Economic Acumen. Heightened economic risks to weight on global equity markets. In Brief. January 3, Commentary by CEBI Research Team

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1 January, 9 Economic Acumen Commentary by CEBI Research Team In Brief Entering 9, global equity markets drift lower and demonstrate surging volatilities as unresolved US-China trade disputes, shutdown of the U.S government, uncertainty of no deal Brexit, mounted geo-political risks and sharp drop of oil prices keep the bulls out of the market and weight on the market sentiment. Volatilities of global equity markets continue to skew to the high side and a clouding global growth outlook, reflected by recent weaker-thanexpected global economic indicators, comes with heightened economic and political risks. Shadowed by geo-political risks across Middle East, Eurozone, the U.K and Korean Peninsula, the world economy is on the brink of further slowdown. In sum, the amplifying downside risks have added anxiety and confusion to the market that threatens financial stability. Investors turn to be more cautious about market outlook and volatile swings in the index are expected in 9. Banny Lam Head of Research Banny.lam@cebi.com.hk (8)9-9 Mengzhuo Liu Analyst Mengzhuo.liu@cebi.com.hk (8)9-9 Heightened economic risks to weight on global equity markets Entering 9, global equity markets drift lower and demonstrate surging volatilities as unresolved US-China trade disputes, shutdown of the U.S government, uncertainty of no deal Brexit, mounted geo-political risks and sharp drop of oil prices keep the bulls out of the market and weight on the market sentiment. Volatilities of global equity markets continue to skew to the high side and a clouding global growth outlook, reflected by recent weakerthan-expected global economic indicators, comes with heightened economic and political risks. Shadowed by geo-political risks across Middle East, Eurozone, the U.K and Korean Peninsula, the world economy is on the brink of further slowdown. In sum, the amplifying downside risks have added anxiety and confusion to the market that threatens financial stability. Investors turn to be more cautious about market outlook and volatile swings in the index are expected in 9. U.S. financial markets continue to face volatile trading in 9. With continuation of gradual rate hike cycle and signs of slowdown in economic activities, U.S. financial markets fluctuated violently in H8. Dow Jones Industrial Average (DJIA) index dropped 9.7% in December, demonstrating a heightened volatility in trading. U.S. Treasury yield curve is inverted as yield on short-term bonds is higher than those of long-term bonds since December, while the spread between - year and - year bonds is marginally flattened and hitting record low since the financial crisis in 8. Market sentiment continues to worsen with partial federal government shutdown triggered by no signs of progress on the spending deal between the Congress and President Donald Trump. In sum, surrounded by intensified domestic political strife, the withdrawal of U.S. troops from Syria, Sino-US trade friction, US-Russia conflict and trade disputes with Japan and Europe, the U.S. economy faces mounting economic and political risks, thus undermining growth momentum and further enhancing volatilities in financial markets.

2 Economic uncertainties surrounded by growth stagnation and Brexit become major threats to financial stability in Eurozone. With tightening of monetary policy, growth deceleration of external trade, Brexit and global growth slowdown, Eurozone faces surging economic and political risks in 9, which will weight on growth momentum driven by weakening corporate investments and consumer spending. The biggest uncertainty lies in January when British Parliament will vote on Brexit deal. As UK s deadline for leaving the EU approaches on March 9, the probability of "no deal Brexit" rises sharply, which glooms the financial markets. In any occasions, a no deal Brexit would have an irreversible impact on both the UK and Eurozone economy. In sum, downside risks on both economic and political front resulted in double-digit growth correction of stock markets in 8 and it is likely that Eurozone s financial markets continue to face downward pressures in 9. Entering 9, China pledge multi-pronged efforts to boost economic momentum. Amid stock market falling by %, renminbi depreciating by more than % and growth deceleration of consumption and external trade in 8, China s economy demonstrates rebalancing with which economic activities will face easing growth in 9. In recent months, China s stock markets have witnessed volatilities and declines, driven by pessimistic investor expectations and sentiment regarding the economic outlook of China. With a new round of trade talks between China and the U.S. commencing in January, the possibility of not making any agreement continues to drag the market sentiment and weaken the performance of stock market. In order to defuse uncertainty of the external environment and stabilize investor confidence, the Central Economic Work Conference (CEWC) held on 9- December made it clear that "stable" is the key word in China s economic schedule in 9. Looking ahead, China s policymakers will pledge increasingly efforts to promote the implementation of an active fiscal policy, in which the level and intensity of tax reduction and fee reduction will exceed those of the past, and the prudent stance of monetary policy will emphasize on ensuring ample liquidity to support the real economy. In sum, China s stock market is entering into a period of adjustment as the economy steps in the stage of high quality development with deepening economic reforms.

3 Fig. : DJIA (MoM %) Fig. : S&P Index (MoM %) * nd January 9 * nd January 9 Fig. : NASDAQ (MoM %) Fig. : Hang Seng Index (MoM %) - * nd January 9 * rd January 9 Fig. : HSCEI Index (MoM %) Fig. : NIKKEI (MoM %) * rd January * 8 th December 8

4 Fig. 7: FTSE (MoM %) Fig. 8: DAX Index (MoM %) * nd January 9 Fig. 9: CAC Index (MoM %) * nd January 9 Fig. : VIX Index * nd January 9 Fig. : US dollar index * rd January 9 Fig. : WTI Crude Oil Futures (per barrel) * rd January 9 * rd January 9

5 China Economic Indicators 7 Q8 Q8 Q8 Real GDP (YoY%) PMI Manufacturing (%) PMI Non-Manufacturing (%) Exports (RMB YoY %).9 (.8) (.9) Imports (RMB YoY %) (.) (.) Trade Balance (RMB/bn) Exports (USD YoY %). (.9) (7.7) Imports (USD YoY %). (.) (.) Trade Balance (USD/bn) CPI (YoY %) PPI (YoY %) (.9) (.) (.)..7.. FAI (YTD/ YOY %) Real Estate Investment (YTD YoY %) Industrial Production (YoY %) Retail Sales (YoY%) New Lending (RMB/bn) M (YoY %) Aggregate Financing (RMB bn) Nov 7 Dec 7 Jan 7 Feb 8 Mar 8 Apr 8 May 8 Jun 8 July8 Aug 8 Sept 8 Oct 8 Nov 8 Real GDP (YoY%) PMI Manufacturing % PMI- Nonmanufacturing% Exports (RMB YoY %) (.) Imports (RMB YoY %) Trade Balance (RMB/bn)...8. (.) Export (USD YoY %)..9.. (.) Import (USD YoY %) Trade Balance (USD/bn) CPI (YoY %) PPI (YoY %) FAI (YTD/ YOY %) Real Estate Investment (YTD/ YoY %) Industrial Production (YoY %) Retail Sales (YoY%) New Lending (RMB/bn) M (YoY %) Aggregate Financing (RMB bn) Urban Unemployment Rate (%) Urban Unemployment Rate in major cities (%)

6 World Economic/Financial Indicators Global Indices Money market Index Closing P/E One Week Yield (%) One Week Price U.S. US Fed Fund Rate.. DJIA,.. 7. US Prime Rate.. S&P, US Discount Window.. NASDAQ, ECB Rate (Refinancing).. EUR BOJ Policy Rate -.. FTSE, US Treasury ( Mth).8. DAX, US Treasury ( Yr).. CACS, US Treasury ( Yr).7 -. STOXX EUR US Treasury ( Yr). -. Asia US Treasury ( Yr).9 -. HSI, Month LIBOR.. HSCEI 9, Month LIBOR.8 -. CSI, Japan -Yr Gov. Bond -.. SSE Composite, Japan -Yr Gov. Bond. -. SZSE Composite, German -Yr Gov. Bond -.9. NIKKEI, German -Yr Gov. Bond.7 -. KOSPI, China Benchmark Interest.. TWSE 9, China -Yr Gov. Bond.9. S&P/ASX,... China -Yr Gov. Bond. -. MSCI Index China -Yr Gov. Bond.8 -. MSCI WORLD, O/N SHIBOR MSCI DEVELOPED..9. -mth SHIBOR.8 -. MSCI EMERGING HK Base rate.7. MSCI US, O/N HIBOR. -. MSCI UK, mth HIBOR.8 -. MSCI France O/N CNH HIBOR. -.8 MSCI Germany mth CNH HIBOR. -. MSCI China Corporate Bonds (Moody s) MSCI Hong Kong, Aaa.99. MSCI Japan Baa.. * As of //9 closing for Asian markets, previous date for other markets. Global Commodities Currency market Unit Price One Week One Week Spot Rate Energy US Dollar Index 9.. NYMEX WTI USD/bbl Euro/USD. -.9 ICE Brent Oil USD/bbl.. GBP/USD. -.8 NYMEX NatGas USD/MMBtu.9-8. AUD/USD.7 -. Basic Metals USD/CAD..9 LME Alum.Cash USD/MT,8. -. USD/JPY CMX Cop.Active USD/lb USD/CHF LME Steel Rebar USD/MT USD/CNY Midpoint.8 -. LME Lead Cash USD/MT, USD/CNY Precious Metals USD/CNY NDF CMX Gold USD/KRW, mth Spot pr..9.8 Gold Futures USD/KRW,9.. USD/CNH.88. CMX Silverbn USD/KRW.. USD/HKD 7.8. NYMEX Platinum USD/T. oz CNY/HKD. -. Agri, Products CNH/HKD. -.9 CBOT Corn USD/bu 7..7 USD/KRW,7.8. CBOT Wheat USD/bu USD/TWD.87. NYB-ICE Sugar USD/lb..87. USD/SGD.7 -. CBOT Soybeans USD/bu. 9.. USD/INR All data sources: Bloomberg, CEBI

7 Disclosures Analyst Certification We, LAM Chiu Kei, Banny (CE Number: AGH7) and LIU Mengzhuo (CE Number: BNY8) being the persons primarily responsible for the content of this research report, in whole or in part, hereby certify that all of the views expressed in this report accurately reflect our personal view about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. We and/or our associates have no financial interests in relation to any listed company(ies) covered in this report, and we and/or our associates do not serve as officer(s) of any listed company(ies) covered in this report. Disclaimer This report is for our clients only and is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expresses or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. This report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. CEB International Capital Corporation Limited is under no obligation to update or keep current the information contained herein. CEB International Capital Corporation Limited relies on information barriers to control the flow of information contained in one or more areas within CEB International Capital Corporation Limited, into other areas, units, groups or affiliates of CEB International Capital Corporation Limited. The compensation of the analyst who prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of CEB International Capital Corporation Limited as a whole, of which investment banking, sales and trading are a part. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither CEB International Capital Corporation Limited nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. Additional information will be made available upon request. Copyright 9 CEB International Capital Corporation Limited No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of CEB International Capital Corporation Limited. Office address: CEB International Capital Corporation Limited, /F AIA Central, Connaught Road Central, Hong Kong. Tel: (8) 9 9 7