Finance

China is no longer just any emerging market

Published

2 years ago

October 15, 2022

China is no longer just another emerging market play. Now, the country is becoming its own beast — with all the risks and rewards that come with being a world power.

There’s greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China’s reduced dependency on foreign investment and intellectual property.

That’s all on top of Beijing’s crackdown on the internet tech sector and real estate developers in the last two years.

Foreign investors are reacting. The share of Chinese stocks in the benchmark MSCI emerging markets index fell from a peak of 43.2% in October 2020 to 32% in July 2022, Morgan Stanley analysts pointed out.

In the meantime, exchange-traded funds tracking emerging markets — but not China — saw assets under management surge from $247 million at the end of 2020 to $2.85 billion as of July 2022, the report said.

WisdomTree last month became the latest firm to launch an emerging markets ex-China fund, following Goldman Sachs earlier in the year.

This mood has shifted from China being one of the most attractive places to invest in the world … to the fact that the rivalry [with the U.S.] has introduced an uncertainty element and quite a substantial risk element

Ketan Patel

CO-FOUNDER AND CEO OF GREATER PACIFIC CAPITAL

“We definitely hear clients [saying], maybe given the current political environment, maybe dial[ing] down China could be a better strategy,” said Liqian Ren, leader of quantitative investment at WisdomTree.

So far, she said, the number of clients excluding China isn’t “overwhelming,” and by metrics such as per capita GDP the country remains an emerging market.

The category includes Brazil and South Korea and refers to economies with generally faster growth than developed economies such as the U.S. — and more risk.

Rivalry with the U.S.

But what Ren and others say is different for China now is that the U.S. has named it a strategic competitor. Most recently, the Biden administration further restricted China’s ability to use U.S. tech for developing advanced semiconductors.

“This mood has shifted from China being one of the most attractive places to invest in the world and how much certainty there was perceived to be in policy, to the fact that the rivalry [with the U.S.] has introduced an uncertainty element and quite a substantial risk element,” Ketan Patel, co-founder and CEO of Greater Pacific Capital, said last month.

People aren’t going to ignore China, “but the level of excitement has changed,” said Patel, former head of Goldman Sachs’ Strategic Group.

And rather than seeing China as a developing country — which it is especially in rural areas — foreign investors would see it more “as a great power opportunity,” Patel said. He also chairs the Force for Good initiative, which promotes investment as a way to achieve sustainable development worldwide.

Beijing is also presenting itself as a great power.

Chinese President Xi Jinping has pushed the country not only to be self-sufficient in tech and energy, but lead other nations with alternative — if not competing — systems for finance, navigation and international relations. Those include a Global Development Initiative and Global Security Initiative.

Within China, the government under Xi has increased its role in the economy.

The share of state-owned enterprises in the top 10 Chinese companies rose by 3.6 percentage points between 2020 and 2021, despite an overall decline of 10 percentage points over the last decade, Rhodium Group said. In all, the report said those state businesses account for more than 40% of the top 10 — well above the open-economy average of 2%.

“We also cannot accurately measure informal barriers to market competition—for example, informal discrimination against foreign and private companies, industrial policies, or the presence of Communist Party committees,” the report said.

New party office rules

The growing role of the Chinese Communist Party under Xi is now a greater concern for finance — an industry in which China has recently allowed more foreign ownership.

Chinese law has long required internal party committees — for companies with at least three party members. However, enforcement began to pick up only after 2012, according to the Center for Strategic and International Studies.

An internal party committee, or office, gathers together a company’s employees who are members of the Communist Party of China. They may then hold events such as studying “Xi thought.”

New rules from the China Securities Regulatory Commission that took effect in June say securities investment funds in China need to set up an internal party office.

When asked about the new rules, the securities regulator said they are in line with corporate governance principles and Chinese law, and there’s “no need to worry at all” about data security, according to a CNBC translation of the Chinese.

It’s unclear what role such party offices play in business operations, said Daniel Celeghin earlier this year, when he was managing partner at consulting firm Indefi.

But before the pandemic, he said, at least one large Western asset manager decided not to set up a subsidiary in China because once they learned establishing a party cell would be required, “that overcame all of the potential commercial gains.”

China’s appeal

Funds such as a few from WisdomTree offer ways to invest in emerging markets without putting investors’ money into state-owned enterprises.

In China, the market capitalization of non-state-owned companies has grown to about 47%, up from 35% a decade ago, according to Louis Luo, investment director of multi-asset at Abrdn.

The upcoming Chinese Communist Party congress will be more of a “confirmation of what’s been in place,” Luo said, adding that he expects a return of some policies that are more market-friendly. Sectors he’s betting on for the long term include consumption, green tech and wealth management.

Even with slower growth, China’s future attractiveness may lie in just offering an alternative to investing in other countries.

Global markets have been roiled this year by the U.S. Federal Reserve and other central banks’ attempts to curb inflation by aggressively hiking interest rates. But the People’s Bank of China has been going in the opposite direction.

A fundamental difference between emerging markets and developed ones is how independently they can make their monetary policy from the United States, Luo said. “From that point of view, I think China stands up.”

Crypto

Bitcoin’s Recovery – the Downturn Is Over

Published

5 months ago

July 16, 2024

The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.

Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.

In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.

“No Man’s Land”

Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.

Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.

While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.

Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.

First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.

“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.

A News-Driven Environment

Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.

Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.

Reports /Trainviral/

Crypto

Bitcoin ETFs Saw $300M in Daily Net Inflows

Published

5 months ago

July 16, 2024

BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.

The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.

None of the ETFs recorded outflows for the day.

Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan

According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.

Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.

A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.

What’s Next For Bitcoin?

Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.

But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.

Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.

“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”

Reports /Trainviral/

Crypto

LI.FI DeFi Platform Exploited, Over $8M Lost

Published

5 months ago

July 16, 2024

PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.

The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.

Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.

LI.FI Issues Warning After $8 Million Exploit

LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.

According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.

Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.

Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.

“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.

This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.

But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.

Recent Exploit Mirrors March 2022 Attack

Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.

The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.

“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.

Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.

LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.

Reports /Trainviral/