China crackdown sinks Asia

New Chinese restrictions sends Asia lower

The weekend was dominated by China’s announcements of a crackdown on Tencent Music, and more importantly, its intention to all but end China’s multi-billion-dollar student tuition industry as we know it. Although early Asian markets followed Wall Street higher, once mainland exchanges opened and stocks there entered a free-fall, regional markets have mostly followed suit.

Reuters is also reporting a China Securities Times story that suggests the central government is stepping up restrictions on local government financing vehicles. Given that the China tech crackdown has already frayed investors nerves along with credit concerns, particularly in the property development sector, the last moves by the central government in the education sector, which threaten to wipe out billions of dollars by overseas investors, is another ratchet higher in the regulatory risk landscape in China.

Perversely, one beneficially of China’s trampling of domestic and international investors across a broad battlefront could be US equities markets. Although investors have been prepared to sell their souls for rock and roll to get a piece of China action, the risk/reward skew now means that the path of least resistance could be Wall Street, where the FOMO gnomes ignored mixed PMI data on Friday to send the major indexes to record closes.

Although fellow North Asia heavyweights, Japan, South Korea, and Taiwan are likely to suffer less, with their high beta to the global recovery as a whole, ASEAN markets are also expected to underperform by association. Regional markets will be further weighed down by the remorseless rise of the delta-variant virus in the troubled trio of Indonesia, Thailand and Malaysia. Don’t be fooled by the falling cases in Indonesia over the weekend; testing also fell hugely with President Jokowi extending PPKM restrictions.

There was no bipartisan agreement on a US infrastructure package over the weekend, with voting scheduled to commence tomorrow in the Senate meaningfully. It, along with the looming federal debt ceiling, is being almost entirely ignored by US markets which, this week, will be myopically focused on US big-tech earnings releases, a veritable FAANGSta’s paradise, and the Federal Reserve FOMC meeting.

Big tech earnings are likely to have a more significant impact in that so much good news is baked into prices that earnings that undershoot or come in just on target will likely see some harsh short-term punishment to stocks prices. What the FOMO gnomes of Wall Street giveth, the FOMO gnomes can take away. Any dips should be temporary, assuming no surprises from the FOMC and that the monetary taps remain fully open.

Turning to this week’s FOMC, it should theoretically be a non-event, with the August Jackson Hole Symposium and September’s FOMC meeting more “live.” Making assumptions hasn’t treated me well of late, though, and last month’s FOMC dot-plot caught me by surprise. Six million fewer American’s are still in work than pre-pandemic, and I suspect this needle will have to move a lot more to taper the Fed, especially given Mr Powell’s vehement defence that inflation is transitory.

Although I suspect much of the rally is being driven by Europeans looking for the least ugly horse in the glue factory, the US bond market certainly agrees. Their own central bank is condemning them to Japanification, so 1.25% on a 10-year Treasury looks better than paying Germany, Italy or Greece to own their debt. The Fed’s USD120 billion per month of buying is undoubtedly playing its part as well.

Still, if the FOMC “tweaks” the language to imply that they’re now really starting to begin to really seriously think about starting to talk about tapering, that could shake the bond market from its malaise and push yields and the US dollar higher. I wouldn’t bet on it, though. Still, if big-tech earnings only meet expectations, and the FOMC changes the statement wording, US equities could be in for a beating at the end of the week.

China and the US FOMC are likely to drown out any impact from the data calendar in Asia this week. China Industrial Profits tomorrow can add to the dark clouds over local equities if it underperforms. But South Korean Q2 GDP, Malaysia’s June Trade Balance, Australian Q2 CPI and South Korean June Industrial Output are all old news. The trajectory of the delta-variant virus across Indonesia, Thailand, Malaysia, and Australia, the fragile four, will have a more immediate impact.

As galling as readers know, it is for me to say this, one beneficiary of today’s China turmoil looks to be bitcoin and ethereum. Bitcoin is 8.35% higher at USD38,400 of fiat US currency this morning, and it appears that some defensive rotation, probably from mainland investors, is occurring. CNBC is also running a story from Friday that Amazon may be preparing to accept digital coins as payment. Goldman Sachs is apparently clearing some institutional client’s trades in bitcoin. The Vampire Squids and bitcoin is always worth a few per cent gains, but all in all, the combination of stories is all meat and three vegs to the “bitcoin as a mainstream asset” army.

The price action has led to some very interesting developments of the bitcoin technical picture. Bitcoin has broken out of its three-month descending triangle at USD 34,300.00 and suggests we could have another USD 17,000 of gains, taking us to USD 51,000.00, or thereabouts. It must overcome resistance at the 100 and 200-day moving averages, at USD 40,800.00 and USD 44,700.00 first, though. I guess I will have to put up with the “institutional experts” re-emerging as well to say bitcoin is a hedge against inflation and deflations, that Goldman’s means it is becoming a mainstream asset, and that it is a hedge against equity market and China volatility. Someone will probably say it can cure Covid-19 as well, but for me, the technical break in isolation is huge, and should be respected. I still believe the entire sector and un-stable coins are complete nonsense that will lose small investors billions, but the people have spoken, and the digital Dutch tulips look ripe for a large rally in the short term.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at Visit to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)