Market Moves: Chip Exports, China Property Stocks, Oil Demand Rising

 


  1. Japan's Unease Over Aligned U.S. Chip Curbs on China


Japan's export controls on chip-making tools, following the U.S. policy to restrict China's advanced semiconductor production, worry officials in Tokyo. The broad equipment controls, not aimed specifically at China, cause discomfort. While both Japan and the U.S. share concerns about China's tech push, differences in their chip equipment controls may test their unity against Chinese coercion. Japan aims for coordination but is cautious about potential retaliation, like a ban on Japanese electric cars, if China feels targeted. The U.S. plans to update its rules to align with Japan's tool list, but discussions on consistent blocking cause delays. Adding chip tools to the Wassenaar Arrangement faces challenges due to potential lack of unanimous backing from its members.


  1. Chinese Property Stocks Plunge Amid Debt Concerns


Chinese property stocks experienced a significant tumble on Monday, led by Country Garden's shares hitting an eight-month low due to renewed fears over the debt situation in the Chinese real estate sector. JP Morgan downgraded Country Garden and its property services arm, Country Garden Services, to underweight and drastically reduced their target prices, citing lingering liquidity concerns without increased policy support from the Chinese government. The Hang Seng Mainland Property Index, representing Hong Kong-listed Chinese property counters, also fell over 5% as a result. Last week's weak property-related data and property giant Evergrande's overdue earnings report, revealing the extent of its default, further exacerbated losses in the sector. China's real estate sector has struggled since the government's 2020 crackdown on debt levels, with oversupply issues and economic concerns. Goldman Sachs economists predict a prolonged "L-shaped recovery" characterized by steep declines followed by slow progress. The property sector's challenges could have ramifications in the broader region, making it a point of concern for global investors.


  1. Rising Oil Demand from China and India to Cause Supply Challenges, Says IEF Secretary General


According to Joseph McMonigle, the Secretary General of the International Energy Forum, oil prices are expected to increase in the second half of the year due to the struggle of supply to meet surging demand. While oil demand quickly rebounded to pre-Covid levels, supply is facing challenges in catching up. The main contributors to rising demand are China, the world's largest crude oil importer, and India. McMonigle predicts that India and China combined will account for an additional 2 million barrels per day of demand in the latter half of the year. As a result, he foresees potential price increases, with prices already hovering around $80 per barrel. The market's response will depend on how well inventory decreases, signaling a definite pickup in demand. However, McMonigle remains confident that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will respond to supply-demand imbalances and take appropriate action to increase supply if needed. In addition to discussing the oil market, McMonigle touched upon the liquefied natural gas (LNG) market, emphasizing the need for continued investment in renewable energy to ensure energy security. He highlighted the importance of the ongoing energy transition and the need to keep public support to achieve the necessary changes and address climate policies effectively.

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