After the closing session of the National People’s Congress, Chinese second-in-command Li Keqiang addressed various measures that the Chinese government has taken to spur economic growth, and suggested more to come in the future.
Source: Xinhua
Li noted cuts to value-added taxes (slated to take effect on April 1), cuts to social security taxes, cuts to banks’ reserve ratio requirements (some have occurred already, more are possible), and efforts to lower funding costs for small-sized and micro businesses. For now, benchmark rate cuts seem to be off the table, since the government views them as a potential source of destabilizing debt accumulation and speculative activity.
Investment implications: China’s easing stance is ongoing. Our view remains that the Chinese economy’s deceleration will bottom, and growth will accelerate into the year’s end. As noted above, although we would wait for a correction before entering the A share market after the move it has experienced since January, we are still bullish on domestic Chinese shares, and would “buy the dips†until the fundamental thesis changes.
Singapore Authorities Getting Tougher on Auditors
U.S. and European citizens often do not appreciate the depth of the legal and regulatory culture that surrounds them. One of the key elements of the robust financial markets of the United States, Europe, and Japan is the relative stringency of accounting laws and standards, and the relative reliability of accounting firms. While scandals can be dramatic, they are rare.
The same is not the case everywhere. In many parts of the world, especially the developing world, and especially in Asia, accounting standards and laws are lax, and as a consequence, the reports that accounting firms produce are not reliable records of a firm’s financial health. This is frequently not the fault of the firms themselves; in many cases, they simply do not have the local government behind them in their task of determining and presenting accurate financial information on their clients. (Of course, there are also firms whose work proves to be fraudulent or corrupt — although these are usually not the major global accounting firms.)
This is one reason why stocks outside the developed world sell at a discount to their developed-world peers. There is a greater risk that the financial results used by analysts and investors are falsified, and that when the truth is eventually uncovered, it will result in a company’s downfall. This is an additional layer of risk evaluation and analysis that emerging-market investors must perform.
Recently, we noted that Singapore is tightening its stance towards auditors in the wake of the high-profile collapse last year of commodity trading firm Noble Group. The Singapore Exchange is moving to strengthen its oversight of selected significant companies’ audits, so far speaking to about 15 Singapore-based companies; requiring that audits either be performed by a Singapore-based auditor, or that such an auditor sign off on the report; and preparing to tighten the law which permits the accounting authority to punish auditors for lapses in quality control.
This is a small change, and it is Singapore, not China, where some of the most troublesome accounting practices occur. Still, Singapore’s move shows that something is afoot. As countries such as China court investors from outside the country, they will increasingly need to examine accounting standards and begin to close the gap with higher standards in the developed world.
