Singapore’s prime office market subdued amid cautious business spending

The impact of artificial intelligence (AI) is another concern looming in the minds of businesses.

“If you are going to apply AI across several functions, the question has become ‘do you need the headcount?'” said Savills’ Mr Cheong.

“This is still being figured out, so many businesses are still waiting for a decision from their head offices. In the meantime, they don’t have the budget to move and fit out a new space.”

This uncertainty explains why in recent time, businesses with expiring leases have chosen to renew at their current location – but for a smaller space and a shorter time, according to Mr Cheong.

Doing so means paying higher rents per square foot as landlords are asking for a premium for shorter leases, he added.

Still, office tenants typically find this a better deal given the difficulty in finding a similarly priced Grade A office space in CBD, and the rising costs involved in refurbishing a new space.

“This is why short-term renewals have been the main activity we saw in 2023 and early 2024, and that is why rents went up marginally, not because of overwhelming new leases,” Mr Cheong said.

Meanwhile, hybrid work arrangements have continued after the pandemic, presenting another key factor for firms to reassess their office spaces.

Even though some have appeared to buck the trend – such as Amazon which has mandated its employees to return to office five days a week – experts still think hybrid work will remain the new normal.

“If more companies implement policies requiring employees to return to the office, the demand for office space could increase. However, this shift would take time as leases are typically signed for three to five years and existing space allocations are fixed,” said Ms Tricia Song, head of research for Southeast Asia at CBRE Singapore.

“In Singapore, where real estate costs are high, some companies might continue to favour hybrid work arrangements or adopt collaborative and flexible office designs to accommodate the rise in in-office employees.”

LOOKING AHEAD

That said, the market is still seeing pockets of demand.

Knight Frank noted that Meta’s space at South Beach Tower has “broadly been backfilled by smaller occupiers”.

These smaller businesses have been among the most active in seeking out new office spaces, with “modest demand” coming from firms such as those from North Asia that are establishing new offices in Singapore, the consultancy added.

JLL also observed that a “significant portion” of Meta’s space has been re-let or is currently in advanced negotiations.

Demand is coming from existing occupants looking to expand within the same building, and others relocating from elsewhere in the CBD. These are firms from the professional services and tech industries, said Dr Chua.

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Risks rising for Asian banks from climate change | FinanceAsia

Bankers are assessing how these dangers are playing out for their risks and how the so-called” passive” credit risk may be growing as a result of the recent severe storms that have ravaged Asia Pacific ( Apac ).

In early September, Super Typhoon Yagi caused billions of dollars of financial losses and cost hundreds of lives across Hainan, Guandong, the Philippines, Vietnam, Myanmar, and to a lesser degree Hong Kong. Banks need to realize how climate change makes lending more prone to risk because the insurance gap is also significant throughout the area. Banks are currently protected by ( re )insurance against the most extreme weather events, but if that becomes more expensive or difficult to access, the physical risks of climate change become more directly transmitted to the banks.

Tom Mortlock, weather threat expert guide – analytics, Apac, Aon, told FinanceAsia:” Financial institutions and the stream of credit is key to economic development across Asia, but so too is the insurance that sits behind this, that de-risks the lending. Sadly, Asia’s plan distance is one of the largest in the world, with only 14 % of economic costs covered by insurance in 2023, making banking in areas with high climate risk a potentially dangerous task.

Why is climate change important for financial institutions? is a report that Aon has just released.

Mortlock remarked,” Climate change is increasing the underlying risk profile in many locations and over time scales that banks are lending on. Low insurance coverage and high climate risk, combined with low insurance coverage and high climate risk, can pose a” silent” credit risk on lenders ‘ books, which has so far gone unnoticed.

Analytical analysis might be essential to weighing the risks. We are now starting to see a variety of financial institutions use traditional insurance-based analytics to understand their climate risk exposure and incorporate this into their loan origination and risk appetite decisions, according to Mortlock. &nbsp,

Although extreme weather is almost unavoidable in every region, some Asian cities are much better suited to extreme weather than others thanks to investments in drainage systems.

The Climate Risk Group’s Head of Corporate and Financing Sector Engagement, Philip Tapsall, head of the Cross-Department Initiative, stated:” Hong Kong is better prepared than other cities and regions for extreme weather events that are expected to worsen with climate change, particularly typhoons and flooding.”

However, banks operating in Hong Kong are significantly more exposed to less developed regions like south-eastern China and Southeast Asia ( SEA ), where climate change raises financial risks to balance sheets due to direct losses and economic effects.

Exposures can be caused by disruptions to trade, construction delays in supply chains, or direct financial losses caused by bank office shut downs, etc. &nbsp,

In order to help banks assess their physical risks to climate change in the city earlier this year, XDI collaborated with the Hong Kong Monetary Authority and KPMG. &nbsp,

Regulation rising

Aon’s Mortlock also noted a rise in the region’s incoming regulatory issues.

He noted that” we have a raft of climate-related regulation coming in across Asian jurisdictions where businesses will have to start making their climate related risks known to the market.” In fact, according to some analysis we conducted, over 10,000 listed companies will be required to disclose climate information by 2027 for the Asia-Pacific region.

According to Mortlock, “at the same time, regulators are beginning to conduct their own climate stress tests on the financial services sector to make sure there is enough money in the system to withstand climate shocks both now and in the future,” &nbsp,

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Tessa Dann to lead SocGen’s Apac sustainable finance team | FinanceAsia

Tessa Dann has been appointed head of sustainable finance, Asia Pacific ( Apac ), effective September 14, according to a Société Générale ( SocGen ) Corporate and Investment Banking spokesperson.

Based in Sydney, Dann ( pictured ) most recently held the role as head of sustainable finance for Australia and New Zealand at SocGen, since 2023. She has experience at the Queensland Treasury Corporation as well as working in the sustainable finance department at Australia and New Zealand Banking Group ( ANZ ) for almost four years prior to joining the French bank.

In her new position, Dann reports to Paul-Antoine Thiebot, head of lasting and positive effects financing, Apac. In March, Thiebot, who has a base in Singapore, joined the French institution.

The team has recently acted as bookrunners in the Commonwealth Bank of Australia’s €1 billion ($ 1.1 billion ) 10NC5 green Tier 2 notes issuance in May 2024. It also acted as a sustainability coordinator on the conversion of Australian property firm Cromwell’s multi-bank A$ 1.2 billion ($ 811 million ) lending facility to a green and sustainability-linked loan in June 2024.

By 2025, SocGen intends to donate €300 billion to sustainable funding.

In Apac, SocGen has headquarters in mainland China, Hong Kong, Australia, Japan, India, South Korea, Singapore, Taiwan, Indonesia, Malaysia and Vietnam, according to its site.

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Optimism builds for Indian stocks after index rebalancing | FinanceAsia

In 2024, American stocks have outperformed their world peers due to a steady economic backdrop that has fueled the rally. After the MSCI rebalanced its main index in August, which maintained India’s land weight above a fifth of the MSCI Emerging Market Index, the market’s confidence increased. &nbsp,

 

The larger fat represents a watershed moment for American companies, said Paul Turner, executive chairman at Capex.com Middle East, an net agent speaking to FinanceAsia. He anticipates that the stock’s restructuring, extra capital from the index’s realignment, and existing interest in solid public investment and tenacious personal consumption will all contribute to improving market sentiment.

 

Initial public offerings ( IPOs ) have exploded in recent weeks, with Bajaj Housing Finance’s$ 782 million listing oversubscribed on Monday, September 9, with the offering scheduled to close on September 11. Both Brainbees Solutions and Ola Electric Mobility recently completed effective Investments. &nbsp,

 

Effective managers are in a tough bind as a result of the realignment, which unintentionally affects a fund’s tracking error. Indian securities may continue to rise, but underweighting an overperforming industry may lead to lower returns. In addition, allowing a higher checking problem may have some negative effects, particularly given the renewed interest in market volatility following the early August sell-off. &nbsp,

 

There are still significant costs associated with closing the thin position. Considering India’s forward several trades at 24 times against the state’s 13 times, utilising a lower priced business to invest into a more expensive one impacts the firm’s performance, an affront to the “buy low, sell large’ ‘ slogan for investment pickers. Those valuations are difficult to ignore, Turner noted”. The potential for a correction is higher, he said, obliging fund managers to generate alpha elsewhere while India’s outlook is still positive.

 

China conundrum

 

When considering Chinese equities as a source of funding, that choice becomes more pronounced. The anticipated increase in passive funds ‘ returns is likely to further reduce China’s market multiple, which is only currently 9 times. China continues to make up the majority of the MSCI EM Index even after the rebalancing. &nbsp,

 

China’s stock market offers numerous opportunities to capitalize on structural shifts in its domestic economy, in addition to the valuation gap between Indian and Chinese stocks. Coupled with technological advancements, these changes should support the market’s growth profile, according to the PineBridge Mid-Year Asia Equity Outlook note. &nbsp,

 

The report further notes that” China may offer alpha-generating return potential for long-term investors despite mixed near-term signals and property market woes” while noting that the ratio of earning misses to beats has decreased. The analysis coincides as more Chinese businesses look for opportunities abroad and establish themselves as multinational corporations. &nbsp,

 

However, despite the stability that is alleviating systemic risks and supporting the banking sector, investors remained sidelined. According to Turner, the MSCI rebalancing may potentially increase relative selling pressure until the central bank of China implements new fiscal stimulus measures and takes more drastic interest rate cuts, which would undermine those alpha-generating opportunities.

 

There is no quick fix for these issues, according to Yi Ping Liao, assistant portfolio manager at Franklin Templeton Emerging Markets Equity, adding that the improvements will take time and result in a decline in economic growth and a rise in tail risks.

 

India’s fundamentals&nbsp,

 

These factors draw attention towards India, where the investment rationale is supported by structural factors such as demographics, the growing middle class, and supply chain diversification.

 

In response to FA, Vivian Lin Thurston, portfolio manager for William Blair’s emerging markets growth strategy, said domestic inflows are more evident in India, where financial product developments are attracting household savings into the equity market. This has provided liquidity for the broad-based market rally, led by small and medium-sized companies which are reporting even faster earnings, supporting the multiple re-ratings.

 

Although Indian equities may seem expensive, its macro and corporate fundamentals outweigh those of some other significant EM nations, including China, which is still facing an uphill battle to overcome an escalating economic downturn and increased structural challenges. ” Thurston added that it would be challenging to justify reversing the trend of importing products from India and moving into China right away. &nbsp, &nbsp,

 

After the VIX index breached 65 in early August, its highest level since the pandemic in 2020, volatility management is gaining importance in the face of uncertainty. The preference for India might be justified given the ease of monetary policies and the upcoming US presidential election, which will cause some of the country’s divided opinion toward China. &nbsp,

 

Active fund managers may be cornered after the announcement, in a fight with domestic investors who are pushing market valuations and compulsion them to buy the more expensive India market, regardless of the cost. &nbsp,

 

Back in July, MSCI announced the launch of MSCI Private Capital Indexes, constructed from a broad universe of private asset funds with over$ 11 trillion in capitalisation.

 

Encompassing private equity, private credit, private real estate, private infrastructure, and private natural resources, these 130 Indexes complement MSCI’s over 80 real asset fund and property indexes, providing investors with a comprehensive view of global private markets and the full risk spectrum of private real asset investing.

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Blackstone and CPP Investments agree Abn AirTrunk acquisition | FinanceAsia

Blackstone Real Estate Partners, Blackstone Infrastructure Partners, Blackstone Tactical Opportunities, and Blackstone’s private equity strategy for individual investors, along with the Canada Pension Plan Investment Board ( CPP Investments ), have agreed to acquire AirTrunk, an Asia Pacific ( Apac ) data center firm, in a deal worth around A$ 24 billion ($ 16 billion ).

The sum includes both capital expenditures for devoted projects and debt. &nbsp,

The sellers are Macquarie Asset Management ( MAM ), Canada’s Public Sector Pension Investment Board ( PSP Investments ) and other investors. In April 2020, a MAM consortium purchased an 88 % stake in AirTrunk for about A$ 3 billion. &nbsp,

While a spokeswoman for Blackstone told&nbsp, FinanceAsia it is not providing&nbsp, a malfunction of the collateral percent, CPP Investments said in a company statement that it would be acquiring 12 % of AirTrunk. CPP Investments said it has info center joint ventures and opportunities in Australia, Hong Kong, Japan, Korea, Malaysia and Singapore, in addition to the US.

The package, if completed, may be Blackstone’s largest expense in Apac. The Australian Foreign Investment Review Board has approved the exchange.

AirTrunk is the largest information centre program in Apac, with a reputation across Australia, Japan, Malaysia, Hong Kong, and Singapore. According to a statement from Blackstone, it has more than 800 megawatts ( MW) of customer commitments and is the owner of land that can support over 1GW of regional growth. AirTrunk agreed a record sustainability-linked loan ( SLL ) of A$ 4.6 billion last year. &nbsp,

Jon Gray, president and chief operating officer of Blackstone, said:” AirTrunk is another important step as Blackstone seeks to be the top digital infrastructure investment in the world across the ecology, including data centers, strength and associated services” .&nbsp,

” Digital system is experiencing unprecedented demand driven by the Artificial revolution as well as the broader digitization of the business,” said Nadeem Meghji, world co-head of Blackstone Real Estate.

They added:” Prior to AirTrunk, Blackstone’s portfolio consisted of$ 55 billion of data centers including facilities under construction, along with over$ 70 billion in prospective pipeline development. To more accede to its progress, we look forward to working with the top management team at AirTrunk.

As we get the next wave of progress from cloud providers and AI and support the energy transition in Apac, Robin Khuda, chairman and chief executive officer of AirTrunk, stated:” This deal shows the strength of the AirTrunk system in a strong performing business.”

We look forward to working with Blackstone and CPP Investments, gaining from their size money, industry experience, and extensive network across the various local markets, which will help assist AirTrunk’s expansion, Khuda continued.

This investment marks yet another milestone in our broader data center approach, according to Max Biagosch, top managing director, global head of Real Property, and nose of Europe for CPP Investments, in a speech from CPP Investments. Our infrastructure and real estate teams seamlessly collaborated to underwrite this investment, which is a great example of close collaboration across the fund.

According to a statement from Blackstone, approximately$ 1 trillion in US capital expenditures will be expected over the next five years to be made to build and facilitate new data centers, and another$ 1 trillion in US capital expenditures will be made, according to a statement from the company. &nbsp,

Blackstone has invested in both the debt and equity of other data center companies, including&nbsp, QTS, Coreweave and Digital Realty. &nbsp,

The Hanam Data Center was acquired by Macquarie Asset Management via Macquarie Korea Infrastructure Fund earlier this year in the Greater Seoul Area of South Korea. The sale price was KRW734 billion ($ 530 million ), however, including the transaction cost and additional capital required to complete the remaining mechanical, electrical and plumbing works at Hanam IDC, the total sale size was KRW918 billion.

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Blackstone and Canada Pension Plan Investment Board agree bn AirTrunk deal | FinanceAsia

Blackstone Real Estate Partners, Blackstone Infrastructure Partners, Blackstone Tactical Opportunities, and Blackstone’s private equity strategy for individual investors, along with the Canada Pension Plan Investment Board, have agreed to acquire AirTrunk, an Asia Pacific ( Apac ) data center firm, in a deal worth around A$ 24 billion ($ 16 billion ).

The sellers are Macquarie Asset Management ( MAM ) and Canada’s Public Sector Pension Investment Board ( CPP Investments ). MAM bought a 88 % stake in AirTrunk in April 2020 for a valuation of around A$ 3 billion. &nbsp,

A spokeswoman for Blackstone told&nbsp, FinanceAsia it is not providing&nbsp, a collapse of the equity ratios. The AirTrunk will remain 12 % owned by CPP Investments, according to the statement. CPP Investments said it has information center joint ventures and assets in major centers in Apac, including Australia, Hong Kong, Japan, Korea, Malaysia and Singapore, and the US.

The package, if completed, may be Blackstone’s largest expense in Apac. The Australian Foreign Investment Review Board has approved the deal.

AirTrunk is the largest information centre program in Apac, with a reputation across Australia, Japan, Malaysia, Hong Kong, and Singapore. It owns property that will allow for over 1GW of regional development and has more than 800MW of customer commitments.

This is Blackstone at its best, according to Jon Gray, president and CEO of Blackstone.” We are using our international platform to capitalize on our highest faith design. Another significant development comes as Blackstone strives to be the world’s largest buyer in modern infrastructure, including power, data centers, and related services.

” Digital system is experiencing unprecedented demand driven by the Artificial revolution as well as the broader digitization of the business,” said Nadeem Meghji, world co-head of Blackstone Real Estate.

They added:” Prior to AirTrunk, Blackstone’s portfolio consisted of$ 55 billion of data centers including facilities under construction, along with over$ 70 billion in prospective pipeline development. To further accede to AirTrunk’s progress, we look forward to working with its top-notch management team.

The deal, according to Robin Khuda, founder and CEO of AirTrunk, demonstrates the strength of the AirTrunk program in a strong-performing field as we prepare for the upcoming wave of development from cloud services and AI and aid the transition to energy in Apac.

We look forward to working with Blackstone and CPP Investments, gaining from their size money, industry experience, and extensive network across the various local markets, Khuda continued,” We look forward to working with them.”

In a statement from CPP, senior managing director, global head of Real Property, and head of Europe, Max Biagosch, stated:” This investment adds another step to our broader data center plan, further expanding our footprints in the region for the benefit of CPP donors and beneficiaries. It is also a fantastic illustration of close collaboration between the fund’s infrastructure and actual estate teams working smoothly up to underwrite this investment.

According to a speech from Blackstone, approximately$ 1 trillion in US capital expenditures will be expected over the next five years to be made to build and promote new data centers, and another$ 1 trillion in US funds expenditures will be made, according to a declaration from the company. &nbsp,

Blackstone has invested in the debt and equity of several other data centre firms, including Coreweave and Digital Realty, the fastest-growing data center company in the world, and QTS. &nbsp,

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FinanceAsia Achievement Awards 2024: entries are now open | FinanceAsia

FinanceAsia’s annual Achievement Awards recognises excellence in bringing together those issuers, banks, investors, advisors and other market participants, who are working hard to develop and expand Asia Pacific’s (Apac) financial markets.

This year, for the first time, we are also looking to recognise excellence in the fast-growing markets of the Middle East.

We are looking to recognise the standout companies and strategies that are redefining the way issuers and investors are interacting with markets and adapting to evolving regulatory requirements and diverse needs, amid an increasingly competitive environment.

There are both Deal awards and House awards across a range of categories and markets. For more details please see here for Apac and here for the Middle East. 

In addition, our Deal Maker Poll rewards individuals who have been instrumental in closing some of the region’s most ambitious deals over the last 12 months.

The timeline for the deals is October 1, 2023 to September 30, 2024.

We look forward to your participation and seeing your entries! Please click here to find out how to enter at our dedicated Awards website. For frequently asked questions click here and for list of our experienced judges see here

Key dates: 

August 19: Awards’ launch

Early-bird entry deadline: September 6, 2024

Main entry deadline: September 19, 2024 

Entries’ evaluated by judges: October 2 to November 6, 2024 

Winners’ announced: November 2024 

Awards’ ceremony: February 2025, date TBD  


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Avalanche alert: China may dump dollars when Fed eases rates – Asia Times

Since the mid-1990s, the US Federal Reserve has had a somewhat shaky past in Asia.

Between 1994 and 1995, the US central bank past tightened with the same intensity as it did recently. The 1997-98 Eastern problems, which resulted from a runaway dollar rally destabilizing the region’s currency pegs, was caused by the short-term rate increase in 12 months.

Since then, the 2008″ Lehman impact” that the Fed was slow to see coming and the 2013 “taper kid” have overwhelmingly rocked Asian areas.

Asia also bore the brunt of the Fed’s 2022-2023 tightening period. Epic ripples of capital scurrying toward US assets as the currency’s surge in response to Fed Chairman Jerome Powell’s price hikes resulted in spectacular waves of funds.

However, could the Fed’s rate reductions cause a different sort of tumult in Asia? If analyst Stephen Jen is correct, it certainly was.

As Team Powell undoes its most recent price hike campaign, the CEO of Eurizon SLJ Capital anticipates Chinese companies to chuck about US$ 1 trillion in dollar-denominated assets.

In truth, Jen predicts something of an “avalanche” as a strengthening dollar sends tides of repatriating money China’s manner, upending dollar industry in the process.

Granted, Jen has warned of this dollar-dumping active for a couple of years today. In June 2023, for instance, Jen argued that” Taiwanese corporates continue to hoard cash. Foreign companies ‘ total investment is increasing as a whole. The economy’s higher have perhaps at present seem enticing to Chinese entities, but this construction is ultimately unpredictable”.

The scenario Jen has been advising about is “prospective rate cuts by the Fed and/or an economic reacceleration in China could lead to a precipitous fall” in the dollar-yuan rate” as corporate treasurers in China scramble to sell the dollars they do n’t need to have.”

Since the Covid-19 pandemic, mainland companies have gobbled up more than$ 2 trillion of overseas investment, a bet on higher-yielding assets than punters often find in China. As Powell begins ratcheting levels lower, those assets may grow less appealing.

Up to US$ 1 trillion will be on the move as a significant number of island companies decide to return funds, according to Jen. Interestingly, Jen points out that his guestimate may be” conservative”.

Then, as Powell declares” the time has come for legislation to change” toward less restrictive problems, Chinese selling dangers may be upon us. It’s worth noting, Jen adds, that companies swapping out of dollar assets could see the yuan&nbsp, strengthening by up to 10 %.

Additionally, it’s important to point out that the resettlement fluid that is developing throughout China could reach businesses in Asia.

This is n’t a risk many have on their Bingo cards. Powell’s vow on August 23 to” we will do everything we can to help a strong work industry as we make more progress toward price balance” has frequently boosted Asia’s markets.

The same with Powell’s confidence that the US can achieve a so-called” soft landing”, a remarkably rare occurrence. There is good reason to believe that the economy will return to 2 % inflation while maintaining a robust labor market, Jen tells Bloomberg.

Asian bourses were cheering when they learned that Powell “has rung the bell for the start of the cutting cycle,” according to Seema Shah, principal global strategist at Principal Asset Management.

The real gains could be in Asia’s “laggard” markets, notes Chetan Seth, strategist at Nomura Holdings. We believe that the relatively safe harbor is likely to be markets and sectors that are uncrowded ( parts of ASEAN ) and more domestically driven markets ( India/ASEAN), as Seth writes in a recent note. Investors in this situation must be much more cautious and reduce their investment in Asian cyclical markets, like those in North Asia.

Yet other risks abound. Consider Jen to be one of the economists who worry that central banks from Washington to Tokyo have recently injected too much stimulus into the global financial system, causing inflation.

As Powell said in July:” Go too soon, and you undermine progress on inflation. Wait too long or do n’t go fast enough, and you put at risk the recovery. And so, we have to balance those two things. It’s a rough balance”.

Problem is that the costs of a policy error are rapidly rising due to the US’s high and rising national debt, which has recently surpassed US$ 35 trillion. Just a few months before Americans vote on November 5 to choose a new president, this milestone was reached.

Democratic nominee Kamala Harris provides details on spending plans that will add trillions of dollars to the public debt in one corner. Donald Trump, too. Trump makes hints that removing the Fed’s role as independent arbitrator of US interest rates, in addition to another multi-trillion tax cut that is currently being funded by the government.

Trump browbeat Powell into cutting rates in 2019 when the US did n’t need it during his first term as president, from 2017 to 2021. Trump also threatened to fire Powell, a previously unheard of threat from a US leader.

In a second term, the” Project 2025″ scheme that Republican activists cooked up for a Trump 2.0 White House could see the Fed’s power curtailed.

In such an uncertain world, though, the Fed pivoting toward monetary accommodation is n’t necessarily straightforward. The view driving this Asian stock rally is “broadly correct”, at least in the medium-term, says Tan Kai Xian, economist at Gavekal Research.

” Rate cuts will reverse the recent contraction in US liquidity, which will support US aggregate demand, after a lag”, Tan notes. ” But in the shorter term, rate cuts will squeeze corporates ‘ interest income, and therefore their profits. This will disproportionately affect large corporations with large cash reserves, which may result in their relative underperformance.

The effect, Tan notes,” will be bigger than commonly believed. Even though the path was indirect, thanks to businesses selling products to households in receipt of stimulus checks, handouts during Covid allowed US companies to build up sizable cash reserves.

When the Fed cuts interest rates, interest income will fall. At least before the lagged boost to aggregate demand kicks in, Tan says,” The near-term drag on corporate profits could discourage capital spending, which would have a dampening effect on US economic growth.” ” In the short term, then, rate cuts could weigh on large-cap US equities relative to bonds”.

Given that the US inflation rate is continuing to decline, Jen believes Powell may raise rates more forcefully than many investors anticipate. The global reserve currency may be under increased downward pressure due to Washington’s dual budget and current account deficits. That, Jen argues, could see the yuan appreciating more than many investors expect.

The yuan’s gains could be even bigger if the People’s Bank of China avoids moves to offset dollar liquidity. Odds are that the yuan will start to rise once the Fed starts cutting interest rates as soon as September 18? If the Fed makes any hints about further easing, the pressure will increase.

This could cause tension between PBOC Governor Pan&nbsp, Gongsheng and Xi’s economic team. Beijing has been surprisingly tolerant of a rising yuan over the past year despite the fact that global export markets became more competitive.

Xi has been working to gain more confidence in the yuan and stop large property developers from defaulting on their foreign debts. A skyrocketing yuan that nullifies growth prospects may be even worse unwelcome.

The clouds on China’s economic horizon can be seen in this week’s$ 55 billion stock crash&nbsp, in Temu-owner PDD Holdings. It’s a sign that China’s growth engines are still cooling despite Beijing’s effort to boost household demand.

Additionally, the external sector does n’t appear particularly promising. This week, Canada slapped a 100 % tariff on China-made electric vehicle imports, following the lead of the US and European Union.

Additionally, it is unlikely that the upcoming US election cycle will offer Team Xi a break. Both presidential candidates, Trump and Harris, are trying to outdo each other with anti-China rhetoric and trade policies.

All of this explains why China’s foreign exchange watchdog has been paying close attention to dizzying yuan-dollar movements. And why things might turn out differently than many investment funds currently believe.

” The pressure will be there” on the yuan to rally, Jen tells Bloomberg. We are talking about$ 1 trillion worth of fast money that could be involved in such a potential stampede if we just assume half of this amount is the money that is “footloose” and easily provoked by changing market conditions and policies.

Follow William Pesek on X at @WilliamPesek

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