“May you live in interesting times” is a Chinese curse.
And the times are about to get more interesting, thanks to a couple of development in different parts of the world, but especially China.
First, mark the date September 18 on your calendar in big red letters. There are two events scheduled for that date that potentially could have a substantial impact on the world’s equity markets.
The first is the referendum on independence for Scotland. A week ago everybody assumed voters would say No in overwhelming numbers and the issue of Scottish devolution from Great Britain would just quietly fade away.
But the most recent polls show the Yes side is leading with about 50% support. That has been enough to put the British government into full-on panic mode. There are warnings of dire consequences if Scotland leaves – not the least of which would be a change in ownership from Britain to Scotland of about 90% the North Sea oil resources.
The outcome of the vote is still up in the air. But regardless of the results, the market will react strongly. We just don’t know in which direction.
The second event scheduled for September 18 is the U.S. initial public offering for Alibaba, the mammoth Chinese company that combines elements of Google, Amazon and E-bay for one quarter of the world’s population.
The company will be valued at a staggering $167 billion, but the stock offering will be worth only about $21 billion, which will still make it the largest offering in U.S. history.
At this stage nobody is really certain it will take place, or when, but the first steps in that process will be taken today (Monday Sept. 8) in New York, and they involve almost every heavyweight in the financial services industry.
As one commenter (Jesse at Jesse’s Cafe Americaine blog) notes: “There is a lot of juice behind this one… there are a lot of VSPs (Very Serious People) with a vested interest in a calm market between now and the actual IPO date. There will be … professional, highly skilled beauticians slapping lipstick and makeup on this IPO …”
Lipstick or not, the chances of a calm market leading up to September 18 may have become thinner, because of another purported event in China. Some unofficial media are reporting that Jiang Zemin, the former president of China and chairman of the Communist Party, has died.
Jiang retired more than a decade ago, but retained great behind-the-scenes influence through a large network of cronies and political allies. His death has been reported falsely several times, and this story not been confirmed. However it would not be surprising, given his frail health and his age. (Jiang celebrated his 88th birthday just a couple of weeks ago).
But what is surprising is the reaction of some Chinese-language broadcast media.
Instead of the usual glowing obits, some unofficial outlets have been broadcasting stories about the corruption of Jiang’s governance, and even trashing his late father as a collaborator during the Japanese invasion of China in the 1930s – the deadliest slur possible in today’s China.
The broadcasts have now stopped which may be evidence of a covert power struggle, or may presage a full-blown purge of Jiang’s relatives and partners-in-crime from his days in power. In either case it implies unsettled conditions for China’s faltering economy, which is teetering on the brink of meltdowns in both banking and housing.
The impacts could easily spread to resource-dependent countries like Australia and Canada.
One last thing: the day after all this, September 19, is quadruple witching day, when futures and options on almost everything expire simultaneously. Markets are skittish anyway around the witching days. This one may be a monster.
Interesting times indeed.
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