Over 10 and over 50

We are half-way to a ‘nouveau’ bull market in China on the back of July’s 10% gain (and a further 1% or so today); and at least one PMI survey - the more important one from FLP and the Government - defied the Jeremiahs by being on the right side of 50 i.e. 51.2. Any digit above 50 means expansion not contraction, albeit growth was the slowest for 17 months and the HSBC/Markit version was at 49.4. Similarly, I was encouraged by the fact that the FLP employment sub-index rose in July. What’s more listed companies in China posted a 50% gain in net income in the first half of 2010 (based on the 264 companies which had released earnings results as of end July).

The bulls (including the youngsters) continue to edge out the bears, with even Vale snorting. Meantime, Elliott Wave International forecasts a set of eponymous surges in the stock market following a so-called correction - which has lasted almost a year. Indeed, the market has reached a consensus view that the Government will ease current measures to rein in growth as data show the economy is already slowing down.

Even real estate shares have joined in and this sub-sector has gained 16% in Shanghai since 1 July, which is the most among the five industry groups. Morgan Stanley, in particular, is very confident here. That said, there are doubting Thomases including the learned US National Bureau of Economic Research which says house prices could fall 40%; but don’t let that spoil the party.

Finally, and by way of further girding the loins, I refer you to a new book about China, “The Party”, written by Michael Sheridan who was the bureau chief for the Financial Times in China. It makes startling reading about the Nation’s hierarchy and its focus on success: “sheng zhe wei wang bai zhe wei kou”. Roughly translated, this means “the winner is king and the loser is a mere outlaw”.

Shanghai Composite:
Today: +1.33% at 2,672.52 at close
Last week: +2.6%
In July: +10.0
YTD: -18.5%

Hang Seng:
Today: +1.82% at 21,412.79 at close
Last week: +1.0%
In July: +4.5
YTD: -2.1

Oil:
$79.60
Gold:
$1183.60
Euro/$
1.3064

Headlines

• Chinese manufacturing grows at slowest pace in 17 months say FLP and Government.....
• ......but HSBC/Markit’s survey says it was ‘below 50’
• Buy property ‘call spreads’ on Government policy relaxation, says Morgan Stanley
• Housing faces “meaningful correction” within two years, says economists from the NBER
• China will not relax property measures, says Securities Journal
• China stocks to outperform World markets, say Nomura
• Shanghai Composite set for “wave” of gains
• Yuan deposits rise in Hong Kong
• PBOC’s Hu says Yuan’s trading band is appropriate
• China’s TV commercial
• China’s Government news chief ‘missing’ in Britain