That vision will soon get tested: institutional investors saw bids on the gray market 11 percent below the initial public offering price. That’s after Xiaomi’s IPO came in at the very bottom of a marketed range. If that level holds during actual trade, it may have a chilling effect on a swathe of tech corporations keen on raising capital this year to fuel their ambitions, from Meituan Dianping to Tencent Music. Longer-term however, Xiaomi’s expanding global footprint may help it grow into its valuation.

“The valuation I’ve put in our analysis is still aggressive for Xiaomi. But its aggressive for a reason and that’s obviously because Xiaomi has a very interesting footprint,” said Peter Garnry, head of equity strategy for Saxo Bank. “The trade war could deal a negative impact on consumer sentiment in general, not only in China but also in the U.S. and globally. I think it’s the main risk.”

Xiaomi’s tribulations began almost the moment it embarked on its IPO journey. It’d planned on raising about $10 billion and a valuation of as much as $100 billion by taking advantage of Chinese depositary receipts: a new instrument Beijing pushed to entice companies to list at home. But that fell apart when it couldn’t adequately address 84 questions posed by regulators.

Key among those queries: why a company that gets the vast majority of revenue from phones would pitch itself as an internet company, putting it at a higher price tag than Tencent Holdings Ltd.

“It’s not looking like a very positive IPO to be honest,” said Andrew Jackson, head of Japanese equities at Soochow CSSD Capital Markets, who’s been monitoring Xiaomi and thinks it too richly valued. “It’s a wake-up call for realistic valuations, but its also a case of bad luck for Xiaomi’s timing.”When Xiaomi finalized its offer, it did so just as the Hong Kong bourse went into a tailspin. Escalating tensions with the U.S. exacerbated growing concerns about the fallout from a slowing Chinese economy, fueling a climate of uncertainty. Compounding the challenge: traders can short-sell the stock from day one and Xiaomi won’t be considered for inclusionin benchmark MSCI gauges.

But Xiaomi may have no choice. Its last equity fundraising was in 2014 and it needed to bankroll Lei’s vision of expanding globally and embracing technology from artificial intelligence to cloud computing, areas where it would be pitted against Alibaba Group Holding Ltd. and Baidu Inc.

Lei, who once drew comparisons in domestic media to Steve Jobs, has even resumed taking potshots at Apple. It’s a far cry from a year or so ago, when the billionaire prompted a bout of internal soul-searching via a heartfelt missive after sales flatlined in 2016.

It remains to be seen whether Xiaomi’s been penalized for circumstances beyond its control. The company has urged investors to recognize its worth as one of the few from China’s tech sector to make inroads abroad.It’s taken pains to explain its strategy of selling cheap phones to goose revenue from services such as video and music, while investing in an ecosystem of connected devices from vacuums to watches.

“The problem with Xiaomi is that people are very confused. They are not clear about why you call yourself an internet company,” said Anthea Lai with Bloomberg Intelligence. “Many people won’t feel comfortable paying a price similar to Tencent, which has a proven track record, and a 100 percent of its profit came from internet.”

Source:Bloomberg

U.S. President Donald Trump fired the biggest shot yet in the global trade war by imposing tariffs on $34 billion of Chinese imports. China immediately said it would be forced to retaliate.

The duties on Chinese goods started at 12:01 a.m. Friday in Washington, just after midday in China. Another $16 billion of goods could follow in two weeks, Trump earlier told reporters, before suggesting the final total could eventually reach $550 billion, a figure that exceeds all of U.S. goods imports from China in 2017.

U.S. customs officials will begin collecting an additional 25 percent tariff on imports from China of goods ranging from farming plows to semiconductors and airplane parts. China’s officials have previously said they would respond by imposing higher levies on goods ranging from American soybeans to pork, which may in turn prompt Trump to raise trade barriers even higher.

“The United States has violated World Trade Organization rules and ignited the largest trade war in economic history,” China’s Commerce Ministry said in a statement. “Such tariffs are typical trade bullying, and this action threatens global supply chains and value chains, stalls the global economic recovery, triggers global market turmoil, and will hurt more innocent multinational companies, enterprises and consumers.”

The statement didn’t provide details on exactly how or when China would respond. The Finance Ministry has yet to formally issue the final list of goods to which the higher tariffs will apply.

Stocks climbed in Asia and the yen slipped with gold, while Chinese shares reversed losses though remained strongly down for the week. Treasuries declined, as did the yuan.

The riskiest economic gamble of Trump’s presidency could spread as it enters a new and dangerous phase by imposing direct costs on companies and consumers globally. It’s the first time the U.S. has imposed tariffs aimed just at Chinese goods and follows months of accusations that Beijing stole American intellectual property and unfairly swelled America’s trade deficit.

“Clearly the first salvos have been exchanged and in that sense, the trade war has started. There is no obvious end to this,” said Louis Kuijs, chief Asia economist at Oxford Economics.

As the world’s most developed nation and the rule-maker of the current global governing system, there is “astounding absurdity” in the U.S. complaining that it’s been bullied in trade, the People’s Daily, the flagship newspaper of the Communist Party of China, said in a Chinese language commentary on Friday.

Stocks Down

Chinese stocks have taken a beating in recent weeks, and are down more than 16 percent this year, as concerns about the trade war have mingled with worries about China’s ability to control its debt and maintain growth. They were 1.1 percent higher at 1:46 p.m. in Shanghai, after earlier falling as much as 1.6 percent. U.S. stocks are up slightly more than 2 percent this year as investors have weighed the threat of trade frictions against the strong performance of the U.S. economy.

Trump is doubling down on his promise to put “America First” in the nation’s foreign and economic policies. He blames China for a bilateral trade deficit of $336 billion and for costing U.S. manufacturing jobs.Risk to GrowthThe tariffs could jeopardize a U.S. economic upswing that has extended to nine years and pushed the jobless rate to the lowest in nearly half a century. U.S. and Chinese companies will now find it costlier to trade with each other, meaning less demand and higher prices. The International Monetary Fund warns an extended spat could undermine the strongest global expansion since 2011.

The extent of the economic damage will depend on how far both sides go. If the U.S. and China cool off after a first round of tariffs, the impact on their economies will be modest, according to Bloomberg Economics. Under a full-blown trade war in which the U.S. slaps 10 percent tariffs on all other countries and they respond, the economists reckon U.S. growth would slow by 0.8 percentage point by 2020.

The impact of the first round of tariffs on $34 billion in Chinese goods will be “quite small,” said Ethan Harris, head of global economic research at Bank of America Merrill Lynch. But he doesn’t “see the war ending until there are casualties.”

“This plays out over the next few months, until both sides start to feel a little pain and realize this isn’t a bloodless march to victory,” said Harris.

JPMorgan Chase & Co. economists warn the biggest risk may come from the indirect impact of tightening credit conditions and business confidence, reducing scope for investment and hiring while undermining financial markets.

Beijing has shown little interest in making fundamental changes to its economic model. Xi has balked at U.S. demands to stop subsidizing Chinese firms under his plan to make the nation a leader in key technologies by 2025. Negotiations between the two countries petered out with the Chinese accusing the U.S. of blackmail.

The U.S. imports much more from China than the reverse, giving the U.S. an advantage in a tariff dispute. That means that if the dispute deteriorates, Beijing will run out of products to impose tariffs on much faster than the U.S., and so might retaliate against American companies operating in China. It could even take the drastic steps of devaluing the yuan or reducing its $1.2 trillion holdings of U.S. Treasuries, measures that would hurt it as well as the U.S.

In the past, the U.S. used its economic clout to win trade skirmishes with developing countries, said James Boughton, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario. China, whose economy has grown tenfold since it joined the World Trade Organization in 2001, poses a much more formidable adversary.

“The dynamic is different from anything we’ve seen,” said Boughton. “China has an ability to ride out this kind of pressure, to weather the storm, that a lot of countries didn’t have in the past.”

Source:Bloomberg

China said that it wouldn’t implement tariffs ahead of the U.S. on Friday, after previous arrangements put it on course to do so.

“We will never fire the first shot and will not implement tariffs ahead of the U.S.,” the Ministry of Finance said in a statement late Wednesday, after media reported that Beijing would start levying tariffs hours ahead of the U.S. due to the time zone difference.

Bloomberg earlier reported that China would start applying the duties from midnight on Friday — midday on July 5 in Washington — according to two officials with knowledge of the plans. The Chinese customs service had adjusted their systems so the new tariffs would start being charged as soon as the clock ticks over to July 6 in Beijing, according to one of the people.

Beijing time is 12 hours ahead of Washington. A statement issued by the China’s State Council on June 16 said that retaliatory extra duties on $34 billion of U.S. imports are set to take effect on July 6.The U.S. Trade Representative’s statement from June 15 said that Customs and Border Protection would begin collecting their additional duties from July 6. Neither nation specified a time.

In the brewing trade war between the U.S. and China, Beijing officials consistently seek to portray their nation as simply being on the defensive against Donald Trump’s aggressive tactics.

Source:Bloomberg

Malaysia’s former leader Najib Razak has pleaded not guilty to charges of corruption and criminal breach of trust in connection with a multibillion-dollar scandal surrounding state fund 1MDB.

Appearing in the High Court on Wednesday, Najib was granted bail of 1 million ringgit ($247,000) and ordered to surrender his passports. He faces three counts of criminal breach of trust, and one charge under the anti-corruption act. If found guilty, he could be jailed for up to 20 years and fined. The ex-prime minister is seeking a trial for all charges.

While the breach of trust charges carry punishments that include whipping — usually done with strokes of a rattan cane — Najib may be exempted for being more than 50 years old.

The charges are the result of the investigation by the Malaysian Anti-Corruption Commission, Attorney-General Tommy Thomas said. “As far as I’m concerned, we are looking at it from a criminal law perspective. Doesn’t matter who the personality is.”

Prime Minister Mahathir Mohamad, whose coalition ousted Najib in May, has sought to recoup $4.5 billion potentially siphoned from 1MDB. A parliamentary committee in 2016 identified at least $4.2 billion in irregular transactions by the fund, with the U.S. Department of Justice saying some cash was used to purchase a 300-foot yacht, luxury homes, artwork, and stakes in several Hollywood films, including “The Wolf of Wall Street.”

The charges allege that between Dec. 24 to Dec. 29, 2014, at AmIslamic Bank Bhd., Najib as prime minister and finance minister was given the mandate to manage 4 billion ringgit of funds belonging to SRC International Sdn. and that he committed a breach of trust on 27 million ringgit. Over the same period he’s alleged to have committed a second breach of trust on 5 million ringgit. And from Feb. 10 to March 2, 2015, he committed a third breach of trust on 10 million ringgit, the charges note.

The court also heard Najib allegedly used his position to gain gratification of 42 million ringgit for himself by granting a government guarantee on 4 billion ringgit of loans from Kumpulan Wang Persaraan (Diperbadankan) to SRC International between Aug. 17, 2011 and Feb. 8, 2012.

Najib’s next court dates were tentatively set for Feb. 8-18, March 4-8 and March 11-15 for the trial, totaling 19 days of hearing, said Judge Mohd Sofian Abd Razak, noting Aug. 8. was set for case management.

In a video posted on Najib’s official Twitter account on Tuesday night, he apologized to the nation while saying not all of the accusations against him are true and that he’d defend himself. Invoking the afterlife, the caption said: “I accept that today is the day my family and I face the world’s tribulation.”

“I believe in my innocence,” Najib said to reporters after he was charged. “This is the best chance for me to clear my name, after being accused so heavily.”

His lawyers are “seriously considering” seeking to disqualify the attorney general as prosecutor, and said Thomas had made a prejudgment before taking the post in June, said lawyer Mohd Shafee Abdullah. The court granted their request for an interim ban on any public statements commenting on the merits of the case in an unfair or prejudiced manner until Aug. 8, Shafee said.

Najib was arrested on Tuesday, less than two months after a surprise election loss that toppled his party’s six-decade rule. His former government had previously cleared him of wrongdoing.

The scandal had cast a cloud over doing business in Malaysia and unnerved investors. Markets were spooked by the May 23 disclosure that government debt and liabilities had jumped to 1.087 trillion ringgit ($268.4 billion), inflated by state guarantees for borrowing at 1MDB. The ringgit slid to a six-month low and overseas ownership of the nation’s bonds dropped to the lowest since August. The challenge now for Mahathir is to make good on his promises to root out the corruption he said is rife in many government departments.

Malaysia’s police last week said they had seized about $273 million of items in raids linked to Najib. They included stacks of cash, Hermes International handbags, Rolex watches, a diamond necklace and more than 200 pairs of designer sunglasses.

The arrest on Tuesday was made in connection with SRC International, according to a statement from the task force. SRC International was a former unit of 1Malaysia Development Bhd. Bernama reported in May that investigators had asked Najib about an unspecified amount of funds he had received from the company.

In January 2016, former Attorney-General Mohamed Apandi Ali had cleared Najib of wrongdoing in connection with SRC, saying there was no evidence he knew that money from the company was transferred into his personal accounts. Meanwhile, Swiss investigators said in October 2016 that some $800 million in natural-resource investments from SRC International appeared to have been misappropriated, hidden in part through the creation of a Ponzi scheme.

Source:Bloomberg

A leaked report from a Chinese government-backed think tank has warned of a potential “financial panic” in the world’s second-largest economy, a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase.

Bond defaults, liquidity shortages and the recent plunge in financial markets pose particular dangers at a time of rising U.S. interest rates and a trade spat with Washington, according to a study by the National Institution for Finance & Development that was seen by Bloomberg News and confirmed by a NIFD official. The think tank warned that leveraged purchases of shares have reached levels last seen in 2015 — when a market crash erased $5 trillion of value.

“We think China is currently very likely to see a financial panic,” NIFD said in the study, which appeared briefly on the Internet on Monday, before being removed. “Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.”

The study provides another indicator that China is growing concerned about the knock-on effects of trade tensions with the U.S. In recent weeks, prominent academics have begun to question if the country’s slowing, trade-dependent economy can withstand a sustained dispute, which has already started to weigh on stock prices and the yuan.

China should stand ready to roll out a mix of fiscal and financial-sector measures in the event of a systemic crisis, according to NIFD, which was established in 2005 as a national-level think tank backed by the Chinese Academy of Social Sciences. Authorities should also be willing to step in with full financial support if a major default roils markets, rather than taking piecemeal steps, NIFD said.

Chinese stocks entered a bear market this week, with the benchmark Shanghai Composite Index falling more than 20 percent from its January high, while the yuan has slumped more than 3 percent in the past two weeks. The currency dropped to the lowest level since December on Wednesday.

NIFD said China had failed to address the issue of leveraged stock purchases, a major contributor to the market collapse three years ago. Such wagers have reached about 5 trillion yuan ($760 billion), a similar level to 2015, according to the NIFD report.

“We failed to clean up the leveraged funds after the 2015 market rout; they have staged a comeback in a new guise,” NIFD said.

The think tank said China’s State Council should be ready to implement any market support measures in coordination with the central bank and other regulators, key government ministries, and the police.

An official at the NIFD confirmed the report and said it is being used for the institute’s internal discussions.

Source:BLOOMBERG

China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan ($108 billion) of liquidity, as it seeks to control leverage and support smaller companies.The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the People’s Bank of China said on its website. That’s the day before the U.S. and China are scheduled to impose tariffs on each other, and the cut should help companies affected by deteriorating relations between the world’s two largest economies.

Such a reduction had been widely expected, especially after China’s cabinet said on Wednesday that it would use monetary policy tools, including cutting reserve ratios for some banks, to boost credit supply to smaller companies. Sunday’s cut probably won’t be the last. Analysts expect the bank to further ease policy going forward to help cope with a slowing economy and offset the effects of a crackdown on shadow banking.

“While the PBOC reiterated its neutral stance, we think that the move is one step further toward more accommodative monetary policy, which is only fitting given softening growth and mounting trade tensions,” Wei Yao, China economist at Societe Generale SA in Paris, wrote in a note. She expects further cuts in the reserve rate ratios, lower rates on liquidity instrumentsand a lower interest rate corridor in the second half of the year.

Supporting SMEs

The aim is to support small and micro enterprises, and to further promote the debt-to-equity swap program, according to the central bank. The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks.

The PBOC designed the cut to do two different things, according to the statement. The 500 billion yuan unlocked for the nation’s five biggest state-run banks and 12 joint-stock commercial lenders will be channeled to debt-to-equity swaps, which can reduce companies’ debt burdens and help cleaning up banks’ balance sheets. The 200 billion yuan freed for smaller lenders such as the postal bank and city commercial lenders will be used to support funding for smaller businesses.

Targeted, precise change

The move will “help push forward the steady progress of structural deleveraging, and strengthen support to the weak links of small-and-micro businesses. It is a targeted and precise fine-tuning,” the central bank said in a separate statement. “The PBOC will keep implementing prudent and neutral monetary policy, and create a favorable monetary and financial environment for high-quality development and supply-side reform.”

“The RRR cut this time doesn’t change the PBOC’s prudent policy stance. The decision fits the current economic and liquidity situations,” said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. “It is also an innovative move and addresses structural problems, as the central bank ordered the lenders to use the money unleashed to push forward debt-to-equity swaps and support small-and-micro-sized businesses. This can help relieve financial burdens for some companies while reducing leverage.”

The funds unlocked from the reserve ratio cut shouldn’t be used to support so-called zombie companies, the PBOC said.

Risk containment

The central bank’s support of debt-to-equity “may reflect its intent to contain credit risk and prevent a significant impact on domestic business confidence,” Morgan Stanley economists led by China Chief Economist Robin Xing wrote in a note. The next steps could include open market cash injections and further RRR cuts, Xing wrote.

The central bank is adjusting monetary policy at a time when China’s economy is showing signs of slowing amid an ongoing campaign to clean up the financial sector and worsening trade tensions with the U.S. The change will also help ease a funding squeeze for lenders, which have to repay money borrowed from the central bank’s medium-term lending facility, and put aside cash for both the July tax season and upcoming quarterly regulatory checks.One-month interbank borrowing costs, or Shibor, climbed to the highest level since early April last week, as liquidity tightens before the regulatory and tax season.

Beats expectations

“The size of the liquidity being unleashed has beat expectations and it’s larger than the previous two cuts this year”, said Ming Ming, head of fixed-income research at Citic Securities Co. in Beijing. “It’s almost a universal cut as it covers almost all lenders.”

The move will ease liquidity shortages currently seen in the implementation of debt-to-equity programs, and it shows that policy makers still don’t want to send a signal of across-the-board easing, Ming said. “The central bank may have predicted rising debt risks in the near future, so it decided to set up such an arrangement,” he said.

Source:BLOOMBERG