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China markets turmoil: leaders' refusal to learn lessons makes more volatility a sure bet China's market turmoil: leaders' refusal to learn lessons makes more volatility a sure bet
(34 minutes later)
Get used to these wild rides in stock markets. Tuesday’s action lacked the full drama of Monday last week – there was no heavy fall in Chinese share prices and no opening 1,000-point decline in the Dow Jones index in the US – but 3% off the FTSE 100 is quite alarming enough. At least three things suggest the stormy weather is here to stay. Get used to the wild stock market rides. Tuesday’s action lacked the high drama of Monday last week - there was no slump in Chinese share prices or opening 1,000-point decline in the Dow Jones - but 3% off the FTSE 100 is quite alarming enough. At least three things suggest the stormy weather is here to stay.
First, the Chinese authorities appear to have learned nothing during the last month. Their search for scapegoats has led to the ridiculous spectacle of a Chinese journalist at a respected publication “confessing” on television to causing “panic and disorder” in markets. There was no mention in Chinese state media, of course, of the real story: Beijing, over the course of a year, manufactured an extraordinary bull market that was bound to collapse because valuations reached absurd levels. First, Beijing appears to have learned nothing during the last month. Their search for scapegoats has led to the ridiculous spectacle of a Chinese journalist at a respected publication “confessing” on television to causing panic and disorder in the markets. There was no mention in Chinese state media, of course, of the real story - that over the course of a year, China’s authorities manufactured an extraordinary bull market that was bound to collapse because valuations reached absurd levels.
Related: The Guardian view on China’s meltdown: the end of a flawed globalisation | EditorialRelated: The Guardian view on China’s meltdown: the end of a flawed globalisation | Editorial
Second, the slowdown in the Chinese factories seems to be intensifying. Few firm conclusions can be drawn from two sets of data (especially Chinese data) but official and private measures of the manufacturing sector agree on the main point: activity has hit a three-year low. Second, the slowdown in Chinese factories seems to be intensifying. Few firm conclusions can be drawn from two sets of data, especially given that its Chinese data, but official and private measures of the manufacturing sector agree on the main point. Activity has hit a three-year low.
Thus it becomes increasingly hard to believe that Chinese consumption can provide sufficient compensating growth to deliver the official target of overall growth this year of “about 7%”. How will Beijing, once it has overcome its unhealthy obsession with short-term share prices, respond? The strong suspicion is that interest rates will be cut again, and the yuan allowed to devalue further, in the hope of stimulating growth of any variety. In the west, that would imply fresh deflationary breezes and a tougher life for exporters. Expect markets to react wildly to any fresh sign of Chinese weakness. As a result, it becomes increasingly hard to believe that Chinese consumption can provide enough compensating growth to deliver the official target for overall growth this year of “about 7%”. Once it has overcome its unhealthy obsession with short-term share prices, how will Beijing respond? The strong suspicion is that it will cut interest rates again and allow the yuan to devalue further, in the hope of stimulating growth of any variety. In the west, that would imply fresh deflationary breezes and a tougher life for exporters. Expect markets to react wildly to any fresh sign of Chinese weakness.
The third ingredient is concern that the US recovery is already past its peak. Tuesday’s data for US manufacturing activity was so-so: there was a slowdown in August, possibly caused by local exporters feeling the effects of a stronger dollar. Critically, however, the fall was probably too small to change the mind of any Federal Reserve official inclined towards an early hike in interest rates. The worry is still alive that a US rate rise could be a monumental mistake. The third ingredient is concern that the US recovery is already past its peak. Tuesday’s data for US manufacturing activity was so-so. There was a slowdown in August, possibly caused by local exporters feeling the effects of a stronger dollar. Critically, however, the fall was probably too small to change the mind of any Federal Reserve official inclined towards an early hike in interest rates. The worry is still alive that a US rate rise could be a monumental mistake.
Add it all up and more volatility is the way to bet. Bears stand accused of over-hyping the Chinese slowdown and mistaking a weak patch for a crisis in the offing. In truth, China has created the deep worry: a hunt for imaginary market culprits suggests the authorities’ instinct is to play games of political diversion for domestic consumption. Add it all up and more volatility is the way to bet. Bears stand accused of over-hyping the Chinese slowdown and mistaking a weak patch for a crisis in the offing. In truth, China has created the deep worry. A hunt for imaginary market culprits suggests the authorities’ instinct is to play games of political diversion for domestic consumption.
HSBC should choose LondonHSBC should choose London
At least the erratic behaviour in Beijing makes one decision easier for the top brass at HSBC. If the directors were ever seriously minded to move the bank to Hong Kong (doubtful), the wheeze can be abandoned now. Any proposal to leave London and head to China, even back to the former British outpost, would surely be squashed by shareholders. At least the erratic behaviour in Beijing makes one decision easier for the top brass at HSBC. If the directors were ever seriously minded to move the bank to Hong Kong, the wheeze can be abandoned now. Any proposal to leave London and head to China, even back to the former British outpost, would surely be quashed by shareholders.
Naturally, HSBC’s “Structured Review of Location of Holding Company” – an exercise in scoring potential locations against 11 criteria – will be allowed to run its course, with the outcome due to be announced by the end of the year. In practice, though, the debate should closed. China’s commitment to economic liberalisation is in doubt and it is hard to understand why an international bank, even one with deep roots in Hong Kong, would wish to tie itself more closely to an undemocratic regime. Naturally, HSBC’s Structured Review of Location of Holding Company – an exercise in scoring potential locations against 11 criteria – will be allowed to run its course, with the outcome due to be announced by the end of the year. In practice, though, the debate should be closed. China’s commitment to economic liberalisation is in doubt and it is hard to understand why an international bank, even one with deep roots in Hong Kong, would wish to tie itself more closely to an undemocratic regime.
Related: British companies exposed to fallout from China's market turmoilRelated: British companies exposed to fallout from China's market turmoil
In any case, HSBC has already secured long-term relief from the UK bank levy – it will feel the financial benefit of George Osborne’s budget reforms from 2020. HSBC chairman Douglas Flint should chalk that up as a victory and commit to London at the earliest opportunity. In any case, HSBC has already secured long-term relief from the UK bank levy. It will feel the financial benefit of George Osborne’s budget reforms from 2020. HSBC’s chairman, Douglas Flint, should chalk that up as a victory and commit to London at the earliest opportunity.
Asos sales goal still a way offAsos sales goal still a way off
Asos “has always been about the longer journey”, chief executive and co-founder Nick Robertson told his shareholders last autumn. It’s a trip he will now undertake from the back seat. Robertson will stay on the board but chief operating officer Nick Beighton will be handed the day-to-day job of making Asos “the world’s leading fashion destination for 20-somethings”. Asos “has always been about the longer journey”, its co-founder and chief executive, Nick Robertson, told his shareholders last autumn. It’s a trip he will now undertake from the back seat. Robertson will stay on the board but the company’s chief operating officer, Nick Beighton, will be handed the day-to-day job of making Asos “the world’s leading fashion destination for 20-somethings”.
Beighton has been warmed up for eventual promotion – he was finance director not so long ago – but the timing requires a full explanation. Robertson has been saying for ages he wants Asos to hit the “staging post” of £2.5bn of annual sales, but the company is only halfway there. Founders are not all alike but most don’t step back until they’ve achieved their publicly stated goals. Beighton has been warmed up for eventual promotion – he was finance director not so long ago – but the timing requires a full explanation. Robertson has been saying for ages he wants Asos to hit the staging post of £2.5bn in annual sales, but the company is only halfway there. Founders are not all alike, but most don’t step back until they’ve achieved their publicly stated goals.