Markets Aug 07

Investors spooked as US bans China apps

Markets rattled by WeChat, TikTok bans, tighter requirements for China listings; Gold scales new highs; Treasuries rally and dollar extends losses

Investors spooked as US bans China apps
President Trump has announced plans for tighter listing of Chinese companies on US markets, plus a ban on transactions with Bytedance and Tencent, which owns the WeChat messaging app. Photo: Jim Watson, AFP.

(ATF) Asian markets are trading lower amid heightened tensions between the world’s two largest economies with the US banning transactions with ByteDance, the Chinese owner of video-sharing app TikTok, and Tencent, the owner of the WeChat messaging app.

This action followed a recommendation by a US government body to tighten disclosure requirements for Chinese companies seeking US listings.

US President Donald Trump issued an executive order taking action against “the spread in the United States of mobile applications developed and owned by companies in the People’s Republic of China (China) continues to threaten the national security, foreign policy, and economy of the United States.”

Earlier, a government body recommended closer scrutiny of Chinese companies that are seeking listings on US stock markets.

The US President’s Working Group on Financial Markets sought to “address risks to investors in US financial markets posed by the Chinese government’s failure to allow audit firms that are registered with the Public Company Accounting Oversight Board (PCAOB) to comply with US securities laws and investor protection requirements.” It urged the SEC to accept the five recommendations regarding disclosures, due diligence and audit standards related to Chinese companies seeking a US listing.

The Dow Jones Industrial Average climbed 0.68%, the S&P 500 added 0.64% and the Nasdaq Composite advanced 1%, marking the fourth straight day of record peaks.

Asian markets down

Japan’s Nikkei index has eased 0.51%, Hong Kong’s Hang Seng benchmark has retreated 1.71%, with Tencent shares falling as much as 4.2% on the proposed WeChat ban, while mainland China’s CSI 300 index has slipped 1.36%. Australia’s S&P ASX 200 benchmark had also declined 0.6%.

Safe havens are in demand – gold stayed above $2,060 per ounce after hitting a new peak of $2,072 and US Treasuries advanced with the 10-year yield dipping a basis point to 0.52%.

The US dollar steadied at lower levels after falling to below 93 against a basket of currencies. But analysts are cautioning against bearish positions versus the greenback.

The USD Index (DXY) closed at 92.8 on Thursday. Having fallen almost 10% from its peak in March, the DXY is coming against some support levels. The first is located around 92.3, the level that the DXY rebounded from in 2016 into the US election - DBS.

“The current sell-off in the USD also resonates with the one during the global reflation trade between January 2017 and February 2018, during which there was an intermittent upward correction to 95 from 91.4 in September-October 2017. With US data starting to surprise on the upside recently, it is prudent to be watchful of a possible correction ahead,” DBS Bank strategists said in a note.

Asian credit markets are marginally firm with the Asia IG index moving in a basis point to 66/67. Although no new mandates have been announced, companies with existing bonds are reopening outstanding debt. Beijing Properties and E-House China are tapping their existing bonds.