and Sydney, though Hong Kong contracts ticked higher. The S&P 500 Index fell after briefly touching its highest since the pandemic sell-off in March, while the Nasdaq hit another record before closing in the red. Treasuries gained and the dollar swung. Gold was steady. China's investors have waited five years for stock values to return to $10 trillion, a milestone that would seal the market's recovery from its biggest crash in history. The good news is that it could happen as soon as this week, and even a slower pace of gains — which is favored by Beijing —would do it. China's domestic equities are worth about $9.5 trillion after this month's rally, according to data compiled by Bloomberg as of July 12. The advance has taken two of its indexes to 2015 levels and made virtually all of the country's stock benchmarks overheat. In local currency terms, China's market cap is already at a record 66 trillion yuan. But the $10 trillion level also marked the top of the bubble five years ago. Similarities between now and then have started to displease policy makers, who have taken steps to rein in stocks. A plethora of restrictions from multiple countries hasn't thwarted Huawei's sales growth. Revenue increased by 13% to 454 billion yuan ($65 billion) in the first six months of 2020, the Shenzhen-based company said Monday. That's after Huawei's growth evaporated in the first three months of the year amid a relentless U.S. campaign against the maker of networking equipment and as the Covid-19 pandemic decimated smartphone sales. The White House has spearheaded a global campaign against Huawei, warning allies not to use it in their next generation 5G wireless networks because it can be influenced by the Chinese Communist Party, and some lawmakers in the U.S. and U.K. are calling for a full ban of the company's equipment in national networks. Huawei says it's an independent company and denies its products pose unique risks. Robinhood users can't get enough of Tesla. Almost 40,000 accounts added shares of the automaker during a single four-hour span on Monday, according to website Robintrack.net. But the one-day return may not have turned out so well. Tesla was up as much as 16% at one point before paring gains through the day and finishing 3% lower. It was a rare losing day for the high-flying stock, which has surged 56% over the past 10 days. All told this year, Tesla's market cap has surged by $202 billion, pushing Elon Musk past Warren Buffett in rankings of the world's wealthiest people.The frenzy in interest makes Tesla the 10th-most popular stock on Robinhood, ahead of even Amazon.com. What We've Been Reading This is what's caught our eye over the past 24 hours: And finally, here's what Tracy's interested in this morning One of the odd things about the rally in China stocks is that the narrative of Chinese economic recovery doesn't seem to be having much impact elsewhere in the world. What I mean by that is that investors don't really seem to be upping their bets on companies that derive significant portions of their revenue from China, even as domestic Chinese stocks are soaring. Goldman Sachs, for instance, points out that European equities that derive a big portion of their sales from China haven't outperformed in recent weeks, and sectors with the most exposure to China (such as luxury goods and cars) haven't outperformed the broader market either.  That's something worth remembering as China's total stock market capitalization nears $10 trillion — a level last seen in 2014, shortly before domestic Chinese equities came crashing down to earth. It's possible that Chinese investors have a better handle on just how the economy is doing, given their physical proximity to it. It's also possible that the rally is the result of excess capital moving from one area of the Chinese financial system to another. In which case, you wouldn't expect that money to "overflow," necessarily, into other parts of the world. As the Goldman analysts put it: "Although China's PMI picked up and copper prices rose sharply, which has historically reflected improved Chinese demand, investors do not seem to have repriced growth higher other than in China itself." The best in-depth reporting from Asia and beyond. Sign up to get our weekly roundup in your inbox. | 
Post a Comment