Over the past fortnight, the opening premier of “Crazy Rich Asians”, an American drama-comedy with Singapore as the backdrop, dominated the US box office. It is the first-of-its-kind film in Hollywood to feature an all Asian cast. In the past, Asian actors in Hollywood were normally casted as kungfu masters like Bruce Lee and Jackie Chan or underground triad bosses.
Crazy Rich Asians is a “Cinderella” story with a modern twist. The male lead portrays third-gen Singaporean bachelor from a wealthy real estate developer’s family, while the female lead is a Chinese American professor whose wealth pales in comparison.
Featuring Singapore in our modern cosmopolitan form, the Warner Brother’s production also showcased what Singapore is known for including Singapore Airlines (SIA) and its first-class cabin, various attractions like the Gardens by The Bay and Marina Bay Sands (MBS) Hotel, as well as our unique hawker centres.
The two-hour film could be passed off as an “advertisement” by the Singapore Tourism Board (STB) and interestingly, moviegoers are more than willing to pay to watch the film. In the US alone, Crazy Rich Asians grossed over US$100 million in box office sales in a matter of less than two weeks.
The amount of publicity the movie generated was the reason why the Singapore Government took the opportunity to participate in the film. To a large extent, the film is much more effective in attracting international tourists and promoting the Singapore image than STB’s conventional marketing campaigns.
Notwithstanding that, it would also indirectly rouse up interests for international tourists to fly with our flagship carrier SIA or stay at our extravagant hotels like MBS. In addition, institutions and funds around the world would also be drawn to our property and aviation stocks alike.
Over in the US, the US media, on 30 August 2018, reported that Trump’s administration was readying to ratchet up trade tariffs of 25 percent on another US$200 billion worth of Chinese goods. With public hearings with the US Trade Representatives already commenced, it is anticipated that the next round of tariffs could come as early as the first week of September. As a result, Singapore, Hong Kong and the US stock markets were rattled on the following day on 31 August 2018.
For the time being, tariffs should not pose a problem to US importers and Chinese exporters. This is because they still have time window to advance deliveries before the additional tariffs are officially imposed. More than likely, Chinese goods to be sold in the US over the Thanksgiving holiday should have already left Chinese ports and are already making their way to the US.
Meanwhile, the Chinese government seems to be bracing themselves for a protracted trade war. Instead of bowing to pressure, the central government would likely expand fiscal spending to take on large-scale infrastructure projects to cushion employment. This gives speculators a good reason to bet on infrastructure stocks.
Back in the 2008’s subprime financial crisis, losses were much more severe than the current trade war and China relied on an Rmb4 trillion fiscal stimulus package to bolster its economy. However, it had also caused unprecedented challenges like inflation, overcapacity and indebtedness to the Chinese economy. As such, with deleveraging still a priority, the Chinese government would likely keep a tight rein on leverage when it embarks on another round of mega infrastructural development. Correspondingly, investors should not be too hasty to bet on Chinese infrastructure stocks. Instead, wait for the official list of orders from the central government to be released.
Apart from expanding its fiscal spending to cushion impacts of the trade war, the Chinese government might further weaken the Renminbi. As at now, the Renminbi has already depreciated about 10 percent over the past few weeks. The Chinese government could still devalue its currency another 15 percent to match Trump’s tariffs threats. Theoretically by doing so, Chinese goods would not lose its competitiveness in the US and would in fact become more competitive in other parts of the world.
In the US, the S&P500 index finally set a new record high to inject more impetus into the oldest bull market ever. Since recovering from the crisis in 9 March 2009, the S&P500 has drifted to new record territory in this 3455-day bull market. This is all thanks to Trump’s massive tax cut which has given the stock market a major catalyst.
In the past few years, many market watchers have tried predicting the end of the bull market, only to be proven wrong time and time again as US indices continue to make new highs. In the face of weakness in Chinese equities weighing on Asian markets, the strength in the US stock market brings a balancing force that supports Singapore and Hong Kong equities.
In days leading to September, Trump has publicly criticised the Federal Reserve’s hawkish stance and had lambasted the strong US Dollar on numerous occasions. Though the Fed is an independent institution, Trump still wields much influence over the central bank as both the Chairman and executive members were all appointed by him. As a result, many began speculating if the Fed would hike interest rates in the following months.
With lower expectations that an interest rate hike would occur in September, the US Dollar depreciated against the Chinese Renminbi from US$1 to Rmb6.93 in 16 August 2018 to about US$1 to Rmb6.81 currently. At one point, the US Dollar even broke below the Rmb6.80 level.
As the Reminbi appreciated, China A-shares also rose in tandem and as a result, on 27 August 2018, the Hong Kong Stock Market saw one of the biggest short squeezes in recent months. On the day itself, the Hang Seng Index (HSI) gapped up 345 points at the open and many unknowing speculators shorted against the market. But in a matter of 30 minutes, the HSI found momentum and rallied another 599 points, wiping out many callable bear contracts. The speculators learnt a hard lesson that they have to watch the movement of the Renminbi.
Notwithstanding that, investors should bear in mind that the earnings factor is the biggest determinant of how the stock market would move. As such, only by analysing the earnings result and understanding the dynamics of the stock market to other financial instruments, only then would investors be able to deduce which direction to bet on.