Age & Experience

The PRC is 61 years old in October and I turned 57 on Sunday. As a Nation, China is youthful whereas I am, technically, ‘middle-aged’; although I abhor the term. But then China is also probably old beyond its years – and myself? I would like to think that experience has been a sound teacher, which allows a calmer, more rational view of both life’s ups and downs – and the ups and downs of the economy (and their regularity).

In reality, this means that China will still grow at 8% in the final quarter of the year (according to a State economist). Nor does the Government intend to reactionarily change policy (says a PBOC advisor) or push the value of the Yuan much. In fact, the Yuan looks set, in August, for its largest monthly drop since 1994.

Elsewhere, at least three major stockbrokers (including Citigroup) are positive and Japan’s largest developer (Mitusi Fudosan) is planning to build a number of shopping malls in China – where it sees that “the long term potential…outweighs the short term volatility in pricing”. Shanghai Elegant Investment, however, says avoid developers: “you have to invest in sectors that the Government is advocating”

It is also hoped the spike in money market rates (to 2.25% and the highest in seven weeks) is just that - caused by the impending ICBC sale. The same goes for the net outflow of funds from Chinese mutual funds (some $65 billion in the first half); although Citic said that such movements empirically lead to stock market under-performance.

Yesterday (which was public holiday in the UK), China’s stocks rose the most in two weeks (1.6%), led by commodity and consumer companies, as Federal Reserve Chairman Bernanke’s vowed to safeguard the US recovery. But today, shares fell for the first time in four days, as smaller-than-estimated growth in personal incomes in the US heightened concern that the economic recovery may falter. Citic again: “a potential economic relapse and a Fed almost out of bullets are important headwinds in the coming months for Chinese markets”. In the short term, those clever people at Nordea Bank agree – as fears of a new US recession intensify. Nonetheless, they also say that oil prices will exceed $100 per barrel by 2012 as global growth rebounds next year.

As Confucius said: “by three methods we may learn wisdom: first, by reflection, which is noblest; second, by imitation, which is easiest; and third by experience, which is the bitterest”.

Shanghai Composite:
Today: -0.52% at 2,638.80 at close
Last week: -1.2%
This week: +1.1%
In August: +0.1%
YTD: -19.5%

Hang Seng:
Today: -0.97% at 20,536.49 at close
Last week: -1.8%
This week: -0.3%
In August: -2.4%
YTD: -6.1%

Oil futures: $73.96
Gold futures: $1236.40
Euro/$ spot: 1.2659

Headlines

• Yuan is set for biggest monthly drop since 1994 as the domestic economy slows and US dollar gains
• State economist sees China’s Q4 growth at about 8%
• PBOC’s Xia says China will not change economic policy
• Haiton, Societe Generale and Citigroup like China stocks, although UBS, Credit Suisse and others are more cautious
• Money market rate in rises to seven week high ahead of ICBC bond sale from today
• PBOC sells one year bills at unchanged yield of 2.0929%
• China's mutual funds post second largest six month loss (at some $65 billion)
• Japan’s largest developer (Mitusi Fudosan) plans to open more shopping malls in China as consumers spend more
• Soho Chairman sees house prices falling to 2009 levels
• Shanghai Elegant says avoid developers and buy solar stocks
• China Resources Land's H1 net income rises 169% on housing
• Rising wages in China reduce its advantage, says Flextronics
• China may cut taxes for small companies, says China Times
• China defends control of rare earth exports