Saturday is June 4, "6/4," a date that resonates with Chinese communities and democracy activists around the world. It's the anniversary of the Tiananmen Square massacre, which saw the People's Liberation Army crush pro-democracy student demonstrators who were mourning the death of reform-minded Hu Yaobang, who had risen to the role of general secretary of the Chinese Communist Party.
It is a sign of how far China has regressed under President Xi Jinping in terms of civil liberties that we are once again talking about reformers within the CCP, and whether they have much influence. A videoconference that Premier Li Keqiang held with 100,000 Communist Party officials last week warned of the urgent need to stabilize the economy in the face of China's anti-Covid measures. It is a rare and veiled criticism of Xi's decision to double down on a "zero-Covid strategy," a policy that Li says leaves China facing challenges greater in many ways than when Covid-19 first appeared in Wuhan.
Li stressed that "development is the key to solving all problems in China, "according to state news agency Xinhua, which will be music to the ears of the country's embattled entrepreneurs and private sector. Xi appears to have ceded ground and backed off his attack on business. The onslaught began with Xi's personal intervention in October 2020 to prevent the listing of Alibaba Group Holding (BABA) (HK:9988) spinoff Ant Group. With the Chinese economy highly unlikely to post anything like Li's forecast of growth "around 5.5%" this year, Xi has in the last month or two abandoned his "common prosperity" quest, ahead of his coronation for a third term this fall.
How long will Li and economic progressives gain ground? We know little of the background machinations inside the Chinese Communist Party. But Li and Vice Premier Liu He have both given influential addresses recently aimed at revitalizing growth and ensuring there's a firm hand on the economy from bureaucrats and policymakers. Xi's interventions, with overtures similar to the Anti-Rightist Campaign against capitalist-leaning Communists under Mao Zedong, resulted in overnight market-moving reforms that decimated a wide variety of industries. Now, he needs business support again to jump start Chinese GDP.
Still, the question marks surrounding the Chinese economy are causing investors to look elsewhere for emerging-markets exposure. "Greed & Fear hears growing talk among fund managers of increasing interest in Global Emerging Markets ex-China mandates," the Jefferies global head of equity strategy Chris Wood writes in his latest newsletter to investors.
The zero-Covid quest is the main concern, leaving Li with less room to maneuver. "Greed & Fear continues to believe that the stimulatory policies being announced remain almost irrelevant in the context of continuing Covid suppression," Wood states. It doesn't matter if you cut the home-mortgage rate, as China has by 83 basis points from its high last September, to 4.91%, if no one wants to buy. Even in cities that haven't locked down, the Chinese citizens will "naturally assume" the Omicron variant will arrive soon, Wood says, leading to localized lockdowns. "This is why the property-related data continues to deteriorate," he adds, with sales from 34 major developers tracked by Jefferies down 60% year-on-year for May, and 61% in April.
So far, a desire for emerging markets ex-China exposure is "more talk than action," Wood concedes. But both for political and economic reasons, he expects it to persist. With China accounting for 31.2% of the MSCI Emerging Markets Index, the implications could be significant if other markets benefit from the rejigging of portfolios. India, currently 12.7% of the same index, would be a primary beneficiary, making up 18.5% of any EM exposure that excludes China.
The Middle East, hardly without its political concerns of course, would make up 11% of EM ex-China, up from a 7.6% weighting now. It could see a double dose of interest since the Middle East would be the prime hunting ground for investors looking for energy exposure that they have been forced or have chosen to divest out of Russia.
Singapore is a developed market, but also the entranceway for emerging-markets exposure to Southeast Asia. China's polar opposite on pandemic policy, the Lion City pioneered the "live with Covid" approach, and has opened up completely, no longer even requiring masks in public. It is a prime destination for money looking to leave China; Wood says he's heard that 20 mainland Chinese billionaires moved to Singapore last month. A Chinese buyer reportedly bought 20 condo units in a bulk deal worth S$85 million (US$62 million).
Southeast Asia is seeing a revival of interest even among skeptics who wrote it off as illiquid. In fact, many global investors had concentrated Southeast Asian exposure in just one stock, Singapore-based Sea Limited (SE) , which owns Southeast Asia's biggest e-commerce site, Shopee. They are opening their eyes to other investment opportunities.
Wood is majorly overweight Southeast Asia, with a 16.5% weighting in his Asia ex-Japan portfolio, up from just 6% in August 2021, and higher than the 8.6% weighting to Southeast Asia for MSCI Asia Pacific ex-Japan. Indonesia is the single-largest position, at 7% weighting of Wood's Asia ex-Japan portfolio, bolstered by rising foreign interest and greater liquidity on the Jakarta stock exchange.
In the Philippines, the frankly ridiculous election of dictator's son Ferdinand Marcos Jr., or "Bongbong," as president has been tempered by his selection of what Nomura calls a "capable economic team." Central-bank governor Benjamin Diokno will lead the charge as finance secretary.
"Frankly ridiculous" also describes how the Hong Kong authorities justify their suppression of the Tiananmen Square vigil, and efforts to preserve the memory of what went on in 1989. Using a variety of tenuous justifications, they have removed the prominent Pillar of Shame statue that stood for a quarter of a century at Hong Kong University, raided and closed down a Tiananmen museum, and arrested and jailed the seven leaders of the group that used to organize the vigil. Incoming Chief Executive John Lee, a former cop, insists that freedom of speech exists in Hong Kong but also says calling for an "end to one-party dictatorship" in China violates national security by "subverting state power."
You won't hear a peep about Tiananmen in mainland China, of course, where references even to "6/4" are instantly censored. And you won't see any candlelight vigil as has been customary in Hong Kong; this will be the third year where the police have banned any public gathering due entirely and completely on "public health" grounds ... the soccer pitches in Victoria Park where the vigil normally takes place have been fully booked, unlike any other day in the next three weeks. The police have warned the public not to test their limits by wandering into the park and holding a candle.
It is to this day very hard to work out how many people were killed by Chinese soldiers in the "June 4 incident," or how many Chinese troops were killed by furious citizens in response. Data from 11 major hospitals in Beijing show they received at least 478 dead bodies, according to the Canadian scholar Timothy Brook, while eight of the hospitals treated 920 wounded. But those figures are partial, compiled in Beijing but at different times.
"Grossly incomplete, these are less statistics than suggestions regarding the scale of casualties in Beijing," Brook writes in Quelling the People: The Military Suppression of the Beijing Democracy Movement. Many more casualties ended up in hospital, with some institutions forced to turn people away, while others never made it that far. The number of wounded to dead in gun battles is typically 10:1, Brook notes, but the injured would have been loath to seek treatment, and risk being reported to the authorities for taking part.
If the 32 hospitals that treated hunger strikers during the Beijing democracy demonstrations handled similar numbers, Brook projects that would lead to a count of 1,400 dead, 3,700 wounded. The Chinese Communist Party also proceeded to round up and jail or execute as many of those who participated as it could find. Fragmentary findings, Brook says, tell him a figure issued then denied by the Chinese Red Cross of 2,600 dead "comes closer than any other estimate" to the number that died.
Perhaps one day we will learn the exact number of people who died, but probably not, Brook concludes. I'll let him have the last word, and will remember June 4 with a candle Saturday.
"In the end, the number changes nothing. The cold facts are that many died, and that we cannot count their number," Brook writes.
"The point is not to become lost in disputes over how many were killed but to recognize the enormity of the betrayal that all this killing has welted onto the hearts of the survivors. People have not only died but may not be counted. They have been made to disappear from history. These are the permanent losses of Sunday, June 4."