Asian markets are testing one-year lows here on Friday as the Bank of Japan looks to reduce pandemic stimulus money even as Omicron variant fears build and the viability of offshore listings for Chinese tech companies remains a drag on those stocks.
Japanese, Chinese and Indian shares are all sharply down on Friday, an unusually consistent pattern. And there's a host of factors at play.
In Tokyo, the broad Topix lost 1.4% on the day while the export-heavy Nikkei 225 dropped 1.8%. The central Bank of Japan said it would pare back its pandemic emergency program. The BOJ concluded its meeting today, keeping short-term interest rates negative at -0.1% but scaling back its buying of corporate bonds.
On Thursday, Britain became the first G7 nation to raise interest rates since the start of the pandemic, with the Bank of England making the surprise move to raise rates from 0.1% to 0.25% in a bid to ward off inflation, now at 5.1% in the United Kingdom. The market clearly expects the U.S. Federal Reserve to follow suit next year as central bankers enter a tightening cycle.
To see action from the BOJ is surprising, because it is likely to stay one of the world's most dovish central banks. Inflation in Japan is rising at its fastest rate in 20 months, according to a Reuters poll released on Friday. But inflation is actually welcome in Japan, where the central bank has failed to hit a 2% target. It isn't high, at just 0.4% for November, based on the estimates of 18 economists, but is up from 0.1% the month before.
In China, the CSI 300 fell 1.6%. Hong Kong's Hang Seng Tech Index, which covers locally listed but internationally minded tech companies, suffered some of the heaviest selling, down 2.4%.
The pressure is mounting on overseas-oriented Chinese tech companies to "return home" in terms of stock listings as well as to do their patriotic part in developing a home-grown tech sector.
The online travel agency Trip.com (HK:9961 and (TCOM) ) led the losses, plunging 10.5% a day after reporting third-quarter earnings that saw a 9% drop in revenue over the prior quarter and were 2% down from the same time last year. Losses widened to US$131 million from US$102 million the quarter before, a significant setback after it managed to make money last year mainly on the back of staycations.
The online health clinics JD Health (HK:6618 and JDHIY), down 5.8%, and Alibaba Health (HK:0241 and ALBBY), down 5.7%, saw big drops, too. Tech bellwethers Tencent Holdings (HK:0700 and (TCTZF) ), down 3.2%, Alibaba Group Holding (HK:9988 and (BABA) ), down 3.1%, and NetEase (HK:9999 and (NTES) ), down 2.8%, also slipped significantly.
It's noteworthy that the stocks that suffered the most are of Hong Kong tech listings that are cross-listed in the United States. Beijing is contemplating new rules that would make it illegal for tech companies in touchy industries or with large amounts of data to go public overseas. It already requires companies with data on more than 1 million users to submit to a cyberspace audit.
The thing that would shake the market for U.S. American Depository Receipts to its core is if China takes action to restrict the use of Variable Interest Entities, or VIEs. Such structures normally see a Cayman Islands or British Virgin Islands shell company sell shares on U.S. markets; these paper companies have legal agreements to get the business proceeds of companies inside China. The VIE concept was conjured up by lawyers to allow foreign investors to buy into sectors that are off limits to foreign ownership in China itself.
It is highly likely that China will close this legal loophole, a gray area that its securities regulators have tolerated. But Beijing is newly concerned about who owns what kind of data. All companies must hold data on Chinese customers within China, but Beijing appears to be projecting its own style of governance on overseas investors and imagining that they will co-opt or steal those reams of digits.
Inside Communist China, details such as the birthdays of generals and the amount of electricity in use are considered state secrets. Ride-hailing company Didi Global DIDI may have triggered alarm when it ran a jokey report in 2015 in conjunction with the state news agency Xinhua that indicated which government ministry was working the hardest based on when rides were hailed there.
The Ministry of Public Security, which is in charge of the police, was the busiest branch of government, with 1,327 rides booked in just one day. The anti-corruption agency was one of the least busy. Workers at the National Development Reform Commission were getting into the office early, with the most drop-offs between 6 a.m. and 8 a.m., while Ministry of Science and Technology staffers were clock watchers who leave as soon as their official day is done.
That level of detail is bound to terrify the control freaks at the top of the Chinese Communist Party. The party rules by fear, cajoling and control, with an iron grip on use of the Internet as indicated by the suppression of the tennis player Peng Shuai's allegations of sexual abuse against former vice premier Zhang Gaoli. The party, which has gone mute in that case, wants to control the narrative at all times.
Hong Kong has sham elections coming up this weekend. On Sunday, pro-Beijing candidates will be rubber-stamped into office, with the entire pro-democracy camp refusing to run. All would-be lawmakers are vetted by Beijing and the Hong Kong puppet government, which must determine they are "patriots" who support the Chinese Communist Party.
It's not worth participating, and I won't be casting a vote for the first time when I'm eligible. Most pro-democracy politicians are already in prison or have gone into exile. My wife likens the elections to the Evil Queen who, having killed Snow White, still insists on asking, "Mirror, mirror on the wall, who is the fairest one of all?"