September 30, 2019 BARRON’S 3
Phantom Fears Hit Stocks
B
ULL MARKETS CLIMB A WALL OF WORRY, ACCORDING
totheoldmarketsaying.Plentyofbricksarebeing
added to that wall for investors to scale. But the
worry might not be justified.
StocksslidonFridayfollowingaBloombergreportthat
the Trump administration is mulling curbs on U.S. invest-
mentsinChina,includinglimitingpensionfunds’holdingsof
Chinese stocks and delisting those shares from U.S.
exchanges.ThiswouldescalatetheU.S.-China
trade war by adding capital flows to the con-
flict,whichalreadyinvolvestariffsonbillionsof
goods transactions.
In actuality, this proposal has been around
awhile,accordingtoLelandMiller,whoheads
China Beige Book International. And looking
beyond the sensational headlines and the ex-
tremecommentsintheTwittersphere,thereis
good justification for it.
What’sactuallybeingdiscussedwouldplug
aloopholeexemptingChinesecompaniesfromthesamedis-
closure requirements that other foreign and U.S. concerns
face.TheseexemptionsweregrantedbytheSecuritiesand
Exchange Commission during the Obama administration,
Millerexplains.LegislationsponsoredbySen.MarcoRubio
(R.,Fla.)alsowouldpreventU.S.pensionfundsfrominvest-
ing in opaque Chinese companies, rather than letting them
pour money “into a black hole,” Miller adds.
The proposed measure is “something that should have
been done on day one,” he says. It shows the levers that
Washingtoncanpullintradenegotiations,buttheideathat
thegovernmentwantstocutoffChinafromU.S.capitalmar-
ketsdoesn’taddup.Chineseauthoritiescanreadilyprovide
funding to their companies internally, Miller points out.
Moreover,Chinahasnetforeignassetsof$1.3trillion,ob-
servesDavidP.Goldman,anAsiaTimescolumnistandformer
headofbondresearchatseveraltopWallStreetbanks.That
shows China is not in need of foreign capital.
Still,U.S.-tradedChinesestockstookahitonFriday.The
iSharesMSCIChina exchange-tradedfund(ticker:MCHI)
fell 2.2%, while Alibaba Group Holding (BABA) plunged
5.2%.Eventhe XtrackersHarvestCSI300ChinaA-Shares
ETF (ASHR), which tracks China-based shares traded in
Shanghai and Shenzhen, fell 1.3%. Goldman sees a buying
opportunity.
Thenthere’stheworrythatthebelly-flopsofsomehigh-
profileinitialpublicofferingsportendsbadthingsforstocks.
Actually, PelotonInteractive ’s(PTON)IPOprovidesanapt
metaphor for the overall market: lots of furious spinning,
going nowhere. The S&P 500 index isn’t far from where it
stood a year ago or at the end of January 2018. And it has
been left in the dust by bonds, with the iShares 20+ Year
Treasury ETF (TLT) up 21.39% over the past 12 months,
versus1.64%fortheS&P500.Iftheequitymarketisshow-
ingrationalreluctancetoprovideprofitableexitsforprivate
investorsinprofitlessunicorns,that’sallgood.
An arcane corner of the money market,
repurchaseagreements,alsohasgottenoutsize
attention. There has been a lot more demand
forcredit,owingtoseasonalfactorssuchastax
payments, a rise in Treasury borrowing, and
the coming quarter end, combined with less
liquiditybecauseoftheshrinkageoftheFed’s
balancesheet.Thecentralbankhasresponded
byprovidingrepostothemarketandwillprob-
ablyincreaseitsassetstomatchtheexpansion
ofitsliabilities,mainlycurrencyandbankreserves.Inother
words, it’s about double-entry accounting, not a crisis.
And then there’s politics. While cable news has been all
impeachment, all the time, it matters less to either Main
StreetorWallStreet.JustasWatergatedidn’tbotherLynyrd
Skynyrd,thestartofHouseimpeachmentinquiriesislikely
tohavescantimpactonconsumersentiment,whichhasbeen
plateauing, along with stocks, for the past 12 months.
Far more important are the bottom-line matters of jobs
andincomes.Ontheplusside,theunemploymentratestood
near a half-century low of 3.7% in August, with more job
openings than available workers, according to various sur-
veys.Butemploymentgrowthandhoursworkedhaveslowed,
suggesting waning growth in demand for labor.
BankofAmericaMerrillLyncheconomistsestimatethat
payrollgrowthofabout128,000amonthwouldkeepthejobs
marketinequilibrium.That’shigherthansomeFederalRe-
serveeconomists’estimatesintherangeof50,000-100,000per
month.Merrill’sanalysissuggeststhatjobgrowthisslowing
toabreak-evenpointwherelabordemandjustmeetssupply.
Tariffs could slow hiring further. That would begin to raise
thejoblessrateandputadamperonspending,theyconclude.
SeptemberemploymentdatadueoutonFridaycouldin-
dicatewhetherthat’sbeginning.Economistsprojectapay-
rollriseof150,000,upfromAugust’s130,000butbelowthe
173,000 average of the past 12 months, and bolstered by
Censushiring.Theworkweek(34.4hours,atlastcount)and
Bullmarketsclimb
awallofworry.But
someofinvestors’
currentworriesmight
notbejustified.
Up & Down Wall Street
By Randall W. Forsyth