Nov 21, 2018, by Boris Korby
Stock Selloff Stalls
Stocks in Asia look set for a reprieve from the recent sell-off after a modest rebound in technology and energy shares underpinned gains in U.S. equities. The dollar slipped and Treasuries fluctuated as debate about the Federal Reserve softening its stance on raising interest rates gathered pace. Futures pointed to gains across Asia after most major U.S. equity benchmarks closed higher in light pre-Thanksgiving trading, although stocks did finish near session lows. Energy shares may be supported after crude oil rebounded from a one-year low. Apple Inc. surrendered an early rise to close down for a third straight day.
Chinese Capital Controls Hold Fast
In many ways, it looks like the perfect environment for Chinese capital outflows: economic growth is slowing, U.S. interest rates are rising and the yuan is trading near its weakest level in more than a decade. Yet signs of an exodus from the world’s biggest emerging market are hard to find. What gives? Analysts point to China’s stepped-up capital controls. Tightened in the wake of a shock yuan devaluation three years ago, restrictions on everything from overseas takeovers to purchases of insurance policies in Hong Kong have kept outflows closer to a trickle than a flood in 2018. That should give investors reason for optimism after a turbulent year for Chinese financial markets that included rising bond defaults, real estate jitters and a $2.7 trillion selloff in equities. Even as the yuan and Shanghai stocks sank to multi-year lows in October, Chinese demand for foreign currencies moderated, according to official data published last week.
Fed Primed for 2019 Pause
Federal Reserve Chairman Jerome Powell and his colleagues are likely to turn warier about marching interest rates higher after delivering a quarter percentage-point increase that is widely anticipated in December. Prospects for slowing global economic growth, fading U.S. fiscal stimulus and volatile financial markets all argue for more caution once officials lift rates next month near or into neutral territory, where policy neither spurs nor reins in economic activity. Investors have already reduced bets on how many times the central bank will hike next year, partly reflecting a more dovish tone from policy makers in the past week, though a move at next month’s meeting is still firmly priced in.
Japan’s financial regulator said allegations surrounding Nissan Motor Co.’s Carlos Ghosn underscore the importance of companies’ protecting whistle-blowers as part of their efforts to improve governance. The recent events at Nissan have “confirmed that whistle-blowing can be an important tool and trigger,” Financial Services Agency Commissioner Toshihide Endo said in an interview. “Companies probably need a structure in place that encourages whistle-blowing, which could work as a warning to the management.” Japanese authorities arrested Ghosn on Monday. Nissan has accused him of underreporting his income and misusing company assets. He has yet to be charged with any crime. Nissan Chief Executive Officer Hiroto Saikawa said a company insider was responsible for bringing the matter to light.
1MDB Scandal Deepens
Goldman Sachs’s Malaysia fraud and bribery scandal intensified Wednesday after two Abu Dhabi investment funds claimed in a lawsuit they suffered losses from the bank’s “central role” in the case. International Petroleum Investment Co. and Aabar Investments alleged in a court filing that Goldman paid bribes to former fund officials, who in exchange “agreed to manipulate and mislead IPIC and Aabar, and to misuse the companies’ names, networks, and infrastructures to further the criminal schemes and to personally benefit.” A Goldman Sachs spokesman said the firm expects to “contest the claim vigorously.” The furor surrounding Goldman’s role in raising money for the Malaysian state investment fund, known as 1MDB, has weighed on the bank’s shares, which fell the most in seven years on Nov. 12 after Malaysia’s finance minister said he would seek a full refund of all the fees it paid for 1MDB deals.