SINGAPORE: Singapore’s second-largest bank Oversea-Chinese Banking Corp (OCBC) reported on Friday (Aug 2) a stronger-than-expected 14 per cent year-on-year jump in second quarter net profit and said it was firmly on track to meet its 2024 targets. “As we look ahead, we are alert to the heightened level of geopoliticalContinue Reading
TOKYO – With all the focus on the US Federal Reserve and Bank of Japan, it’s easy to forget where the most important monetary calls are being made this year: Beijing.
Sure, Fed Chairman Jerome Powell said Wednesday (July 31) that big actions are coming. A September interest rate cut is “on the table,” provided the inflation data supports one. That, and BOJ Governor Kazuo Ueda’s modest 0.15% rate hike hours earlier, is the talk on global markets.
But both narratives, though, are more of the signaling variety than anything that’s going to make or break the world’s No. 1 or No. 3 economy. How People’s Bank of China’s Governor Pan Gongsheng plays his monetary hand in Beijing will likely have far more impact given the intensifying headwinds bearing down on Asia’s biggest economy.
For all their challenges, neither the US nor Japan faces simultaneous mini-crises with property developers, weak household spending and deflationary pressures. Neither confronts youth unemployment at record highs. Neither faces domestic headwinds from municipalities grappling with US$10 trillion-plus of local government financing vehicle (LGFV) debt.
All this explains why the PBOC surprised global markets with an interest rate cut on July 25, when it cut the one-year policy loan rate by 20 basis points to 2.3%, the biggest move since April 2020. That came just days after the PBOC lowered a key short-term rate.
In July, mainland manufacturing activity unexpectedly fell for the first time in nine months. The Caixin manufacturing purchasing managers index slid to 49.8 last month from 51.8 in June. The dip suggests China’s export machine is losing momentum, dimming the economy’s prospects.
“The most prominent issues are still insufficient effective domestic demand and weak market optimism,” says Wang Zhe, economist at Caixin Insight Group.
Yet for all the turmoil in China’s economy, there are signs that the PBOC might be done lowering rates for a while.
The PBOC “moves reflect ongoing deflationary pressure and should modestly support growth,” says Duncan Innes-Ker, analyst at Fitch Ratings. “Nevertheless, we believe the prospects for further rate cuts are limited by the government’s wariness of adding to pressure on the renminbi exchange rate.”
Perhaps more important is that currency traders suddenly seem more interested in bracing for a rising yuan than a falling one.
Hedging trends show that the premium for put options used to bet on a weaker dollar-yuan relative to wagers on a stronger rate are at levels not seen in 13 years.
Nor do measures of expected volatility appear to be spiking as the Fed and BOJ finally make, or move toward, long-awaited rate moves.
Some of the yuan’s stability owes to a now-rallying yen. Its surge in the wake of the BOJ hiking rates the most since 2008 has the yuan trading at two-month highs. Chinese state banks are reinforcing the move and putting the dynamic to good use by selling dollars.
This dovetails with President Xi Jinping’s top-line priority for the yuan. In recent years, Xi’s inner circle worried that a weaker yuan might make it harder for giant property developers to make payments on offshore debt, heightening default risks.
More recently, Xi’s Communist Party has tried to avoid becoming a bigger election issue in the US, where Donald Trump is making another play for the presidency and looking to make trade wars great again.
Perhaps the biggest priority, though, is Xi’s yuan internationalization policy. Since 2016, Team Xi has made steady and significant progress toward supplanting the dollar as the linchpin of the global financial system.
That year, Beijing secured a spot in the International Monetary Fund’s “special drawing-rights” program. It put the yuan into the globe’s most exclusive currency club along with the dollar, euro, yen and the pound.
As Xi’s “yuanization” gambit gains traction, it stands out as one of his top reform successes. In March, the yuan hit a record high of 47% of global payments by value.
In 2023, the yuan topped the yen as the currency with the fourth-largest share in international payments, according to financial messaging service SWIFT. It overtook the dollar as China’s most used cross-border monetary unit, a first.
The strategy would get a major boost if the BOJ can continue hiking rates and the Fed ratchets rates lower.
Both of these dynamics are an open question. The BOJ, for example, confronts a sluggish economy, tepid wage growth and political paralysis in Tokyo.
“The rate hike sits uncomfortably with the poor run of economic data and lack of demand-driven inflation,” says Moody’s Analytics in a note.
Gross domestic product, Moody’s adds, “has been falling for the better part of a year. And consumer price inflation has slowed sooner than expected, despite jumpy headline and core CPI readings.”
What’s more, “the ‘shunto’ spring wage negotiations produced a three-decade record result, but actual pay gains recorded across the economy have been disappointing,” Moody’s notes. Also, “industrial production stalled in the second quarter and wage gains lack oomph, both of which move the recovery further into the distance.”
Moody’s concludes that the Ueda BOJ “is hiking into a weak economy. Indeed, there is a good chance that Wednesday’s decision will be remembered as one of the BOJ’s more controversial ones.”
The Fed faces myriad uncertainties of its own. Powell’s team confronts the specter of a Trump 2.0 White House, which seems primed for battle with the Fed over monetary independence.
During his first term from 2017 to 2021, Trump browbeat the Fed into cutting rates at a time when the US didn’t need fresh monetary stimulus. Trump even threatened to fire Powell.
If Trump wins another term on November 5, he might implement the “Project 2025” blueprint that includes eradicating the Fed system. Trump also is believed to favor devaluing the dollar.
Tokyo worries that weak Asian currencies – including the yen – might become a political talking point ahead of November. This fear is among the reasons Japan’s Ministry of Finance is working to prop up the yen. Tokyo spent more than $3 billion in the last month to put a floor under the yen.
The currency surged on Wednesday after Ueda’s minor rate hike, partly because he hinted at more tightening steps to come.
“Ueda’s hawkish comments and the content of the policy statement point to risk of the next hike to be brought forward earlier, depending on upcoming data. We see flattening of Japanese government bond curve as markets price in sharper rate hike cycle within short period,” says Takeshi Yamaguchi, economist at Morgan Stanley MUFG.
But it’s the PBOC’s Pan who faces the most challenging road to 2025. One reason is uncertainty about the timing of Xi’s plans to ramp up government stimulus.
“The Politburo is signaling a renewed emphasis on shoring up the domestic economy through consumer-focused policies, as China navigates economic headwinds,” says Carlos Casanova, economist at Union Bancaire Privée.
“However, investors were hoping to see actionable measures emerge from the July meeting. Instead, the announcements seemed to lack concrete details, leaving the impression of sizzle but no steak,” Casanova says.
Until there’s greater clarity, he says, “the 10-year government bond yield in China is likely to remain suppressed in the coming weeks, as the government rolls out additional policy support measures.”
All the global financial system can do is hope that Pan gets right the timing, magnitude and sequencing of rate cuts.
Nothing would cheer global investors more than the biggest trading nation beating this year’s 5% growth target in a big way and defeating deflationary pressures in short order.
That’s why this year’s most impactful monetary policy calls won’t be in Washington or Tokyo, but rather in Pan’s office.
Follow William Pesek on X at @WilliamPesek
SINGAPORE: United Overseas Bank (UOB) maintained earnings guidance for 2024 after posting on Thursday (Aug 1) a 1 per cent year-on-year rise in second quarter net profit that slightly missed expectations. “Global growth continues to be weighed down by geopolitical tensions and higher interest rates. However, we expect ASEAN toContinue Reading
One solution would be to empower banks to mediate and resolve more of these situations directly through legislation.
For instance, in the UK, if the recipient disputes the claim or does not respond to the sender’s bank, the receiving bank will freeze an amount equal to the mistaken payment until the matter is resolved.
Singapore banks could be granted authority to temporarily freeze recipient funds, investigate the claim by checking sender and recipient transaction histories and contacting both parties, and then reverse the transaction if an honest mistake seems likely.
If such a process is implemented in Singapore, safeguards and limits would be critical. Senders should have to attest to the mistake and face penalties for false claims.
Dollar and time limits on bank reversals would be needed to prevent abuse and protect recipients’ access to their money. Large, suspicious transfers would still require police involvement. But most incidents involve modest sums inadvertently sent to the wrong person, where a faster resolution by the bank could suffice.
An alternative is to expand the Small Claims Tribunal’s jurisdiction to include unjust enrichment claims for mistaken payments, which was suggested by MP Murali Pillai (PAP-Bukit Batok) in a 2022 parliamentary question.
This would allow mistaken transfers of sums not exceeding S$20,000 to be reclaimed through a streamlined, user-friendly process. No lawyers needed, minimal fees and a quick resolution.
Empowering the Small Claims Tribunal to handle these cases could ensure that the right to recover mistaken payments is not just a legal theory, but a practical reality for all in Singapore. It could provide a cost-effective and quicker method to recover misdirected funds.
Ben Chester Cheong is Law Lecturer and inaugural START Scholar at the Singapore University of Social Sciences, and Lawyer at RHTLaw Asia LLP.
This week is offering quite the split screen to investors hoping China would step up efforts to raise its capital markets game.
On one screen, the China Securities Regulatory Commission (CSRC) pledged to improve market operations, strengthen comprehensive research capabilities, deepen response mechanisms to manage market risks and hone regulations for trading.
On the other, signals that Beijing is increasing opacity surrounding the flow of capital. Specifically, how much capital international funds deploy into and out of Asia’s most volatile major stock market.
After August 18, analysts won’t be able to track net capital movements at the end of a trading day. The fact this follows a move in May to end intraday data flows with Hong Kong markets suggests this is no aberration.
And it generates more questions than answers about the state of Xi Jinping’s vision for making China a more attractive investment destination for the biggest of the globe’s big money.
Of course, there’s a third screen on which investors are keeping an eye. This one features a fresh round of stimulus.
On Tuesday, the Politburo, a Communist Party’s top decision-making body, signaled renewed efforts to reach this year’s 5% growth target focused on consumers.
Chinese leaders said the priority is increasing household income “through multiple channels” and increasing the “ability and willingness” of low- and middle-income groups to spend.
Yet the Politburo had less to say about financial upgrades at a moment when regulators are obscuring basic intelligence on capital flows.
True, exchanges still plan to provide data on turnover and trading volume in equities and exchange-traded funds through links with markets in Hong Kong.
But as regulatory signals go, making it harder to discern top-line levels of enthusiasm and pessimism about mainland shares isn’t likely to bolster confidence in Asia’s biggest economy.
Restoring trust on the part of global investors was a major goal of this month’s Third Plenum extravaganza. Though normally a five-yearly event, President Xi didn’t convene one in 2018.
Since the recently concluded Third Plenum was the first since 2013, expectations for bold reforms were – and still are – sky-high. Xi’s Communist Party pledged to “unswervingly encourage” the private sector in a bid to accelerate “high-quality development,” “Chinese-style modernization” and “innovative vitality.”
There’s still scope for China’s 24-member Politburo to bolster investors’ trust by detailing plans to make bigger alterations to the nation’s export- and investment-led growth model.
Suffice to say, though, announcing plans for reduced transparency the same month overseas money managers sold at least US$4.1 billion of Chinese shares might not go down well. Chinese and Hong Kong stock markets lost an epic $6.3 trillion from their peak in 2021 to January this year.
Xi’s team also faces confidence deficits on the economic front. The nation’s 4.7% economic growth rate in the second quarter amid weak consumer demand and housing prices disappointed many.
As economist Louise Loo at Oxford Economics observes, “discretionary retail spending fell at the sharpest sequential pace since the April 2022 Shanghai lockdowns.”
Hence the Politburo’s renewed focus on demand-boosting stimulus. To economist Zhang Zhiwei at Pinpoint Asset Management, it’s a sign Xi’s inner circle “recognizes that domestic demand is weak and plans to prepare some policy measures in the pipeline to address the problem.”
This backdrop explains why the People’s Bank of China surprised global markets with an interest rate cut on July 25. It trimmed the one-year policy loan rate by 20 basis points to 2.3%, the biggest move since April 2020. That came just days after the PBOC lowered a key short-term rate.
Robin Xing, economist at Goldman Sachs, is struck by the “reactive nature of easing” by PBOC Governor Pan Gongsheng. Kathleen Brooks, research director at XTB, called it a “sign that the Chinese authorities are concerned about the state of the Chinese economy, which is more worrying for stock markets and for investors.”
All the more reason to use the recent Third Plenum as an opportunity to accelerate moves to increase the quality of growth, not just the quantity.
The weeks since the meeting have left unclear the status of Xi’s pledges to get bad assets off property developers’ balance sheets to avoid defaults. The same goes for creating social safety nets to prod households to save less and spend more, the fate of internet platforms uncertain about the regulatory outlook and moves to build more vibrant capital markets.
Though Xi has been promising to prioritize capital market development since 2013, the effort seemed to get a big lift last November. That was when Xi met with a who’s-who of top chieftains in San Francisco on the sidelines of the Asia-Pacific Economic Cooperation summit – including Apple CEO Tim Cook, Tesla chief Elon Musk and Blackstone’s Steve Schwarzman.
Other top executives on hand to rub elbows with the man leading an economy with which the US does roughly $600 billion of trade annually: Marc Benioff of Salesforce; Stan Deal of Boeing; Raj Subramaniam of FedEx; Ryan McInerney of Visa; Ray Dalio of Bridgewater Associates; Albert Bourla of Pfizer; Merit Janow of Mastercard; and Larry Fink of BlackRock.
There, Xi raised expectations for his inner circle, led by Premier Li Qiang, to strengthen capital markets in foundational ways. Since then, though, progress on the ground in China hasn’t matched the lofty rhetoric.
The speed with which capital has continued to flee China suggests that Xi’s efforts to communicate that Beijing is at the top of its myriad challenges are not getting through to investors. That includes efforts to stabilize a cratering property market and overall weak demand.
There’s confusion in international circles, too, about Xi’s commitment to giving the private sector and market forces “decisive” roles in Beijing decision-making. That 2012-2013 pledge was first called into question in 2015 when Xi’s government intervened aggressively to stabilize Shanghai stocks.
Questions only increased after Xi began cracking down hard on mainland tech platforms in late 2020, starting with Jack Ma’s Alibaba Group. The inquisition rapidly widened to Baidu, Didi Global, JD.com, Tencent and other top internet companies. It even had Wall Street banks debating whether China might have become “uninvestable.”
Now seems the time to get under the economy’s hood as rarely before. One law of economic gravity that Xi’s team has tried to beat these last 10 years is the idea that a developing nation must build credible and trusted markets before trillions of dollars of outside capital arrive.
In China’s case, this means increasing transparency, making local government officials more accountable, prodding companies to raise their governance games, crafting reliable surveillance mechanisms like credit rating companies and strengthening the financial architecture before the world shows up.
Too often during Xi’s first two terms as leader, China has tried to flip the script, believing it can build a world-class financial system after waves of foreign capital arrive. Whether fair or not, the Xi era’s efforts to communicate that a financial Big Bang is afoot continue to get lost in translation in boardrooms from New York to London to Tokyo.
The sense that Xi’s China tends to over-promise and under-deliver financial upgrade-wise set in back in summer of 2015, back when Shanghai shares plunged by one-third in three weeks. Beijing’s response was to treat the symptoms of the market rout, not the underlying causes.
Since then, Xi stepped up the pace of winning Chinese stocks places in top global indices – from MSCI for stocks to FTSE-Russell for bonds. Yet increases in access to yuan-denominated assets often outpace reforms needed to prepare China Inc for the global prime time.
Whether China can win back investors’ trust is an open question. As Chinese stocks are reminding us – the Shanghai Shenzhen CSI 300 Index is down more than 13% this year – there are certain laws of gravity that still apply to economies transitioning from state-driven and export-led growth to services, innovation and domestic consumption.
Trouble is, China’s bond market – totaling more than $23 trillion overall – is underpinned by a developing economy with limited liquidity and hedging tools, a giant and opaque state sector, and a rudimentary credit-rating system that can obscure risk and misallocate capital.
For all China’s promises, this makes it more of a buyer-beware market than many investors expected.
This gets at other split screens. On one, China’s inclusion in major benchmarks is luring bond giants like BlackRock. On screen No. 2: the crisis of confidence surrounding developers like China Evergrande Group offer a stark reminder of the mainland’s opacity and excesses.
The prevalence of local government financing vehicles – roughly $13 trillion of such off-balance sheet LGFVs – can be a major turnoff for foreign bond funds.
Not only are they difficult to analyze but their fingerprints also touch the operations of everything from commercial banks’ wealth management units to mutual funds to hedge funds to insurers to the gamut of securities companies.
Hence the need for deeper bond markets. And, of course, for regulators in Beijing to avoid steps that spook global markets anew. Among recent missteps by Xi’s party: last year’s crackdown on foreign consultancy firms on which global investors and multinational firms rely for information and analysis.
The move, supposedly part of a nationwide anti-espionage campaign, reduced the appetite for investment from some overseas firms. When US Treasury Secretary Janet Yellen’s team visits Beijing these days, the consultancy policy is among the examples of “non-market” practices and “coercive actions” against American firms that US officials highlight.
Deeper debt markets would help sort out the cart-before-the-horse problem that afflicts China’s economy. During the Xi era and before it, China too often believed that pulling in more foreign capital was a reform all its own. It’s been slower to strengthen China’s financial system ahead of those waves of overseas capital.
And pulling down new curtains of opacity won’t help to reverse recent capital outflows and flagging investor confidence.
Follow William Pesek on X at @WilliamPesek
Japan’s central bank has raised the cost of borrowing for only the second in 17 years as it tries to normalise monetary policy in the world’s fourth largest economy.
The Bank of Japan (BoJ) increased its key interest rate to “around 0.25%” from the previous range of 0% to 0.1%.
It also outlined a plan to unwind its massive bond buying programme as it eases back from a decade of stimulus measures.
The move comes hours before the US Federal Reserve is set to announce its latest interest rate decision, while an announcement is also expected from the Bank of England on Thursday.
“The rate hike was widely expected after domestic media reported the decision ahead of time Tuesday night,” said Stefan Angrick, a senior economist at Moody’s Analytics.
“But the move sits uncomfortably with a poor run of economic data and lack of demand-driven inflation.”
In March, the BoJ raised borrowing costs for the first time since 2007.
In 2016, it cut its main interest rate below zero in an attempt to stimulate the country’s stagnating economy.
The hike meant that there were no longer any countries in the world left with negative interest rates.
When negative rates are in force people have to pay to deposit money in a bank. They have been used by several countries as a way of encouraging people to spend their money rather than putting it in a bank.
During the pandemic, central banks around the world slashed interest rates as they attempted to counteract the negative impact of border closures and lockdowns.
At the time some countries, including Switzerland and Denmark, as well as the European Central Bank, introduced negative interest rates.
Since then central banks around the world, like the US Federal Reserve and the Bank of England, have raised interest rates to curb soaring prices.
A ‘TRANSIENT’ COMMUNITY NOT OF LOCALS To what extent then does Geylang’s lingering stigma affect residential property developments in the area? For residential units located on even-numbered lorongs, which are commonly associated with vice activities, it can often take up to six months before a willing buyer is found, saidContinue Reading
United Overseas Bank (UOB) is making several senior leadership changes. From September 1, Susan Hwee, head of group technology and operations (GTO) will assume the role of head of group retail, taking over from Eddie Khoo.
Khoo (pictured left) is retiring from his role, but will still take on the position of senior adviser to United Overseas Bank (UOB) Vietnam.
To replace Hwee (pictured middle), UOB has promoted Singapore-based Lawrence Goh (pictured right) is promoted head of GTO and will commence the role on the same day as September 1, according to a UOB press release.
UOB is a leading bank in Asia, headquartered in Singapore with subsidiaries in China, Indonesia, Malaysia, Thailand and Vietnam. The global bank has 500 offices in 19 countries throughout Asia Pacific, Europe and North America.
Hwee has more than 35 years of experience in the technology and banking industry. Having joined UOB in 2001, Hwee leads the bank’s global strategy for technology, operations and information security in her present role as head of GTO.
According to the release, Hwee is “instrumental in the development and innovation” of UOB’s digital platform, UOB TMRW, which uses artificial intelligence (AI) to push digital acquisition and customer engagement.
Hwee’s promotion will see her spearhead plans to strengthen the bank’s digital operations and product solutions while increasing customer engagement and connection to Asean opportunities, the release said. Hwee will also help integrate AI and push digital acquisition across UOB’s customer base.
Goh will succeed Hwee as head of GTO after more than three decades of IT experience spread across positions in corporate and consultancy roles. Goh began his professional life at a global advisory firm, having held positions of leadership in strategy and transformation, infrastructure consulting and security.
Goh currently manages the day-to-day operation and strategic planning of UOB’s infrastructure and platform services across the bank’s international network as chief operating officer for GTO and head of group infrastructure platform services.
Responsible for progressing UOB’s technology strategy, Goh has been “instrumental in shaping the bank’s technological investment and transformation”, according to the release, having established UOB’s first Test Centre of Excellence in 2018 to enhance the bank’s testing quality, automation and consistency.
The aim of Goh’s new role is to push innovation and technology integration to enhance operational efficiency and customer experience, the release said
Khoo is to become senior advisor to UOB Vietnam after retiring as head of group retail. Khoo joined UOB in 2005 and has been “pivotal in growing UOB’s group retail business to the strong regional franchise the bank has today”, the release said.
UOB Vietnam has been integrating Citigroup’s consumer banking businesses following its full integration of Citi’s consumer banking businesses into UOB Indonesia, Malaysia and Thailand, after UOB’s acquisition of several of Citigroup’s businessesin 2022.
Khoo intends to apply his experience to support UOB’s management team to drive the bank’s retail strategy in Vietnam, with UOB Vietnam “imperative” to strengthening the bank’s regional franchise.
“This management refresh is part of our ongoing efforts to strengthen UOB’s capabilities to serve our enlarged customer base across the region,” commented Ee Cheong Wee, deputy chairman and chief executive officer of UOB, in the release.
Wee added: “With rapid digitalisation in our key markets, Susan’s experience is crucial to drive digital engagement strategies and uplift customer experience. Lawrence, as a seasoned IT leader, will continue to drive innovation and lead our technology transformation in our new phase of growth. Eddie has made invaluable contributions to our retail banking business. In his new role, he will continue to support our team to realise the potential of our retail franchise in Vietnam.”
For more FinanceAsia people moves click here.
¬ Haymarket Media Limited. All rights reserved.
BEIJING: According to state media reports on Sunday ( Jul 28 ), persistent heavy rain from Tropical Storm Gaemi caused flash floods in northeast China on the border with North Korea and caused railway disruptions and landslides in other areas of the nation. Two officers, including the deputy governor ofContinue Reading
Tokyo: According to officials and media reports from Friday ( Jul 26 ), record heavy rain forced the evacuation of thousands of people across parts of northern Japan as rivers burst their banks wreak havoc on bridges and cars. In Yamagata and Akita regions on the major area of Honshu,Continue Reading