Two quick macro bullet points on the bloody mess that is Asia right now. We've been raising the red flag here for some time now. #EmergingOutflows.
Japan
Did you know that foreign investors held a combined 28% of the market cap listed on Japan’s five exchanges (up +170bps YoY) at the end of 1Q13? Clearly international investors are betting on Abenomics delivering Japan from its 20-year hole. We'll see how that one works out. For the record, we're not holding our breath.
The Liberal Democratic Party (LDP) is ready to cut the corporate tax rate to in line with international levels and also plans to implement appropriate debt management policy to maintain fiscal discipline. Specifically, the Cabinet will seek to cap spending ex-debt service at the current level of around ¥70T through FY15.
Additionally, Prime Minister Shinzo Abe said that raising the country's 5% consumption tax to 8% next April (and 10% in 2015) would “depend on the strength of the economy”, as they are concerned about the negative impact that could have to growth – which could delay consumer price hikes out of Japanese corporations and complicate the BOJ’s monetary policy agenda.
China
By jove, China’s banking situation is actually getting worse!
Per StreetAccount: “Bloomberg reported that China's benchmark money-market rates climbed to records as the PBoC refrained from using reverse-repos to address the cash crunch. The central bank didn't conduct open-market operations to add or drain funds today and sold 2B yuan ($326M) of three-month bills. The seven-day repo rate rose 270bp to 10.77%, the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527bp to an all-time high of 12.85%. An intra-day gauge of the one-day rate touched a record 30%.”
Right in line with what we’ve been flagging for the past two months (i.e. tightening financial conditions perpetuating a slowdown in economic growth), the flash HSBC Manufacturing PMI ticked down to a 9-month low in June (48.3 from 49.2 prior). The sub-index for New Orders fell to a 10-month low of 47.1.
Stay on your toes out there.