In today’s briefing:
- Japan Picks a Fight with China!! What Happens Now?
- AI Spending Binge Imparts Balance Sheet and Funding Changes on Asset-Light Big Tech
- China Advices Its Citizens to Refrain from Traveling to Japan – Beneficial Impact on Korea Tourism
- CX Daily: China Should Launch Property Tax at ‘Appropriate Time,’ Ex-Finance Chief Says
- China’s Bank-Centric Funding: An Under-Reported Risk
- Weak Demand Lingers Amid Tariff Turbulence, Impacting Thai Rubber Exports
Japan Picks a Fight with China!! What Happens Now?
- Japan has intentionally stepped into the middle of the geopolitical battle between the U.S. and China with Prime Minister Takaichi’s policy-changing Taiwan comments to Japan’s parliament.
- China’s retaliation has been swift and tactical, issuing travel warnings, high-level diplomatic reprimands, and conducting military exercises near the Senkaku Islands. China has promised a continuing substantial and broad-based response.
- We expect China’s response to include rare earth export and Japanese trade restrictions and targeted boycotts of Japanese goods on the mainland.
AI Spending Binge Imparts Balance Sheet and Funding Changes on Asset-Light Big Tech
- Concerns about excessive investment activity have occurred before in US economic and financial history. Relative to GDP, the current AI-related infrastructure spending binge already exceeds the internet bubble.
- Unlike Japan in the late 1980s, US AI-related infrastructure spending has largely been financed by free cash flow, but debt funding has been rising, thereby raising some concerns.
- Assessing AI’s impact on earnings growth is complcated by increased circularity within the ecosystem. Metrics are not showing that US equities are in a bubble similar to the late 1990s.
China Advices Its Citizens to Refrain from Traveling to Japan – Beneficial Impact on Korea Tourism
- It was reported that the Chinese government advised its citizens to refrain from traveling to Japan, which is likely to positively benefit the Korea in-bound tourism related stocks.
- If the political tensions between China and Japan are not quickly resolved but continues to last, this would have further negative impact on the Japanese consumer/tourism/leisure related companies.
- On the flip side, this could have a positive impact on the Korean consumer/tourism/leisure related companies such as Lotte Tour Development, Hotel Shilla, and Paradise.
CX Daily: China Should Launch Property Tax at ‘Appropriate Time,’ Ex-Finance Chief Says
- TOP STORY China Should Launch Property Tax at ‘Appropriate Time,’ Ex-Finance Chief Says A nationwide property tax, though difficult to implement amid an ongoing real estate downturn, should be rolled out at an “appropriate time,” a former Chinese finance minister said Friday.
- China’s Property Transition Will Take at Least Five More Years, Ex-Finance Chief Says China’s property market downturn will persist and its transition to a new model will not be completed in the short term, requiring expansionary fiscal policy and structural reforms, according to former Finance Minister Lou Jiwei.
- FINANCE & ECONOMY China’s Securities Chief Makes Global Pitch in Paris, Rio Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), traveled to Paris and Rio de Janeiro this week in a bid to strengthen cross-border financial cooperation and boost foreign investor confidence.
China’s Bank-Centric Funding: An Under-Reported Risk
- China’s bank-centric funding model is an under-reported risk that appears to be lost amidst the current rally in Chinese stocks
- While it powered China’s investment boom previously, this model now misallocates capital, warehouses property losses on bank balance sheets, blunts PBoC easing, prolongs deflation risks and echoes Japan-style balance-sheet stagnation
- Without credible bank clean-up and a shift toward bond, equity and REIT funding, China’s rally risks remaining tactical rather than structural. The current rally does not signal a multi-year bull-run
Weak Demand Lingers Amid Tariff Turbulence, Impacting Thai Rubber Exports
Thailand’s rubber exports up by .5% MoM to 204,095 MT in Sept
Chinese imports decline while US imports sharply rise
Significant disruption to production due to rains
Thailand, which continued to witness unusually heavy rains during its ongoing production season, saw rubber export volume increasing marginally from August to September, while the returns also increased correspondingly as tight supply prevented prices from falling further.
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