"A week...."

Posted on Monday, 19 July 2010 [GMT +1]

Harold Wilson, the iconic British Prime Minister from the 1960s and 70s, once said that “a week was a long time in politics”. If he had been a trader of equities in 2010 he might have been tempted to shorten this to “a day”. For example, on Friday, Wall Street fell 2.6% in a single session on fears of weaker US growth. Then, today, surprise, surprise Shanghai shares are 1% to the good – when it was wholly expected that it would be a dark (albeit not black) Monday. While this hardly qualifies as “irrational exurberance” it does, at least, have some foundation (okay, from what we know is a low base).

For a start, global entrepreneurs still have great faith in China, where foreign direct investment rose to the second highest level on record in June: +39.6% to $12.5 billion; and in H1 as a whole, FDI was up 19.6% to $51.4 billion. The Government is also seeking to offset a slowdown in export growth by boosting domestic consumption and is aiming to provide more low income housing (and some local governments intend to allocate 40% of their total land supplies to this type of housing - which will attract developers). The PBOC is also confident of hitting its 3% target for consumer inflation this year. Nor is Wen panicking: the country’s economic performance is “consistent” with the Governments macro-controls; a wobble in the Yuan’s appreciation notwithstanding. Finally, Credit Suisse says that fair value for Chinese shares is 23% higher than they are today.

As Harold Wilson said: “I’m an optimist. But I’m an optimist who takes my raincoat”.

Shanghai Composite:
Today: +0.87% at 2,445.36 at 11.30
Last week: nc
YTD: -25.4%

Hang Seng:
Today: -0.98% at 20,052.41 at 12.35
Last week: -0.6%
YTD: -8.3%

Oil:
$75.76
Gold:
$1193.00
Euro/$
1.2907

• Wen says that “relatively fast” growth is needed
• Yuan drops most in three weeks
• H2 export growth seen 16.3%
• Commitment to reduced export role will be tested
• FDI in China rises to highest level in more than two years
• China and Germany sign 10 deals during Merkel’s visit
• Property tax will not impact prices in China
• China to keep restrictions on property market
• China interest rate swaps decline to one year low
• Investors pay premium for bonds insured against default
• China is the next “fallen-angel”
• Storms kill 13 in Sichuan Province; 300 trapped in Chongqing
• Thirty killed in three mine accidents in China