China Leads the World in Green Energy, Gaming, Gambling

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  • Polish officials said was politically motivated. Poland has emerged as one of the staunchest supporters of Kiev and strongly condemned Russia’s annexation of Ukraine’s Crimea.
  • Hong Kong’s retail sales declined by 9.8 percent year over year in April, a third consecutive month of retreat, led by a 39.9 percent year over year drop in jewelry and luxury category associated with an unusually high base a year earlier when gold purchases surged 68.5 percent in April 2013 in response to slumping bullion prices.

Opportunities

  • In an expected yet unorthodox decision, the European Central Bank (ECB) cut deposit rates to negative territory, meaning banks will have to pay to place deposits with the ECB. The cut was expected because, as John Clemmow of Barclay’s pointed out this week, sovereign bond rates are simply a function of tax revenues and the stock of debt. Forget inflation and monetary theory. If tax receipts are rising at a slower rate than debt issuance, then interest rates must fall because the debt must be serviced. The chart below, using World Bank data, shows debt service as a percentage of tax revenues is near constant in the G7 countries. Clemmow concludes that (1) future interest rates are a function of the debts of the past, and (2) the ECB will do what it takes because European monetary policy is not decided by the desires of the Germans but rather by the needs of the periphery. The result will be lower rates and a convergence of peripheral yields which largely benefit peripheral European banks.

Future-Interest-Rates-are-Beholden-of-the-Debts-of-the-Past
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  • China is set to accelerate efforts to clean up its environment. According to its 2013 Report on State of the Environment released this week, only three out of 74 cities which adopted revised air quality standards met the target last year. This could make Chinese policymakers even more determined to execute its coal consumption reduction plan through 2017, a major source of air pollution. Industry leaders in the clean energy sector should continue to benefit from policy support.

Future-Interest-Rates-are-Beholden-of-the-Debts-of-the-Past
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  • Protesters in Thailand have been seen adopting the three-fingered salute from the film “Hunger Games” as a mark of silent defiance against the military government. The gesture is quickly becoming a symbol of silent protest against the military leaders who took control of Thailand in a coup on May 22, instituting martial law. Thousands of people took to the streets over the weekend, calling for democratic elections in a stunning example of protesters embracing values promoted by the U.S. Constitutional Rights to Life, Liberty and Pursuit of Happiness.

Threats

  • According to Credit Suisse, Chinese households have started reducing property exposure and are expected to lower it from 55 percent of total wealth in 2013 to 47 percent in 2018, assuming stable housing prices. Deteriorating sentiment toward Chinese residential property oversupply in lower-tier cities, coupled with a peak in the maturity of wealth management products in the second half of this year, only adds to volatility of property-developer stocks in the near term.
  • Foreign direct investment flows to Russia will fall to half of last year’s level in 2014 as the conflict with Ukraine prompts companies to delay expansion, the Vienna Institute for International Economic Studies said. Russian foreign direct investment (FDI) is expected to fall to $41 billion the steepest decline in all of Eastern Europe. On a good note, the 11 Eastern European Union (EU) members will attract 21.6 billion euros this year, nearly doubling the inflows recorded in 2013.
  • Egyptian shares plunged earlier in the week after the government said it will tax investor profits, only a day after the presidential election concluded. The African country, which is home to the highest budget deficit in the Middle East, will tax net portfolio values at the end of the year. The bourse statement on the planned tax did not specify the rate that would be levied or when the law would be passed.

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