| Hi, I'm Peter Martin, writing on a flight from Manila back to the US. Just days after the Philippines dismissed Beijing's claim it agreed to a deal over a disputed shoal in the South China Sea, Chinese officials issued an unusual threat this week: They told journalists in Manila they were ready to release audio of a call with a top Philippine military official to prove it. The transcript seen by Bloomberg News of the purported call shows Vice Admiral Alberto Carlos, head of the Philippine military's Western Command, agreeing to a "new model" in handling resupply missions to the Philippine-occupied Second Thomas Shoal in the South China Sea. The Philippine government immediately questioned the veracity of that claim, with one military spokesperson even suggesting that the call might be an AI-generated deep fake. Both Manila and Washington have repeatedly disputed Beijing's version of events in the South China Sea, while also accusing it of spreading misinformation.  The Philippine Navy's Sierra Madre at the Second Thomas Shoal.
Photographer: Jam Sta Rosa/AFP Either way, the threat to release audio of the call marks a sharp escalation in the intensifying war of words between China on the one side and the Philippines and the US on the other over contested parts of the sea. It also marks an unusual departure for Beijing, which often reacts with anger when other countries unveil private diplomatic dealings. The tactic may provide a taste of things to come. Under President Ferdinand Marcos Jr., the Philippines has sought to publicize what it sees as aggressive Chinese military activity in the region in a bid to deter Beijing. China, in turn, has accused Manila of breaking repeated agreements regarding the waters. Marcos earlier said he was "horrified" to learn that his predecessor, Rodrigo Duterte, entered into a "gentleman's agreement" with China that effectively had the same terms as the latest apparent deal. Both pacts would stop Manila from bringing construction materials to the Sierra Madre, a marooned World War II-era ship in the Second Thomas Shoal. Tensions between Beijing and Manila have escalated recently as Chinese Coast Guard ships try to block much smaller Philippine vessels from reaching the old ship, often by blasting them with powerful water hoses. Heightening the friction, the US and Philippines have held joint military drills for the first time at a small island near Taiwan, and also apparently used a decommissioned Chinese-made vessel for target practice. China has now upped the ante by threatening to publish the details of previously private diplomatic communications. The Philippine government will have to decide on its response, while we all wait to see if Beijing's diplomats make good on their threat. As the two sides ponder their options, one thing seems certain: the prospect of reestablishing trust in China-Philippine relations is slipping ever further away. Is the rally real? That's the question investors in Chinese stocks are asking themselves after getting burned many times over the years. Several of the nation's key equities gauges have entered technical bull markets in recent weeks, with Hong Kong's benchmark Hang Seng Index notching a 10-day winning streak before retreating. The MSCI China Index has surged more than 20% from its January trough, while the CSI 300 Index hit its highest level since October. The optimists say this time is different, citing cheap valuations, improving macro data and Beijing's supportive policy stance. On the latter, hopes of interest-rate cuts and new measures to tackle a protracted housing crisis have sent developers surging. Bloomberg Opinion's Shuli Ren says that while there is an element of FOMO in the recent rallies, she's also seeing real money — from less speculative asset managers such as mutual funds — buying Hong Kong shares. According to Julius Baer's China strategist Richard Tang, the primary catalyst is a rotation "where global investors take profit from US, Japanese or global tech holdings and move into Chinese stocks to capitalize on a swift rebound." There's evidence to back that up. Foreign funds boosted holdings of Chinese shares for the third straight month in April — the longest streak in about a year — while UBS said global funds' underweight position in equities may have reached a bottom as inflows resume. But Morgan Stanley, among the first Wall Street banks to warn of a downturn back in August, said investors shouldn't chase the gains any further because consumption and the housing market will need more time to pick up and stocks may be technically overbought. In any event, stock punters may get some clarity on the outlook for markets soon from China's tech leaders, whose tentacles stretch through the economy, from online sales and advertising to mobile games. Tencent, Alibaba, JD.com and Baidu all report earnings next week. | 
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