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The return of Chinese travel would reshape the country’s global image

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In the pre-Covid period, the total value of Chinese travel around the world was about the size of Portugal’s GDP, or just over a quarter of a trillion dollars. The number of Chinese who took trips outside the mainland in 2019 — about 155 million people — is slightly more than the population in Russia. In the same year, Chinese spending abroad on luxury goods was greater than the current $90 billion market capitalization of General Electric.

The resurrected form of this collective behemoth, whether it comes back gargantuan or falters, will be economically important either way. But even more powerful is its ability to reset certain views of China that were formed during the absence of its mobile incarnations.

Since it became clear in December that China would abandon its restrictive epidemic policies more quickly than previously expected, markets have naturally been grappling with the implications. Besides many domestic bases evaporating – to surprising and immediate effect – the removal of requirements for PCR testing and quarantine upon arrival in China removes a major hurdle for Chinese planning any travel abroad.

In addition to the expected rise in business travel (and with it greater potential for investment and dealmaking), the clearest effect of China’s resumption of large-scale overseas travel is likely to be the release of pent-up demand for tourism before the broad middle class was forced against its instincts to play hermit.

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This group, whose spending on travel abroad once accounted for 17 percent of global tourism expenditures, hasn’t taken an overseas vacation in three years, and has a growing list of things they want to spend their money on. In addition to Hong Kong and Macau, Japan, South Korea and Thailand emerge as the preferred first ports of call. Pharmacies in Tokyo, long a target for Chinese shopping frenzy, are sold out among a selection of cold medicine brands after a modest resumption of mainland arrivals since last month.

Stockbrokers tout a long list of names — from amusement parks and railways to supermarkets and makers of eye drops — that could benefit from a revival of past spending patterns in China. Research by the World Tourism Organization showed that 57 per cent of pre-Covid Chinese tourist spending went to shopping and eating — the exact formula by which cities like Tokyo appeal.

There are major caveats about the prospects for an immediate tourism boom. China is reeling from a deadly wave of Covid, flights (including fuel surcharges) are expensive, and the Chinese economy isn’t wrapping the middle class in feel-good dynamics like it once did. Added to this are the decisions of some countries – most notably the United Kingdom, Italy, the United States and Japan – to reimpose testing requirements on Chinese visitors who have been abandoned for other arrivals.

But analysts at Citigroup are among those who now assume a strong rebound in Chinese upscale tourism in the first quarter of 2023, and by mass market travelers in the second quarter.

Citi’s Xiangrong Yu notes that the real rush may come around the five-day Labor Day holiday in May. All of this could put more pressure on China’s current account, if outbound tourism spending returns to pre-pandemic levels. “Besides sightseeing and shopping, pent-up demand for business travel abroad, overseas investment and hidden capital outflows can also be unleashed,” he said.

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But beyond the direct financial impact, the return of Chinese travelers could have a tangible impact on business and contribute to a subtle geopolitical impulse: re-pluralizing the outside world’s view of China.

In the case of China’s self-isolation of the past three years, China’s external image has progressed more quickly to becoming a bogeyman than it might otherwise have: in Washington, in particular. Many will argue—citing, among other signs, the intensified military threat to Taiwan, Xi Jinping’s earlier claim to permanent rule and his apparent closeness to Vladimir Putin on the future of geopolitics—that this picture is fully justified. Perhaps it is no coincidence that the narrative of a decoupling of China and the West makes a lot more sense now than it did in 2019 when Chinese business leaders, mid-level executives and shopaholic middle classes prowled the planet in their tens of millions.

This phase of absence has, in a sense, allowed for the formation of a view of China that has suppressed the voices of global business—whether those operating in China and relying on its growth, those partnering with Chinese companies around the world, or those operating directly. Exposed to Chinese spending while on the go. Resuming overseas travel by Chinese is not a panacea for the onset of deglobalization and deglobalization, but it could energize the voices of those who wish to slow it down.

leo.lewis@ft.com

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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