Alpha Portfolio Service Brochure
Under the cover of coronavirus, China appears to be flexing its muscles within the Asian region and against its neighbours.
There has been a long running dispute between India and China over the Kashmir border in the Himalayas which escalated last year after twenty Indian soldiers and an unknown number of Chinese were killed. Talks to end the border dispute appear deadlocked with 100,000 troops reported to be on standby in what appears to be the most dangerous confrontation in decades between the two Asian super-powers. Tension has increased as China has called for the return of one of its soldiers held by India after he disappeared on the border.
At stake is control of the Karakoram Pass, which would open better road access from the Chinese province of Xinjiang into Pakistan, India’s bitter rival. China has numerous investments in Pakistan while the trade corridor into Central Asia is pivotal to President Xi Jinping’s Belt and Road Initiative, a multi- billion infrastructure programme that is intended to link China with more than 100 countries through rail, shipping and infrastructure projects.
Besides its controversial new security law, stripping Hong Kong of its remaining autonomy, there are renewed threats towards Taiwan. Overnight, in one of the final twists of the Trump administration, US Secretary of State Mike Pompeo lifted the long-standing restrictions on contacts between American and Taiwanese officials. China has understandably reacted angrily to this news.
During last summer Chinese warships sank a Vietnamese fishing boat and harassed a Malaysian oil exploration vessel in the South China Sea. India has responded by signing a defence pact with the US and has invited Australia, which has its own trade problems with China to join a naval exercise with the US and Japan in the Bay of Bengal. The Indian government is also considering banning Chinese technology company Huawei from any involvement in the building of the country’s 5G network. The Kashmir border dispute looks an uneasy stand-off for now, but it is a reminder of China’s growing dominance within the region. China’s crackdown in Hong Kong also escalated dramatically last week with police arresting some 50 opposition figures.
Meanwhile, the head of the World Health Organisation (WHO) has said he is ‘very disappointed’ that China has denied its experts access to investigating the origins of Covid-19.
The World could boycott Chinese made goods, but as they make so much these days that could be quite difficult!
What have we been watching?
Lockdown 3.0, the Senate run off vote in Georgia and the unbelievable scenes from Capitol Hill, Washington! Despite the negative headlines, UK equities extended their recent outperformance aided by vaccine hopes and the removal of Brexit uncertainty, with signs global asset allocators may be starting to consider larger, more liquid UK companies. Meanwhile, the US market has been supported by hopes of more stimulus measures by the incoming President Joe Biden.
Another year, another lockdown and yet another U-turn from bungling Boris. Within 24-hours of saying the words ‘I am in no doubt that schools are safe’, schools were closed! While the vaccines are a game changer, it is clear that until vaccination programmes are well established hospitals and ambulance crews will remain under severe pressure. Over 1.5 million have now received a vaccine and hopefully we can now concentrate on reporting an ever-growing number of people that have been vaccinated. Nonetheless, there are calls for lockdown measures to be made stricter and the government really does appear to be worried now.
Elsewhere, Germany is likely to extend its national lockdown beyond January 10th. China reported another small cluster of cases in Hebei, which is near Beijing and has a population of 11 million. Meanwhile, the WHO is concerned by a South African mutation of Covid-19. Some scientists are worried that the current vaccines may not be as effective against this strain, although Pfizer believes its vaccine will be.
China is offering trade talks to the new US administration. However, this was countered by news that the NYSE is to de-list a number of Chinese companies including China Mobile and China Telecom, following an executive order from Donald Trump. China is pushing back with new rules that protect its firms from ‘unjustified’ foreign laws. Another challenge for incoming President Joe Biden will be what to do about Russia, as US intelligence agencies have said they believe Russia was behind the cyber-attack on a number of US government agencies. New Zealand’s central bank became the latest to be hit by a cyber-attack from an unidentified hacker.
England and Scotland entered lockdown 3.0 and Chancellor Rishi Sunak announced a package of measures including grants for businesses in retail, hospitality and leisure worth £4.6bn. While Boris Johnson suggested a review of lockdown in mid-February, subsequent comments suggested the lockdown might continue until the end of March. Perhaps we can look forward to Easter? Meanwhile, UK manufacturing activity hit a 37-month high in December but was boosted by pre-Brexit stock building. However, the latest lockdown measures suggest that the UK is facing its first double-dip recession in almost 50 years. With a challenging first quarter, economic growth in 2021 is likely to slip from an estimated 6.2% to 5.5%. Fortunately, the UK stock market is not the UK economy and investors continue to focus on a pick-up in activity from the second quarter.
In Europe, manufacturing activity was the highest since mid-2018 with production and new orders growing for the sixth-month in a row.
The US saw the key Senate runoff vote in Georgia and unbelievable scenes on Capitol Hill, as Trump supporters stormed the building leaving 5 dead. The US Congress eventually certified Joe Biden’s win in the presidential election. US investors focused on the outcome of the Georgia Senate runoff vote and Democratic sweep. The US Dollar weakened and US 10-year Treasury yield hit 1% for first time since March. While corporation tax and borrowing are expected to rise under the Democrats, in the short-term there could be more support for the US economy. However, this could be subject to rogue Democrat and Republicans which may cause Biden to water down some Democrat proposals with the inevitable ‘pork barrel’ politics that afflicts Washington. Meanwhile, US manufacturing activity in December hit the highest level since August 2018.
Brent oil jumped to $55. A South Korean oil tanker was seized by Iran in the Strait of Hormuz. The incident comes amid tensions over Iranian funds frozen in South Korean banks because of US sanctions. Meanwhile, OPEC+ failed to reach agreement on production levels for February as divisions opened between Saudi Arabia and Russia, however, Saudi Arabia subsequently announced a surprise reduction in its output for February and March.
Despite the depressing Covid-19 headlines, Copper hit an 8-year high on stimulus hopes and encouraging manufacturing activity data.
Finally, challenging times for everyone due to Covid-19 but particularly for Britain’s heritage steam railways where visitor numbers have been adversely impacted by lockdown measures. They are now warning they will run out of coal after planning permission was refused for a new coal mine in Newcastle!
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