The Shanghai Composite Index(SHCOMP) ended up 0.2% at 2,930.15, the best close since July 31. It extended a 1.3% rally on Monday. Infrastructure, shipbuilding and consumer electronics stocks continued to lead the market higher after promising economic data on Monday showed China's manufacturing sector expanded to a five-month high.
But Hong Kong's Hang Seng(HSI)finished down 0.4%,following slight weakness Monday. Last month, the Hang Seng recorded a 7.4% drop — one of the worst among major global indexes. The index has been weighed down by escalating US-China trade tensions as well as intensifying protests in the city.
The Chinese yuan touched a record low in offshore trading early Tuesday morning — it briefly hit 7.196 yuan per one US dollar, the lowest since it began trading outside of mainland China in 2010. It's now trading a bit higher at 7.184per dollar, which is slightly stronger than Monday.
So far this year, the yuan has lost about 4.6% against the dollar in offshore trading, where the currency trades more freely.
The onshore yuan, meanwhile, was trading at around7.179 per dollar Tuesday. It has also fallen around 4.4% this year.
Here's what is happening elsewhere at about 4:30 p.m. Hong Kong time:
The Reserve Bank of Australia left its cash rate unchanged at 1%. The decision was expected. "The outlook for the global economy remains reasonable," though risks remain, said the central bank's governor, Philip Lowe, in a statement. Australia's S&P/ASX 200 index was down about 0.1%.
Xiaomi, which is the world's fourth largest smartphone manufacturer, jumped4.2%in Hong Kong after it announced a share buyback plan of up to 12 billion Hong Kong dollars ($1.5 billion).
South Korea revised its estimate for GDP growth for the second quarter on Tuesday. Its GDP expanded by 1% in the quarter compared with the first quarter, which is slightly lower than a previous estimate, the Bank of Korea said.
US markets were closed Monday because of the Labor Day holiday.
China has become the most important luxury market in the world. Some analysts attribute up to 40 percent of global luxury sales to Chinese consumers inside and outside of China, with a recent growth rate of 20 percent overall for the luxury sector. If the consumers of one country are responsible for almost half of the world’s luxury sales, companies should listen. But there’s more: No other major country has as many young consumers ad China does, and no other country is more digital. Looking at consumers in Hong Kong, Beijing, Shanghai, or Guangzhou, you can see the future: They are digital natives who want instant gratification and demand the best.
Most Western brands are not prepared
This future will necessitate a shift that most luxury brands aren’t prepared for. Many managers are convinced that older, more experienced consumers are their demanding customers while thinking it’s okay to neglect young consumers because they have no money and low expectations. These stereotypes are wrong on every front, and they offer big opportunities for luxury disruptors. If brands — whether they offer products, services, or both — don’t take young Chinese millennials seriously and don’t “wow” them with their offerings, they will be out of business fast.
Even major luxury brands get it wrong
Some have said that perception is the reality, but perception is an illusion unless it’s backed by data. When trying to optimize traffic in one of their Asian flagship stores, a successful luxury fashion brand offered me about ten reasons why their store wasn’t profitable. But instead of listening to the brand, we scanned any conversation we could find about them and their primary competition on social media, blogs, and elsewhere. This was done with sophisticated A.I. listening engines, and the results were then analyzed — and revealing!
The top managers’ perceptions of the brand were completely wrong. The true issue was an inability to connect with Asian consumers, and their competitors, including some they did not see as important, were hijacking consumers simply by providing more relevant content. Hence, consumers didn’t go to the store because they were going to competing brands instead. In the end, it was not a problem with the store but a branding issue.
The belief that millennials and especially GenZ are a fad because they have no money is a major misconception!
In China, more than 80% of luxury purchases are done by millennials and GenZ, worldwide close to 40%. Those numbers contradict the belief of many that younger consumers have no money. Besides, the world’s most successful luxury fashion brand in the last years, Gucci, is the luxury brand that has the highest affinity with young consumers.
Brands must question everything — even more so if a brand is successful
When a brand is successful, it’s at its most vulnerable because that’s when they get complacent by simply continuing what had made the brand successful. With rapidly changing trends and consumer expectations, doing the same over and over will guarantee failure. Luxury brands need to create unique experiences. Most of them forget this, especially when they are successful. By definition, a unique experience cannot be repeated, hence, the secret of luxury is the art of perpetual surprise. This is why, when brands are audited, everything needs to be challenged to identify gaps and opportunities.
Luxury brands are not focusing enough on brand equity
Recently, the marketing director of a fashion brand’s Chinese management team told me that her impression was that all Western brands do the same things in China. It’s true, many brands will focus on new product launches, campaigns, and fashion shows and events. What they forget to do, alas, is give consumers a reason to buy their specific brand.
Very few brands tell their story right, and even fewer are excellent in providing a “branded experience” along all touchpoints of the customer journey. One inconsistency can end a brand’s relationship with a customer. And in luxury, the stakes for brands are much higher, especially when it comes to younger consumers. If those consumers feel cheated by a negative experience or become bored because they aren’t surprised anymore, they will move on. This is why relying on internal perception is so dangerous.
Customer perception is reality. And this is why excellence in luxury brand equity definition and execution is not optional — it’s a must. And with most luxury brands currently losing money in China, the time to act is now.
Daniel Langeris CEO of the luxury, lifestyle and consumer brand strategy firmÉquité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger
In this Aug. 27, 2019, photo, an employee works on the production line of a smart electricity meter manufacturing plant in Nantong in eastern China's Jiangsu province. Two surveys of Chinese manufacturing show demand is weak amid a mounting tariff war with Washington over trade and technology. (Chinatopix via AP)
BEIJING (AP) — Two surveys of Chinese manufacturing show demand is weak amid a mounting tariff war with Washington over trade and technology.
A monthly purchasing managers' index released by a business magazine, Caixin, rose to 50.4 from July's 49.9 on a 100-point scale on which numbers above 50 show activity increasing.
That indicates "renewed improvement" but said a gauge of new orders fell to its lowest level this year, the magazine said.
A separate survey released Saturday by an industry group, the China Federation of Logistics & Purchasing, showed activity declining to 49.5 from July's 49.7. It said market demand was "relatively weak."
Chinese exporters are struggling in the face of U.S. tariff hikes. Exports to the United States, their biggest market, fell 6.5% in July.
Washington and Beijing stepped up their fight on Sunday by imposing additional tariffs on billions of dollars of each other's goods.
Beijing has propped up economic growth by boosting government spending on construction.
Economic growth sank to 6.2% over a year earlier in the quarter ending in June, its lowest level in at least 26 years.
A loss of faith in Argentina’s reform programme had been visibly demonstrated by a two-week run on the peso in spring last year. President Mauricio Macri had few options left. A long-mooted contingency plan went into action.
“When it came to it, we had discussed it so much, for Macri it was no problem,” says one senior government official recalling the events of last May. “The decision took five minutes . . . back then, Macri was fine and he was very happy with the agreement . . . after all, we had managed to get $50bn.”
Fifteen months later, the giant bailout has become a millstone around Mr Macri’s neck. Voters angry at the continuing recession delivered a stinging rebuke on August 11, handing a big victory to his Peronist rival Alberto Fernández in a primary vote. The contest is regarded as a reliable barometer for the election in October and its result panicked investors because it spelt disaster for Mr Macri’s chances.
Following days of market chaos in the wake of the vote, Mr Macri’s government bowed to the inevitable last week and asked creditors for more time to pay back Argentina’s $101bn of foreign debt, including the IMF money, as Buenos Aires struggled to avoid the country’s ninth sovereign default — and the third this century.
With the record-breaking bailout veering off track, questions are being asked about why the IMF, which has overseen 21 bailouts to Argentina, including one that ended in a historic default, lent so much money to support a programme that is crumbling after little more than a year.
“It’s another black eye for the IMF in Argentina,” says Benjamin Gedan, who leads the Argentina project at the Wilson Center in Washington. “They were caught up in the same euphoria as investors . . . They thought the number two economy in South America was embracing the Washington consensus.”
Having already disbursed $44bn of the bailout to Buenos Aires, the fund now faces a difficult choice: whether to stick with the programme and hand over another $5.4bn later this month to Mr Macri’s government or cut its losses and wait to deal with the next president. The IMF said in a statement issued after officials visited Argentina last week that it was assessing the impact of the proposed debt measures but would “continue to stand with Argentina during these challenging times”.
Its decision on the bailout’s future will be taken without the person who was instrumental in winning approval for the rescue: Christine Lagarde, who has stepped down from the IMF’s top job to lead the European Central Bank.
Ms Lagarde is unapologetic about her leading role in lending to Argentina. “We were the only game in town,” she told the Financial Times in July. “There was nobody else at the time to invest in the recovery process through which the government had decided to engage, and given the size of the challenge, we had to go big.”
The last 70 years of Argentina’s history have been punctuated with regular economic crises and Mr Macri’s inauguration in December 2015 was no different. His Peronist predecessor, Cristina Fernández de Kirchner, had emptied the government coffers, signing decrees to increase spending by an extra $27bn in her final days in power. Inflation was running close to 25 per cent, foreign exchange reserves were dangerously low and generous subsidies for utilities and transport were draining the budget.
The new president seemed well equipped for the challenge. The multimillionaire scion of an Italian immigrant who made his fortune through lucrative government contracts, he projected an image of cool competence, business savvy and sober realism which came as a relief to investors after the chaotic populism of Ms Fernández.
“I really believe that finally we have learnt from our mistakes,” Mr Macri told the Financial Times in September 2016, when asked about his economic programme. “There is no other country in the world with as much upside as Argentina.”
Something Mr Macri was keen to avoid if at all possible was being forced to seek help from the IMF, a perennial bugbear for Argentine leaders.
Buenos Aires’ troubled history with the fund stretches back six decades. Most notorious was the 2001 economic collapse, which ended with what was then the biggest debt default in history, bank runs, widespread civil unrest and the president fleeing by helicopter from the roof of the presidential palace.
Nearly a generation later, the bitterness remains. A poll last year by the Wilson Center found that 56 per cent of Argentines dislike the IMF, the worst ranking of any international organisation surveyed. The centre’s Mr Gedan compares the organisation to Superman’s arch enemy: “In Argentina, the IMF is like Lex Luthor,” he says. “Historically whenever the IMF swoops into Argentina, it leaves brutal budget cuts and economic chaos in its wake.”
So Mr Macri opted for a gradual approach to fixing the economic mess left to him by Ms Fernández, hoping to avoid another cycle of IMF-imposed austerity and political crisis.
“Macri’s political team told him he couldn’t start his term with a big [austerity plan],” says one source close to the administration. “That would be a typical rightwing government, which would end up with him leaving the presidential palace by helicopter when it failed.”
Mr Macri, who was also handicapped by his lack of a majority in congress, avoided big cuts to public spending and hoped that steady growth and restoring access to international borrowing would dig the economy out of its hole.
For a couple of years, the plan seemed to work. But the big deficits needed a constant stream of foreign money to fund them. High interest rates pushed up the value of the peso, meaning more dollars needed to be borrowed to fund the deficit. When a loss of market confidence triggered last year’s run on the peso, Mr Macri had to turn to the IMF.
Claudio Loser, who ran the IMF’s western hemisphere division at the time of Argentina’s 2001 crisis, says the main problem was excessive borrowing. “They were overconfident about their ability to continue borrowing significant amounts while adjusting [the economy] slowly,” he says. “That was the mistake.”
Kenneth Rogoff, a former chief economist at the IMF and now professor of economics at Harvard University, agrees. “Argentina made a lot of mistakes,” he says. “The general principle their programme violated was that when markets overshoot, policy has to overshoot. They didn’t do that — they tried a policy of gradualism.”
Yet despite the early mis-steps, Mr Macri secured a big IMF loan relatively quickly. Helping to smooth the way was his warm personal relationship with Donald Trump, president of the country with the biggest share of the votes on the IMF board.
“I’ve been friends with Mauricio for a long time, many years . . . we knew each other very well,” Mr Trump told reporters when he visited Argentina in 2018. “I actually did business with his family.” Mr Trump was referring to his purchase of a prime New York site for $95m in 1984 from Mr Macri’s father, Franco.
“Macri caught the ear of Trump,” says Hector Torres, a former senior IMF official now at the Centre for International Governance Innovation, a Canadian think-tank. “He got Trump to believe he needed a hand and he started [lobbying] via the [US] Treasury before going to the IMF.”
“Sure we spoke to the Treasury,” says the former senior Argentine official. “The situation was so delicate that it required a rapid response and the fund is so bureaucratic that it can’t act quickly enough.”
The fund’s initial bailout for Argentina, announced in June 2018, pledged $50bn, much more than expected. Christine Lagarde, then IMF managing director, said the money would “bolster market confidence”.
But only two months later, markets had lost confidence in the peso and Argentina went back to the Fund again.
A key flaw in the first deal, say former Macri officials and economists, was the IMF’s insistence that the peso float freely, which led to a fresh bout of selling as markets tested the currency.
“It was the chronicle of a death foretold,” says the former senior Argentina official. “The first agreement with the fund was inflationary and therefore bound to cause a recession. A depreciating currency forces you to raise interest rates and that cools down the economy.”
Following weeks of negotiations Ms Lagarde announced last September that the IMF would stump up an extra $7bn, bringing the Argentina bailout to a record $57bn, and allow the money to be spent faster. She was confident the revised plan would be “instrumental” in restoring market confidence.
This time, the IMF allowed Argentine authorities a limited amount of scope to intervene to defend the peso. But the restrictions on when and by how much it could step inwere too much for the central bank chief Luis Caputo, who resigned.
“The fund got it incredibly wrong, both the first and the second time,” says a second former Macri administration official, referring to the exchange rate decision. “It’s forgivable for the fund — they have to cover their bases and it’s what they do elsewhere — but not for the government. The government rushed and took whatever it was offered. That was a colossal mistake.”
The IMF declined to comment on Argentina beyond its published statements, saying it is reviewing the programme. Officials are understood to believe that the bailout went mostly according to plan apart from the inflation element. Buenos Aires’s inflation targeting failed, sources close to the fund say, because it was not co-ordinated with a wider government strategy to keep prices under control and because the inflationary effects of the devaluation were worse than expected. Mr Macri’s gradual approach to reining in spending was a key problem. Argentina’s statistics agency Indec says annual inflation was 54.3% in July.
Although the modified September bailout calmed markets, it did not revive the economy. As the election approached this year, interest rates of more than 70 per cent were choking businesses, unemployment was rising and inflation remained stubbornly high.
The gloomy economic picture made an easy target for the opposition Peronists as Argentina’s presidential election campaign got under way. They painted the market-friendly Mr Macri as the candidate of a privileged few who had imposed misery on the masses.
Poll predictions prior to the August 11 primary that Mr Macri was running close to his challenger Mr Fernández proved disastrously wrong. In the event, Mr Fernández trounced the president by a 15-point margin. The following day, the Buenos Aires stock market plunged 37 per cent and the peso hit a record low as investors woke up to the likelihood of a Peronist return to power.
The panic further undermined Mr Macri by reviving the instability he had promised to banish. It helped to trigger last week’s debt “reprofiling” announcement by new finance minister Hernán Lacunza under which foreign investors will be asked to agree voluntarily to delays in repayments. Standard & Poor’s labelled the move a “selective default” last Thursday, a classification it withdrew hours later.
“An Argentine sovereign debt default is now more likely than not,” said Capital Economics before the announcement. It predicted that bondholders were likely to lose about half their money in a restructuring.
Mr Fernández, the likely next president, has sent contradictory signals about his intentions towards the bailout, saying he will pay back the IMF loan but also harshly criticising the fund. “Those that have generated this crisis, the government and the IMF, are responsible for putting an end to and reversing the social catastrophe that an ever greater portion of Argentine society is suffering,” he said in a statement.
Daniel Marx, a former finance secretary, saw a political motive in the remarks. “[Fernández] is setting the stage for the next negotiation.”
Investors and business people would like to see Mr Fernández and Mr Macri work together to calm markets, stabilise the economy and minimise uncertainty during the painfully long transition until the next president is inaugurated in December. But there has been little sign that either of the two presidential candidates is prepared to do so.
Ironically, experts agree that if Mr Macri had sought IMF help from the outset, he would have fared better.
“Had Macri gone to the IMF at the start, it would probably have worked,” says Victor Bulmer-Thomas, an associate fellow at Chatham House in London. “The problem is that the history is so awful that governments delay going to the IMF until it’s almost too late. As a result, the fund is faced with an impossible situation. It then prescribes the usual remedies and they don’t work.”
Additional reporting by James Politi in Washington
Hong Kong's Hang Seng Index(HSI) lost 0.8%, while Japan's Nikkei(N225) fell 0.2%.
But China's Shanghai Composite Index(SHCOMP) advanced 0.7% and South Korea's Kospi(KOSPI) ticked up by 0.1%.
The latest round of tariffs that the United States and China imposed on each other went into effect Sunday — a round that came as concerns about slowing global growth are building and fear of recession stalks several major economies. Investors and executives around the world are also waiting to see when the two economic superpowers will come back to the negotiating table.
Newly released economic data also suggested that long-term concerns remain an issue. China's manufacturing industry expanded in August to a five-month high, according to a survey released Monday by the media group Caixin. That was stronger than what analysts expected, though government figures released over the weekend showed a contraction in activity.
The Caixin data suggests that strong infrastructure spending is propping up factory activity in China, according to Julian Evans-Pritchard, senior China economist at Capital Economics. But exports continue to struggle.
The manufacturing indexes are consistent with a slowdown in year-on-year economic growth, he wrote in a research note, adding that the outlook for global demand is still cloudy.
Evans-Pritchard wrote that Chinese authorities will have "little choice" but to ease policy in the coming months to deal with those issues.
Here are the other big moves at 10:30 a.m. Hong Kong time:
Newly releasedfactory activity from Japan pointed to a continued downturn in the country's manufacturing sector. "The sector was plagued by production cutbacks and flagging demand, which have been the trends so far in 2019," said Joe Hayes, an economist at IHS Markit, in a note. "Softer growth across Asia, particularly in China, was reported to have dented export opportunities."
In China, defense stocks pulled higher. A military parade is scheduled October 1 to celebrate the 70th anniversary of the founding of the People's Republic of China.
The yuan weakened slightly in both onshore and offshore trading. The Chinese central bank fixed the yuan at 7.0883 per oneUS dollar on Monday, slightly weaker from Friday's 7.0879.
A worker pushes Amazon.com Inc. packages in front of a FedEx Corp. delivery truck in New York.
Christopher Lee | Bloomberg | Getty Images
The years-long battle between Amazon and retail companies has spilled over into the shipping industry, with FedEx and UPS adjusting their strategies as the tech giant, once simply a customer, is now a major competitor.
The moves come as Amazon is building up its delivery fleet, renting planes and offering $10,000 to its employees to leave the company and start their own local delivery business.
"I think they have stated that they are now a competitor to the transport industry," said Ken Hoexter, a research analyst at Bank of America Merrill Lynch. "And FedEx has clearly viewed them now in their recent moves as an increasing competitor."
Just as some retail companies are uneasy about working with Amazon, which can be both a partner and a competitor, transportation companies are facing a similar dilemma. And with their customers facing off against Amazon in other industries, shipping companies may need to take sides.
Dan Neiweem, co-founder and principal of digital services and solutions provider Avionos, said that by ditching Amazon, FedEx may make itself more attractive to Amazon's competitors in the retail space.
He compared it to reports that WalMart is pressuring some of its partners to use Microsoft's Azure for cloud computing instead of Amazon Web Services. WalMart said "there are a small number of cases involving our most sensitive sales data that we'd prefer not sit on a competitor's platform" but its vendors can choose the cloud service they prefer.
"I think that what you'll see is that a lot of the shipments that Amazon was going into the USPS and FedEx with are now going to be transitioned from other retailers who are saying 'hey I don't anybody in my space who works with Amazon,'" Neiweem said. "And you see that parallel very, very tightly with AWS and Azure."
FedEx never relied on Amazon for a huge portion of its business. In a June statement announcing that Amazon would no longer be served by FedEx Express, the shipping company said Amazon accounted for 1.3% of its total revenues in 2018, or roughly $900 million.
From that perspective, FedEx's decision to cut ties with Amazon makes sense, Hoexter said.
"When you go to their sort centers, you can see that Walmart and Jet are a major customer of FedEx's, so certainly that relationship is as important if not more important than Amazon," Hoexter said.
"So if you have to choose one, if UPS is larger with Amazon and you're larger with Walmart, you're going to kind of work closer with that candidate."
Growing demand
Throughout its rise, Amazon has relied on UPS for a large portion of its shipping needs. UPS is still more exposed to Amazon than FedEx was. David Ross, transportation research analyst at Stifel, said he estimates that UPS gets between 7% and 9% of its total revenue from Amazon.
"If you go back 10, 15 years UPS was the chosen parcel carrier by Amazon, and when they started their prime two-day offering it was a lot of UPS," Ross said.
Online shopping has continued to grow since then. According to the U.S. Census Bureau, e-commerce has grown from roughly 4% of total retails sales in 2010 to more than 10% earlier this year. FedEx said it expects e-commerce to grow to 100 million packages per day in the U.S. by 2026.
As e-commerce has boomed, Amazon has struck out more on its own and built a sizable delivery network. The tech giant may not be delivering many third-party packages right now, but Neiweem said that's "sort of the last stand or threshold that they haven't crossed yet."
UPS and FedEx are also investing in their businesses, with both companies expanding delivery to 7 days per week.
FedEx, which said it has "a strong relationship with retailers of all sizes," has started offering retailers extended hours for package pickup, partners with stores such as Dollar General to create customer pick up areas and is experimenting with a delivery robot.
The growing demand for fast shipping has weighed on the financial results for large shipping companies. More home deliveries means shipping companies make less per stop than if they delivered a lot of packages to one spot, like a convenience store.
Hoexter said that domestic margins at UPS have been under pressure for the past several years, and that is where analysts will look to see if its new investments and increased leverage with Amazon are working.
"As we get into peak season, have they found a way to stabilize those margins despite the growth of e-commerce? That's going to be the key for the stock. When you ask what do we look for its the margin side and pricing if we start to see that improving or stabilizing. That's the first step," Hoexter said.
With FedEx now out of the picture, UPS may also be able to gain some short-term leverage on pricing, Hoexter said. That opportunity may not last for long, as Amazon continues to expand its own delivery network and expects to have 70 planes in its fleet by 2021.
For FedEx, the separation means the company can show that its e-commerce success is not tied to Amazon.
"FedEx is just showing people that they don't need Amazon to be a good business, and they feel that they can continue to grow without Amazon. I think they wanted to just distance themselves from Amazon in a way that made their own growth story a little more clear to people," Ross said.
