Week in Review
- Real evidence of China’s recovery and “revenge spending” came to the fore this week with the release of first quarter GDP growth at 4.5% year-over-year (YoY), exceeding expectations, and March retail sales growth at 10.6% YoY.
- The STAR Board saw some momentum this week on positive earnings releases from technology companies in Mainland China, though gains were clipped on Friday. Nonetheless, the technology-focused STAR 50 Index is up +16% year-to-date.
- In a speech at Johns Hopkins University on Thursday, Janet Yellen said that the US should seek a positive economic relationship with China, cooperating on issues such as debt levels and climate change. She added that this can be achieved while still prioritizing US national security.
- Electric vehicle ecosystem equities were sharply lower this week in China, following Tesla shares on concerns over price cuts.
Friday’s Key News
Asian equities were mixed overnight as China underperformed on geopolitical concerns and the Renminbi depreciated against the US dollar and Euro.
Much of the foreign flight and negative market action last night was driven by the Biden Administration’s proposal to introduce new curbs on certain investments in certain industries in China including AI, chips, and defense-related technology. I do not believe this plan represents anything unexpected and is a natural progression from the export restrictions implemented last year. Furthermore, the new curbs will be focused on new investments, rather than existing ones, and investments where US individuals and firms take an active role in management, i.e. private equity and venture capital investments. We have also been here before with Trump executive orders, which amounted to the exclusion of low-growth, industrial behemoths and state-owned enterprises (SOEs). As always, many market participants shot first and plan to ask questions later as the details will be laid out at a G7 meeting in May.
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