SIC 1H2018: Dr Chan – Trade Tensions Take The Form Of Currency War
In his tweet on Monday (20 April), Donald Trump accused China and Russia of currency manipulation. But in actual fact, the Renminbi appreciated against the US Dollar over the past year. Trump’s rhetoric sparked concerns that the trade war could take the form of a currency war.
The 1980s saw the rise of Japan, but in 1985, the US had forced Japan to sign a secret agreement to allow the appreciation of the Japanese yen against the US Dollar. It was known as the “Plaza Accord”. Following which, the Japanese yen did appreciate from US$1:JPY240 to US$1:JPY80 = 80 yen, causing Japan to go into a deflationary spiral.
Considering how Japan was beaten down by a currency agreement, could Trump be wanting to force the renminbi to appreciate as well?
Hainan Concept Stocks
A large amount of China A-shares Hainan concept stocks rose to a trading halt on the day when China announced its plan to establish the tropical island of Hainan as a free trade zone. However, such a rise failed to sustain the following day.
Such a situation is very similar to that of the development of the Xiong’an New Area last year. A proper development of the Xiong’an New Area will take (at least) a few years, and the development of Hainan, which is more than 10 times larger than the former, will surely take even longer.
There are Shanghai-Hong Kong Stock Connect constituent stocks among the Hainan concept stocks. While short-term speculation is not easy, one can consider investing in them long-term.
Trade War Concerns Overhang
The Hong Kong-listed shares of ZTE Corp (763.HK) were suspended on Tuesday (17 Apr), thanks to Donald Trump again. Trump has been repeatedly escalating the trade war to test the bottom line of the Chinese government, and it appears that the trade war will continue to affect the stock market for quite some time.
For the time being, investors should accumulate more safe-haven stocks, and can consider placing small bets on short-term speculation. Presently, both large and small market players are trying hard to drive up second-tier stocks through speculation despite the overarching market chaos.
Li Ka-Shing Increased Holdings Of CK Asset Holdings
The share prices of CK Hutchison Holdings Ltd (001.HK) and CK Asset Holdings Ltd (1113.HK) fell repeatedly and underperformed the market after Li Ka-shing announced his plans to retire last month. Li Ka-shing eventually stepped in to shore up the share price of CK Asset Holdings through increased holdings.
Why CK Asset Holdings and not CK Hutchison Holdings though?
The reason could be that the former is a real estate stock whose asset value is easy to estimate. It is also obvious that its current share price is far lower than its asset value per share.
Unfortunately, real estate stocks tend to remain undervalued for a long time, and thus, they don’t easily attract value investors.
Join Dr Chan at our upcoming Shares Investment Conference, 5 May 2018!
