MarketMinder Daily Commentary

Providing succinct, entertaining and savvy thinking on global capital markets. Our goal is to provide discerning investors the most essential information and commentary to stay in tune with what's happening in the markets, while providing unique perspectives on essential financial issues. And just as important, Fisher Investments MarketMinder aims to help investors discern between useful information and potentially misleading hype.

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US Downgrade Sounds Alarm for Hong Kong Funds in Treasuries

By Greg Ritchie and Echo Wong, Bloomberg, 5/20/2025

MarketMinder’s View: Whenever ratings agencies downgrade a major sovereign bond issuer, one fear that arises is forced selling. Some pension funds, like Hong Kong’s, enshrine ratings into their bylaws governing how the fund is invested. Hence, when downgrades strike, people think, “Well, the jig is up—now the pensions have to sell.” We think this article, intentionally or not, gives you three factors to counter this false fear. One, Hong Kong’s pension fund is required to cap holdings at 10% of assets if the bonds aren’t rated AAA by one of four raters. While none of the three major raters (Moody’s, Fitch and S&P) have US credit rated AAA, Japan’s Rating & Investment Information, Inc. (R&I), does. And, “For now, Japan’s R&I said it is not considering a downgrade for US Treasuries.” But let us say they did. The second reason this article offers as to why a forced sale isn’t likely: “The Hong Kong Investment Funds Association has raised managers’ concerns to the Mandatory Provident Fund Schemes Authority and the Financial Services and the Treasury Bureau, said the people, asking not to be named because the information is private. The association recommended that authorities make an exception for US Treasuries, by allowing funds to invest in the assets even if they are rated one notch below AAA, the people said.” Boldface is ours. You are reading that right—the authorities can just change the bylaws. And third, “Funds operating under the city’s HK$1.3 trillion ($166 billion) Mandatory Provident Fund system are only allowed to invest over 10% of their assets in Treasuries if the US has a AAA or equivalent rating from an approved agency.” $166 billion sounds big, but it is a drop in the $29 trillion ocean of US Treasury bonds held by the public. Fear of forced selling tied to a ratings change is false—just like the view these ratings confer useful information to investors.


Will Subsidized Electricity Rescue German Industry?

By Nadine Mena Michollek, Deutsche Welle, 5/20/2025

MarketMinder’s View: This is a lengthy and interesting piece documenting the debate in Germany over how to handle the country’s relatively high energy costs, which its heavy industrial businesses have consistently cited as headwinds to growth since 2022. Part of the problem here is the push to renewables, which are simply more expensive and less efficient, requiring an array of taxation to fund their expansion and bolster grid reliability. Now the coalition government is seeking ways to lower costs and, “Berlin is now planning to reduce the electricity price by 5 cents per kilowatt-hour for businesses by lowering the electricity tax to the EU minimum and cutting surcharges and grid fees.” If that is where it ends, fair enough—the plan would be a tiny positive. However, as this details later, there are rumors of price caps. “The coalition agreement of Germany’s ruling parties also mentions further relief for energy-intensive companies. It remains unclear whether this includes capping the wholesale electricity price, though some experts believe that’s the intent.” As this goes on to discuss, such a move would be wholly counterproductive and likely raise energy costs in the medium term by dissuading investment in the grid and power generation. What Germany needs is more reliable energy sources to act as a baseline. It isn’t a fast fix or a popular one politically, but things like nuclear should really be on the table here, as many are learning in Europe after the Iberian blackout many are blaming on overreliance on renewables.


Coalition Broken: Nationals Split With Liberals

By Olivia Ireland and Natassia Chrysanthos, Olivia Ireland and Natassia Chrysanthos, The Sydney Morning Herald, 5/20/2025

MarketMinder’s View: For most of the last century, Australian politics has been chiefly divided between the center-left Labor Party and “the coalition” of the Liberals and Nationals, who constituted the center-right. (As a reminder, MarketMinder favors no party nor any politician, assessing developments solely for their potential market or economic implications.) But after a poor showing in races for the lower House of Representatives, it seems the longstanding coalition is splintering. “The Nationals fared better than the Liberals at the federal election: the regional party kept all their seats except for Calare …. The Liberal Party, on the other hand, lost more than a dozen seats in its worst defeat since the party was founded. It holds just 10 electorates in metropolitan areas across the country, which has triggered a crisis about its purpose and path forward.” This is obviously a major domestic political development … if it stands. You see, the coalition has split before—like in 1987—only to reconverge later. As this article notes, there is lots of time for that to happen before the next federal election. Hence, there are few immediate effects for investors. The Senate remains fractured, with no party having a majority—an obstacle to the Labor government passing major legislation. But it is worth monitoring as developments continue to unfold and, if the split lasts, could make the next federal election Down Under particularly noteworthy.


Coalition Broken: Nationals Split With Liberals

By Olivia Ireland and Natassia Chrysanthos, Olivia Ireland and Natassia Chrysanthos, The Sydney Morning Herald, 5/20/2025

MarketMinder’s View: For most of the last century, Australian politics has been chiefly divided between the center-left Labor Party and “the coalition” of the Liberals and Nationals, who constituted the center-right. (As a reminder, MarketMinder favors no party nor any politician, assessing developments solely for their potential market or economic implications.) But after a poor showing in races for the lower House of Representatives, it seems the longstanding coalition is splintering. “The Nationals fared better than the Liberals at the federal election: the regional party kept all their seats except for Calare …. The Liberal Party, on the other hand, lost more than a dozen seats in its worst defeat since the party was founded. It holds just 10 electorates in metropolitan areas across the country, which has triggered a crisis about its purpose and path forward.” This is obviously a major domestic political development … if it stands. You see, the coalition has split before—like in 1987—only to reconverge later. As this article notes, there is lots of time for that to happen before the next federal election. Hence, there are few immediate effects for investors. The Senate remains fractured, with no party having a majority—an obstacle to the Labor government passing major legislation. But it is worth monitoring as developments continue to unfold and, if the split lasts, could make the next federal election Down Under particularly noteworthy.


Canada’s Inflation Rate Cools to 1.7% as Consumer Carbon Tax Ends

By Jordan Gowling, Financial Post, 5/20/2025

MarketMinder’s View: A bit of an illusory cooldown in Canada’s consumer price index in April, as it hinges on declines in gasoline prices—which were skewed much lower by new Prime Minister Mark Carney’s decision to cancel the consumer carbon tax that added 17.6 cents per liter to the price of fuel. Beyond this, “Despite the headline number, core inflation measures the Bank of Canada prefers to look at when making its monetary policy decisions accelerated in April. CPI-common rose 2.5 per cent year over year, compared to 2.3 per cent the month before. CPI-median rose 3.2 per cent, compared to 2.8 per cent in March and CPI-trim rose 3.1 per cent in April, compared to 2.9 per cent the month before.” That said, these figures are still a far cry from the highs seen in late 2022 and are in line with recent readings for pretty much every measure of headline or core prices. Despite continuing to lead headlines and weigh on many consumers’ minds north and south of the US/Canada border, hot inflation is over.


US Downgrade Sounds Alarm for Hong Kong Funds in Treasuries

By Greg Ritchie and Echo Wong, Bloomberg, 5/20/2025

MarketMinder’s View: Whenever ratings agencies downgrade a major sovereign bond issuer, one fear that arises is forced selling. Some pension funds, like Hong Kong’s, enshrine ratings into their bylaws governing how the fund is invested. Hence, when downgrades strike, people think, “Well, the jig is up—now the pensions have to sell.” We think this article, intentionally or not, gives you three factors to counter this false fear. One, Hong Kong’s pension fund is required to cap holdings at 10% of assets if the bonds aren’t rated AAA by one of four raters. While none of the three major raters (Moody’s, Fitch and S&P) have US credit rated AAA, Japan’s Rating & Investment Information, Inc. (R&I), does. And, “For now, Japan’s R&I said it is not considering a downgrade for US Treasuries.” But let us say they did. The second reason this article offers as to why a forced sale isn’t likely: “The Hong Kong Investment Funds Association has raised managers’ concerns to the Mandatory Provident Fund Schemes Authority and the Financial Services and the Treasury Bureau, said the people, asking not to be named because the information is private. The association recommended that authorities make an exception for US Treasuries, by allowing funds to invest in the assets even if they are rated one notch below AAA, the people said.” Boldface is ours. You are reading that right—the authorities can just change the bylaws. And third, “Funds operating under the city’s HK$1.3 trillion ($166 billion) Mandatory Provident Fund system are only allowed to invest over 10% of their assets in Treasuries if the US has a AAA or equivalent rating from an approved agency.” $166 billion sounds big, but it is a drop in the $29 trillion ocean of US Treasury bonds held by the public. Fear of forced selling tied to a ratings change is false—just like the view these ratings confer useful information to investors.