By Sybilla Gross
Hong Kong’s leaders rebuff a key demand from the protesters, the U.S.-China trade deal is Trump’s impeachment hedge and world leaders in Berlin are working towards a Libyan cease-fire. Here are some of the things people in markets are talking about today.
Hong Kong Violence
Over the weekend, Hong Kong leader Carrie Lam’s government again pushed back on a key demand of protesters as a downtown rally turned violent, showing the unrest that began last June still has no end in sight. In a lengthy statement, a government spokesman recapped failed attempts to implement a promise of universal suffrage since China took control of the former British colony in 1997. It said the Hong Kong’s residents need a “clear understanding” that any chief executive elected by all citizens shall also be accountable to Beijing. Two police officers were beaten at a rally in Hong Kong’s city center that was dispersed as it descended into confusion and violent clashes. The officers, from the Police Community Liaison Office, both suffered head wounds after being attacked with wooden sticks and other weapons near the gathering in Chater Garden in the Central business district.
With little chance the Republican-controlled Senate will convict him on two articles of impeachment, the greatest danger to Trump is that the proceedings present an unfavorable portrait of the president durable enough to sway Americans against his re-election in November. His hedge is the phase-one trade deal with China he signed last week. By calling a truce in a trade war that has dampened economic growth — historically one of the most powerful engines of support for incumbent presidents — Trump won what he’s counting on as a key element of his case for re-election. The trade conflict with China has been slowing down the economy, with election-year growth forecast to drop to 1.8% from 2.3% in 2019. What’s more: The tariff dispute hit manufacturing especially hard — a critical contributor to the economies of counties that backed Trump in 2016. The China accord doesn’t totally eliminate the negative impact of the trade dispute, but it ends the threat of tit-for-tat tariff escalation and lifts some of the uncertainty businesses have faced.
Stocks in Asia were set for a muted open to Monday trading following a strong start to the year that’s left global equities at record highs. There were no standout movements in currency markets in early Monday trading, ahead of the open for bonds and stocks. Futures on Asia Pacific markets ended last week mixed, after the S&P 500 Index and the Nasdaq Composite Index both set record highs on Friday. U.S. equity and bond markets are shut for the Martin Luther King Jr. holiday. Meanwhile, oil traders will be watching developments in Libya, where one of the country’s commanders blocked crude exports at ports under his control, slashing output by more than half. World leaders are working in Germany toward a more durable cease-fire in Libya’s civil war. Crude ended Friday at $58.54 a barrel, while gold was at $1,557.24 an ounce.
Return To Value
A top-performing Morgan Stanley fund is betting on cash-rich consumption-focused stocks in Asia, especially China, to manage risks in market cycles this year. It seems to be paying off: The Wall Street firm’s Asia Opportunities Fund, which focuses on equities in the region excluding Japan, returned 44% in the past year, beating 99% of its peers, according to data compiled by Bloomberg. So what’s the strategy? The portfolio focuses on undervalued companies with low debt or net cash on their balance sheets, many of which are found in consumer sectors, said Kristian Heugh, who has been co-managing the fund since its inception in 2016. China is the $1.5 billion fund’s largest-weighted country, accounting for 57.7% of assets as of end-December. Heugh said the world’s second-largest economy will remain a key focus this year despite its slower growth in 2019. Expectations for a rebound in economic growth have also prompted firms including Sanford C. Bernstein and Citigroup Inc. to recommend Asia’s value plays this year. The timing finally looks ripe, after value was among the region’s worst performing factors last year.
Tenuous Truce Talks
World leaders meeting in Berlin agreed to work toward a more durable cease-fire in Libya’s civil war, which has seen Russia and Turkey giving military support to opposing groups as countries outside Libya jockey for access to its energy resources. Eastern commander Khalifa Haftar, who is backed by Russia but walked out of truce talks in Moscow last week, and Libya’s internationally recognized Prime Minister Fayez al-Sarraj will now put forward five names each for a committee to hash out the terms of a more permanent halt to fighting, with the United Nations pushing for a meeting of that group in Geneva within days. Still, some five hours of formal discussion in Germany on Sunday reflected the fragility of any truce. Neither Sarraj nor Haftar were in the room for the summit, and organizers were careful to ensure they did not cross paths in Berlin.