"Happy(ier) Holidays"

Posted on Friday, 1 October 2010 [GMT+1]

Another day, another positive PMI story; and this one - despite it being the holidays in both Hong Kong and China - is the Government version (and follows HSBC/Markit's on Wednesday). In any event, the headline was ‘manufacturing growing at the fastest pace in four months’ as the Index itself rose from 51.7 in July to 53.8 in August, which was also better than forecast. In terms of the sub-indices new orders were stronger than exports and there was a sharp increase in input prices: up from 60.5 to 65.3 (the biggest jump of all). This has promoted the currency appreciation bulls (eg ANZ) and the higher-interest-rate-brigade (including Merrill Lynch) to raise their heads.

Elsewhere, Warren Buffett is bullish on China saying that its transformation is “unlike anything that’s ever taken place in history”. Furthermore, his Dairy Queen unit intends to grow outlets by 60% through December next year (to reach 500). Plus Morgan Stanley’s very excellent Stephen Roach (a former colleague) said that the US Yuan legislation was “bad economics" and “bad politics”. That said, Tim Geithner believes that there will be no trade or currency war between the US and China (although he is not sure what the latter actually is). And, finally, large scale real estate purchases continue in China.

After this week, too, I can probably say “Happy(ier) Holidays”.

Shanghai Composite:
Thursday: +1.72% at 2,655.66 at close
Today: closed
This week: +2.5%
September: +0.6
Q3: +10.7
YTD: -18.9%

Hang Seng:
Thursday: -0.09% at 22,358.17 at close
Today: closed
This week: +1.1%
September: +8.8%
Q3: +11.1%
YTD: +2.2%

Oil futures: $80.42
Gold futures: $1311.00
Euro/$ spot: 1.3664

Headlines

• China manufacturing accelerates more than forecast
• Buffett expects large investment opportunities in China
• Dairy Queen to increase stores in China by more than 60% by next year
• Morgan Stanley's Stephen Roach calls Yuan legislation "bad economics" and "bad politics"
• Geither says there is no threat of a trade or currency war
• China says US anti-Yuan legislation will hurt World economy
• Shui On Land buys residential site in Hongqiao, Shanghai for $477 million
• Minmetals Land will pay $112 million for a new development site in Huizhou
• Yuan deposits in Hong Kong rise to record in August i.e. they have doubled in 2010, so far, to $130.4 billion
• Hong Kong put-options jump to 14 times the monthly average after Hang Seng reaches nine month peak
  

Serendipity or savvy?

Posted on Thursday, 30 September 2010 [GMT +1]

The Yuan weakened on the day after the US House of Representatives voted overwhelmingly (348-79) to try and bash China i.e. it has agreed to seek measures which will allow domestic companies to petition for duties on imports from China, so as to compensate for the effect of a weak Yuan. Serendipity or savvy? The smart money is on the latter and the second-to-smart-money says that this is toothless legislation.

Much more interesting is the rally of developers share prices (+3.1% by morning tea-time) in China on the back of an imminent property tax trial and associated price-dampening legislation. Share prices went up, of course, because the measures were less severe than expected. These gains also helped take the Shanghai Composite to its first quarterly gain (+10.7%) of 2010.

Further down the pecking order, comes news that three of the four Japanese engineers detained in Hebei have been released; plus rare earths export trade from China to Japan has resumed. Both suggest that diplomatic tensions over the fishing boat are easing.

Finally, congratulations to China’s richest man: Zong Qinghou, Chairman of Hangzhou Wahaha Group, who is 65 and worth an estimated $12 billion. Wahaha in Chinese means ‘laughing child’.

“Serendipity: look for something, find something else and realise that what you’ve found is more suited to your needs than what you thought you were looking for” Lawrence Block

Shanghai Composite:
Today: +1.72% at 2,655.66 at close
This week: +2.6%
September: +0.6%
Q3: +10.7%
YTD: -18.9%

Hang Seng:
Today: -0.09% at 22,358.17 at close
This week: +1.1%
September: +8.8%
Q3: +11.1%
YTD: +2.2%

Oil futures: $77.87
Gold futures: $1314.00
(new ‘immediate delivery’ high of $1,313.45)
Euro/$ spot: 1.3618

Headlines

• China takes further measures to cool real estate boom
• Developers share prices rise
• Stocks show first quarterly gain of 2010
• US House of Representatives votes substantially in favour of pressuring China
• Yuan weakens for first time in 13 days
• China releases three of the four detained Japanese engineers
• Wahaha Chairman is ranked China's richest man, aged 65, with $12 billion
• China welcomes WTO ruling on China poultry imports to the US

"Big Brown"

UPS or United Parcel Service (aka ‘Big Brown’ - due to its livery) is the World’s largest package delivery firm with 15.1 million ‘drops’ per day; plus it is a top 10 global airline in its own right. UPS is also one of the World’s most admired companies, which shows that you can be big and good. And, it has now turned its attention to China and, this week, will apply for a domestic licence. The Company believes the current potential of this market is 5 million packages per day or a third of its global volumes at this time. Do you need any further affirmation of China’s potential?

In other news, the HSBC/Markit PMI shows manufacturing increasing for the second consecutive month. A number of good things are happening in the economy, too, including a Government push to finish off its last round of fiscal stimulus ahead of formulating a new five year plan in 2011. Public housebuilding is also receiving a welcome nudge. Meantime, inflation has increased, as noted by the PMI - especially at the input level - but Morgan Stanley says it may have peaked in August and will edge down slowly for the rest of the year.

Elsewhere, Yuan Forwards perked up ahead of the vote in the US House of Representatives today. The former are pointing to 2% appreciation over 12 months in addition to the 2.1% already achieved since 19 June (which could well be the sum of it). In any event, the independent Congressional Budget Office says that proposed legislation aimed at an ‘over-valued’ Yuan, may raise no more than $20 million a year in duties because many goods are no longer made in the US.

“A hidden connection is stronger than an obvious one” - Heraclitus of Ephesus

Shanghai Composite:
Today: -0.03% at 2,610.49 at 14.41
This week: +0.7%
YTD: -20.3%

Hang Seng:
Today: +1.14% at 22,361.16 at 14.36
This week: +1.1%
YTD: +2.2%

Oil futures: $76.52
Gold futures: $1311.30
(new ‘immediate delivery’ high of $1,311.90)
Euro/$ spot: 1.3581

Headlines

• Yuan Forwards rise again and point to a further 2% appreciation (on top of the 2.1% since 19 June)
• China currency bill to have only limited impact, says US agency i.e. new potential import duties to raise only $20 million per annum
• IMF sees no “big risk” of global round of currency devaluations; views Yuan as “undervalued” but acknowledges China’s shift
• UPS to enter China’s delivery market which is “worth billions”

38,820

We are NOT “all doomed” after all because the Dow Jones Industrial Average will surge to 38,820 in an eight year “super boom” beginning in 2017. This is according to Jeffrey A. Hirsch, Editor-in-Chief of the Stock Trader’s Almanac. “All previous major economic booms and secular bull markets were driven by peace, inflation from war and crisis spending and ubiquitous enabling technologies that created major cultural paradigm shifts and sustained prosperity”. The Dow closed yesterday at 10,812, meaning it must more than three-and-a-half fold; albeit that this is only 10.3% per annum through 2023.......

Elsewhere Ken Fisher, the billionaire CEO of Fisher Investments, said the next decade will be as good for investors as the 1990s – as he eschewed the notion that developed economies face below-average growth. Fisher also said the concept of a “new normal” is “idiotic”, which puts him at logger-heads with Pacific Investment Management or PIMCO, which invented the term. Fisher also said that any revaluation of China’s currency against the dollar is unlikely to have a long term effect on investors. Nor would an upward movement create any new jobs in the US. “Those jobs are gone. The only question is, do they stay in China or do they migrate to Indonesia, Malaysia, Thailand or Vietnam? It’s total political nonsense, all the China bashing”.

Nobel Prize winning economist Robert Mundell agrees saying that US legislation to press China to raise the value of the Yuan would be a “disaster”. It would also fail to narrow the trade deficit between the two nations. The bill “would create a very damaging thing to the World economy and the stability of Asia” continued Mundell. “This would have a wounding effect on the stability of international relations. There’s never been any precedent in economic history where a country through any legal system was forced to appreciate its currency relative to another country”. (Note, too, there is also now a rumour circulating that US legislation on the Yuan may be postponed).

By way of support, Yuan Forwards dipped for the first time in nine days and point to only 1.8% appreciation over the next 12 months. Domestically, though, equities continue to fret about a property tax and siblings – and, perhaps, a hike in interest rates. I think the latter fear is erroneous and take comfort from the one year PBOC bill yield unchanged for 16 weeks at 2.0929%.

“It is the still, small voice that the soul heeds, not the deafening blasts of doom” William Dean Howells

Shanghai Composite:
Today: -0.63% at 2,611.35 at close
This week: +0.8%
YTD: -20.3%

Hang Seng:
Today: -1.03% at 22,109.95 at close
This week: +0.0%
YTD: +1.1%

Oil futures: $75.90
Gold futures: $1289.70
(new ‘immediate delivery’ high of $1,300.15 yesterday)
Euro/$ spot: 1.3458

Headlines

• China may retaliate against currency measures
• Chalco shares surge on its plan to invest in rare earths
• Buffett affirms support for China carmaker BYD
• China may allocate 30% of alternative energy spending to wind
• China to introduce tax break for alternative energy use
• Henderson achieves Hong Kong record of HK$60,000 per foot for an apartment
• Hong Kong developers may offer financing to counter Government restrictions

Spats Doublio

20 days or so ago, Zhan Qixong, was living in blissful obscurity. Not any more, though, for he is the Chinese fishing trawler captain who was detained by Japanese authorities for 17 days after his vessel bumped into the Japanese Coast Guard in disputed waters. He arrived home by charter flight on Saturday. But Zhan has also vowed to return to the Diaoyu Islands (aka Senkaku, if you are Japanese).

In what is beginning to resemble a soap opera, China has demanded an apology and compensation, while Japan claims that neither is required and wants the repairs to its Coast Guard ships paid for by the Chinese; although Japan has conceded that the collision was not intentional. In what looks like tit-for-tat, too, China has detained four Japanese citizens working for the contractor Fujita in Hebei; they were allegedly videotaping military targets. Chinese customs is also reported, by the Ashai newspaper, to be tightening inspections of shipments to and from Japan.

For the record, Japan is China’s second largest trading partner (after the US) and China is Japan’s largest. Unsurprisingly, there is a theory that Japan backed down from the dispute and released Zhan because it has more to lose economically i.e. there is a wider market for China’s exports than there is for Japan’s. So China won, but it has upset a lot of its neighbours in the process.

There maybe no fishing boats involved in China’s other current diplomatic spat - with the US over the value of the Yuan – but it is similar. For example, economic symbiosis is at its heart: the US is China’s largest trading partner; with China being the US’s number two (after Canada). China is also the largest holder of US Treasuries at some $850 billion (Japan is narrowly number two).

On Wednesday, the US House of Representatives will vote on whether to allow companies to petition for higher duties on imports from China to compensate for the effect of a weak currency. In my view, this would be the US shooting itself in its metaphorical foot - twice; and the Retail Industry Leaders Association of America and Canada’s Trade Minister, Peter Van Loan, pretty much agree with me.

And as if that wasn’t enough of a push/pull here, China has just commenced levying duties of as much as 105% on US chicken imports while, at the same time, the Ford Motor Company invests $500 million in a Chongqing joint venture.

The good news, though, is that due to a convoluted US legal structure any law proposed by the House of Representatives has to go to the Senate; and this is unlikely to happen before Mid-term (but non-Presidential) elections in November. To be fair, too, the whole issue of the Yuan is more political (domestically) than real in the US. Indeed, I don’t think anyone believes that the Yuan will appreciate substantially (despite its strongest level today since 1993) and the Non-deliverable Yuan Forwards market tells you that. Similarly, no one - but no one - wants a trade war.

I realise that there is some repetition in today’s longer-than-normal missive. In my defence, I point to music where repetition is important if not vital. In fact, Richard Middleton once said that “while repetition is a feature of all music, of any sort, a high level of repetition may be a specific mark of ‘the popular’ and that this allows an enabling of an inclusive rather than exclusive audience”.

Shanghai Composite:
Today: +1.41% at 2,627.97 at close
Last week: -0.3%
YTD: -19.8%

Hang Seng:
Today: +1.00% at 22,340.84 at close
Last week: +0.7%
YTD: +2.1%

Oil futures: $76.84
Gold futures: $1299.20
(new ‘immediate delivery’ high of $1,300.07 on Friday)
Euro/$ spot: 1.3457

Headlines

• Stocks rise most in two weeks on US cpaital goods orders (up 4.1% in August)
• Domestic industrial revenue in China rises 33% in first eight months, while profits leaps 55%
• Weather eye on inflation, with one forecast as high as 5% for October (from China Macroeconomics Society)
• Yuan climbs to (another) strongest level since 1993 before US vote i.e. it touched 6.950 to the US dollar today
• Five year interest rate swaps decline six basis points (to 2.95%) as Yuan gains, which eases risk of interest rate rise
• China may reduce annual economic growth target from 7.5 to 7.0% in next plan, says Citigroup
• China allows banks to sell loans on interbank market; and 21 lenders sign up
• AgriBank applies for lower reserve ratios in rural areas, says Economic Observer
• Revamp of policies to promote private investment in local industry has been proposed
• Obama tells ASEAN that the US has an “enormous stake” in Asia and would like to make more ot it
• Asia Cement CEO sees additional Yuan 20 to 30 per ton on cement this year
• China wants to see a legally binding climate agreement by 2011, says Economic Times
• China starts building $1.99 billion extension to Tibet Railway

Real Estate Special: age over youth

There was so much general and real estate news over the weekend, and today, that it seemed sensible to split it. The latter can’t have been all bad, though, given that developers shares inched by (by some 0.5%) in a market nearly 1.5% to the good. This is despite the fact that stories of a property tax won’t go away; and the Economic Observer says it could be trialed in Shenzhen and Hangzhou early next year.

Additionally, the Government will stop companies which have held land for more than a year, without developing it, from buying additional plots – with the aim of controlling prices. It will also increase land available for smaller, affordable apartments in cities with high prices and offer to grant planning approvals within 10 days of application.

Elsewhere, China’s Ministry of Housing and its banking regulator (the CBRC) are jointly probing the way commercial lenders implement second home policy restrictions in major cities, reports the China Business Journal. The results will be reported after the National Day holidays in October.

The iconic and youthful commentator, Andy Xie, is also preaching a five year bear market for Chinese real estate in which average prices in larger cities will at least halve. He also likens developers to the seasonal cooking of Shanghai hairy crabs i.e. they are currently immersed in pleasant cold water, like their natural habitat. But the cooker has been turned on and they will be boiled alive. Salt is required here – literally and figuratively.

On a happier note, 85-year old Chinese ex-pat and now Philippine billionaire, Henry Sy, is spending $523 million on four more shopping malls in China over the next three years through his company SM. He also says that residential projects in China are also “very, very viable and I am getting ready to put up a company”.

Age over youth.

Headlines

• Property tax encore
• China will prevent some land purchases by developers as is seeks “reasonable” price correction
• Probes are made into second property loans by banks, says China Business Journal
• Xie says Chinese property has entered a five year bear market
• Philippines billionaire, Henry Sy, may build apartments in China, as well as malls

Swoosh

Nike was the Goddess of Victory in ancient Greece. She was honoured by Zeus because she fought on the side of the gods against the Titans. So the Athenians dedicated her statue in Delphi after the naval victory over the Persians at Salamis (480 BC). However, athletes and charioteers also paid her honour for their successes in games – when speed and strength were also added to the epithet.

Okay, Nike is also the World’s largest sport shoe manufacturer which has just announced a 25% increase in orders in China. The Nation also accounted for 9% of Q1 sales ($460 million). “As consumers are getting wealthier here they are buying special items for the gym, for the weekend and for going out” according to China Market Research; with basketball being a particular favourite.

This is the point being emphasised by the US-China Business Council including the likes of Caterpillar, Citigroup and Microsoft. It/they say(s) that taking legislative action to try and force China to appreciate its currency and the like is counterproductive. China is potentially the World’s largest consumer; and, for a manufacturer: “ignore it at your peril” (and certainly don’t upset it).

And so the apparently conciliatory between Obama and Wen in New York yesterday is a good sign, despite ‘the elephant in the room’ of US Congress seeking to legally challenge China on the Yuan, imports etc. What is more, the Yuan has shifted 2% already (since peg abandonment on 19 June) and my favourite lady, Jing Ulrich (Chairman of JPMorgan in China), says expect another 1 or 2% by the end of the year – making 3 or 4%.

“Know that you are great...so dominate” - Ella Wheeler Wilcox

Shanghai Composite:
Today: Closed
Tuesday: +0.11% at 2,591.55 at close
This week: -0.3%
YTD: -20.9%

Hang Seng:
Today: +0.28% at 22,109.41 at 12.35
This week: +0.6%
YTD: +1.1%

Oil futures: $74.85
Gold futures: $1295.30 (after new actual high of $1296.30)
Euro/$ spot: 1.3321

Headlines

• Obama and Wen pledge co-operation on economic issues
• Four Japanese held in China as dishing boat tensions escalate
• China denies Japanese rare earth ban
• Ghana signs $10.4 billion infrastructure loan accord with China's Exim Bank
• China Development Bank is to spend $120 million on Ukraine coal mines
• Death toll from Typhoon Fanapi rises to 54 in Guangdong

Not if; not Wen

Posted on Thursday, 23 September 2010 [GMT +1]

Should anyone have been surprised by Chinese Premier Wen Jiabao’s tone in New York yesterday, where he vigorously defended China’s stance on the Yuan? He also said that acquiescing to calls for a 20% rise in the currency would cause severe job losses and major social upheaval. More telling, however, he said that the Yuan’s value is not the cause of the US trade deficit – rather it is the structure of investment and savings.

China’s exports are focused on labour intensive manufacturing and “the US has long since stopped producing many of these products. If the US doesn’t import from China, it will import from somewhere else”. The two countries should instead focus on boosting exports to China, said Wen. Indeed, the Chinese Government is committed to boosting domestic consumption to help rebalance trade, he added. Similarly, China’s trade surplus as a percentage of its economy has been declining in recent years, and both China and the US must reject trade protectionism.

Best of all, though, after meeting former Secretary of State Henry Kissinger, Wen said that the current national differences between the China and the US are “very easy to resolve” when compared with “the challenges that Dr Kissinger faced in those early days”.

“Most foreign policies that history has marked highly, in whatever country, have been originated by leaders who were opposed by experts”. Henry Kissinger

Shanghai Composite:
Today: closed
Tuesday: +0.11% at 2,591.55 at close
This week: -0.3%
YTD: -20.9%

Hang Seng:
Today: closed
Wednesday +0.21% at 22,047.71 at close
This week: +0.4%
YTD: +0.8%

Oil futures: $74.61
Gold futures: $1292.40 (after new ‘immediate delivery’ high of $1296.30)
Euro/$ spot: 1.3392

Headlines

• Wen says 20% gain in Yuan would cause social upheaval
• China halts rare earth sales to Japan over detention, says New York Times
• China's urbanisation may cost $300 billion per annum
• Cheung Kong sets Oceanaire apartment prices below expectations, says SCMP

Plenipotentiary

“When a diplomat says yes he means perhaps; when he says perhaps he means no; when he says no, he is not a diplomat”, someone once said . Let’s hope China and Japan remember this in their current testy dispute over an arrested fishing boat captain and competing ownership of some deserted East China Sea islands (‘Diaoya’ in Chinese or ‘Senkakau’ in Japanese), which are 300 odd kilometres from Taiwan. Of course, it is not so much the islands themselves but what is underneath them that counts i.e. natural gas; and in 2008, China and Japan agreed to develop this resource together. But China halted these negotiations when the captain was arrested after his vessel ran into two Japanese Coast Guard cruisers. And what really vexes the Chinese is the fact that Japan is intending to prosecute the sailor under domestic law, implying that it ‘owns’ the islands. Note, too, that Japan is China’s second largest trading partner after the US and - vice versa - China is Japan’s largest, buying some $120 billion worth of stuff in 2009.

Elsewhere, it has been a pretty ordinary sort of week with gold hitting a new all-time high ($1291.00), the US and China continuing their playground squabble about the value of the Yuan (which incidentally breached 6.70 yesterday), more property tax rumours in China and Hong Kong shares continuing to move ahead year-to-date. Less routine was a rise (+0.11%) in the Shanghai Composite on the last day before the holidays – the first since 13 September. It seems that appliance makers gained on the prospect of consumer spending during the first of two national vacation periods, which overshadowed declines in commodity producers and caution on property (as above). A Bloomberg investor poll also underlined divergent opinions on China i.e. while more than half of respondents say they are bullish about China’s prospects for long term investments, around one third take a bearish view. I think it is only a matter of time before the ‘one third’ shrinks. But as J P Morgan (1837-1913) said when asked what the stock market will do: “it will fluctuate”.

Shanghai Composite:
Today: closed for holiday
Tuesday: +0.11% at 2,591.55 at close
This week: -0.3%
YTD: -20.9%

Hang Seng:
Today: +0.11% at 22,047.71 at close
This week: +0.4%
YTD: +0.8%

Oil futures: $75.35
Gold futures: $1292.60
Euro/$ spot: 1.3377

Headlines

• Global poll says China will not let Yuan rise much; but opinion is divided on investment attractions
• Obama says China has not followed through on Yuan; although the currency rises to highest since 1993
• China says picking on the Yuan is “short-sighted and unwise”
• US import duties are imposed on Chinese and Indonesian glossy paper; plus countervailing charges
• China understands need to shift towards domestic consumption, says World Bank
• China may unveil a property tax in October to dampen house prices, says China Business News
• Economic growth in 2010 will be faster than 2009, says Statistics Bureau
• Minimum wage to rise by at least 20% per annum for five years, says Morning Post
• More Chinese households see higher prices in the next quarter, says PBOC
  

Gold

Posted on Monday, 20 September 2010 [GMT +1]

Shakespeare actually said “all that glisters is not gold” rather than “all that glitters”; that’s how they spoke back then in the 16th and 17th centuries. But last week, no one was listening, as the price of gold soared to a new all-time high of $1282.97 per ounce. The continued dislocation in global financial markets (including the sceptre of sovereign debt default) plus incipient inflation are the prime causes. But be careful, because the inflation-adjusted peak price is $2,435; and Friday’s close, on the same basis, is $454. Nor would I choose to bet against George Soros who says it is a bubble.

That said, the price was a nice pre-holiday* present for China as the World’s largest producer (with output of a touch under 314 tons last year). The Nation is also the largest producer of steel, cement and aluminium; plus it is, since last year (when it pipped Germany), the World’s largest exporter. By destination, the US is its largest trading partner and only Canada sells more to the Americans.

This puts into context the political complaints in the US about unfair trade practices and manipulation of the Yuan. It also raises, what for me is, a rhetorical question: can the US do without Chinese products? This is especially so as “China is moving from trainers and T-shirts to sophisticated high-tech products”, as the Hudson Institute points out. But just in case that wasn’t enough, China is also the largest holder of US Treasury Bills; almost $850 billion at the last count.

My pin-up girl, Jing Ulrich, agrees. Indeed, the Chairman of JPMorgan in China does not see a trade war or any mass selling of Treasuries and she advocates “steady and gradual” appreciation of the Yuan. To be fair, the currency has done its bit recently and this morning edged up a further 0.13% to 6.7149 per US dollar after touching 6.7140 at one stage, which is the strongest level since the end of 1993. This follows +0.68% last week - which is the most since May 2008 - and it is now +1.6% since the peg was abandoned in June.

In summary, China will remain polite but it can also afford (in all respects) to remain single-minded. Not that this has done much good for share prices and last week’s dip of 2.4% was the worst in two months. This is also in contrast to Hong Kong, where the Hang Seng - as of Friday - is in positive territory year-to-date for the first time since 16 April. Drivers here were mining stocks and power producers plus the Yuan’s appreciation which drives up earnings of Hong Kong companies operating in the PRC. But Jing and I agree (as does UBS) that it is only a matter of time before China joins in.

* Chinese financial markets will be closed from 22 to 24 September for the mid-Autumn festival and from 1 to 7 October for National Day holidays

Shanghai Composite:
Today: -0.38% at 2,588.71 at close
Last week: -2.4%
YTD: -21.0%

Hang Seng:
Today: +0.03% at 21,977.34 at close
Last week: +3.4%
YTD: +0.5%

Oil futures: $73.67
Gold futures: $1284.20
Euro/$ spot: 1.3104

Headlines

• Ulrich see no trade war and recommends “steady and gradual” Yuan appreciation; equities are also “reasonably attractive”
• China stocks may enter a “bull rally” within six months, says UBS and it goes “overweight” on real estate shares; as does BNP Paribas
• Stocks hit bottom in June by may trade in a range, says Societe Generale
• October has been the worst month for China's stocks historically, says CICC
• Shanghai see biggest weekly loss since July on lending and energy constraints
• China Government Bonds have fallen as output rise and inflation quickens
• China must raise its consumption levels to meet to global challenges, says PBOC advisor
• Bank regulator says it will publish new capital rules at an “appropriate time”
• PBOC plans to set up a municipal bond market to ease burden on banks
• China's bank regulator cracks down on banking industry over deposit incentives
• Local stockbrokers investigated
• Banks in China defy regulators to sell repackaged loans and bonds, says Fitch
• China sends a mission to New Jersey as US criticism on trade and the Yuan grow
• SouFun surges after $125 million IPO in New York for Chinese real estate web site
• China suspends Ministerial level talks with Japan over fishing boat clash
• Nissan plans to nearly double output in China by 2012
• Typhoon Fanapi reaches China after injuring 45 in Taiwan

Great minds

Andy Xie and I have something in common, insofar as we both used to work for Morgan Stanley. Since then he has morphed into an iconic commentator on affairs in China…..but I’m better looking. In any event, he says that while China and US will engage in a war of words about the value of the Yuan, ahead of this year’s congressional elections, the US will most likely not take any substantial measures against China on the issue; and I agree. Xie also says that China’s currency is not undervalued given the Nation’s rising inflation rate, which he reckons is actually 6 to 7%; not the official 3.5%.

By way of a token measure perhaps, the Yuan is now at its strongest level since July 2005 (6.7172 per US dollar) and has risen 1.5% since the peg was scrapped on 19 June. Maybe this is enough? My view is that China is not in a hurry to do anything here. The PBOC has also cautioned against volatility in the value of the US dollar, saying that this could threaten the global recovery (which it could). The Central Bank also says that China will maintain “steady and relatively fast” growth in 2010 but a rebound in demand in the domestic economy is not yet on a solid foundation. Inflation expectations are also rising and it has pledged vigilance on this issue. The PBOC will also strictly control credit for industries which have overcapacity.

Turning to share prices, the excellent Jun Ma at Deutsche says that the likelihood of a year end rally has diminished because the Government is unlikely to take steps to boost the economy and accepts slowing growth; say 7% per annum rather than 10%. He also like property developers working in second and third-tier cities, where there will be more direct Government investment (as opposed to first-tier). Elsewhere, the CBRC has said publicly that it has no current plans to implement any new regulations in the real estate sector. This is good news and very significant.

In 1618, Hans Beer-Pot is reckoned to have coined the phrase “great minds think alike (as, it appears, do Morgan Stanley old boys); that new kid at Deutsche Bank isn’t bad either.

Shanghai Composite:
Today: -0.15% at 2,598.69 at close
This week: -2.4%
YTD: -20.7%

Hang Seng:
Today: +1.29% at 21,970.80 at close
This week: +3.4%
YTD: +0.5% (first time positive since 16 April)

Oil futures: $75.10
Gold futures: $1283.60 (new high on 17 Sept. of $1280.80 for immediate delivery)
Euro/$ spot: 1.3136 (note how this has risen too)

Headlines

• CBRC has no new property industry policy
• Policy-driven rally for China stocks is now less likely, says Deutsche's Jun Ma
• Andy Xie says stocks will be volatile but US take no substantial action on Yuan
• Geithner says China needs to allow “significant” Yuan gains
• China says US dollar swings may threaten recovery after US hearings
• Yuan is set for best week in 28 months as Geithner presses China for gains
• China will expand cross border Yuan settlement
• Dell may spend more than $100 billion over a decade in China
• China is set to lose 2% of GDP cleaning up decades of pollution

Diamonds are forever

Posted on Thursday, 16 September 2010 [GMT +1]

The Tower of London, aka Her Majesty’s Royal Palace and Fortress, is an historic castle on the north bank of the River Thames in central London. It was commissioned by William the Conqueror in 1066 (albeit he was dead by the time it was finished) and has played a prominent role in England’s history, most notably as a prison. I had breakfast there yesterday, as part of a corporate event (and happily walked out a freeman afterwards). My group was also treated to a private viewing of the Crown Jewels of the United Kingdom which are fantastically ornate and contain the most famous diamond in the World in the Koh-i-noor. But, as our guide said, the jewels are both priceless and worthless all at the same time; because where could you sell them?

China has never had any difficulty selling anything – and so successful has it been that the US has taken the hump and wants to legally stop, or at least reduce, it. To this end, two more WTO complaints have been lodged and US Congress is considering proposed legislation as a means of forcing up the value of the Yuan (so China is not unfairly competitive in export markets). But there is disagreement in the American ranks about what to actually do. In particular, those companies with operations in China (represented by the US-China Business Council) say that legislation is not the way forward and “Congress should not obsess over the value of the Yuan”. Similarly, Morgan Stanley’s Stephen Roach says that China is “doing its fair share of righting global trade and investment flows”; and “as much as Washington politicians would want China to help the US devalue its way back into economic prosperity, that approach is bound to fail in an era of huge budget deficits”.

More serious, to my mind, are the proposed new capital rules for China’s banks (and the main reason for share price falls today). Indeed, it is reported that the CBRC wants to add a capital adequacy ratio of as much as 4% to shield against economic swings. Inevitably, this would significantly slow the pace of loan growth, as underlined by Goldman Sachs; and means that the banks would have to raise even more fresh capital. China’s proposed new rules would also be stricter than Basel’s.

On a more positive note, FDI climbed for the 13th consecutive in August – and in the first eight months of 2010 it is 18% head at $66 billion. Nor is it likely that interest rates will rise to restrain inflation, which has been pushed up temporarily, it seems, by food (which rose by an annualised 7.5% in August).

“When we long for life without difficulties, remind us that oaks grow strong in contrary winds and diamonds are made under pressure”. (Peter Marshall)

Shanghai Composite:
Today: -1.89% at 2,602.47 at close
This week: -2.3
YTD: -20.6%

Hang Seng:
Today: -0.16 at 21,691.45 at close
This week: +2.0
YTD: -0.8

Oil futures: $75.25
Gold futures: $1274.00 (new high on 14 Sept. of $1274.95 for immediate delivery)
Euro/$ spot: 1.3081

Headlines

• US lodges two WTO complaints against China
• Geithner says US is examining ways to push China on the Yuan
• US lawmakers disagree on Yuan
• China’s stricter capital rules will constrain lending, says Goldman Sachs
• Foreign Direct Investment in China climbs for 13th consecutive month to $7.6 billion in August
• Food is driving inflation – which should mean no immediate rise in interest rates
• Private equity surge
• Wen to meet Obama at UN in New York

Carrot & stick

Until 1404, Tianjin was called “Zhigu” or “Straight Port”. In that year, the Yongle Emperor renamed it Tianjin, which literally means “the Heavenly Ford”, to indicate that the Emperor (son of heaven) forded the river at that point; and he did so on a campaign to scramble for the throne from his nephew. Today, it is one of four directly controlled municipalities in China and the Nation’s sixth largest city. It can also get pretty cold there, with temperatures regularly below freezing in January but in September it is very pleasant which is one of the reason’s why it is host to the ‘Summer Davos’ meeting of the World Economic Forum (which is normally snow covered).

China’s Premier Wen is there as you would expect – with his carrot and stick (which, I guess, you would also expect); the former being an economy in “good shape”, while the latter is a warning that the Government will, if necessary, stamp on an errant property market (real estate company shares fell 1.1%). For my money, though, I think the ‘vegetable’ is the more significant.

Elsewhere, the Conference Board said that China’s economic outlook rose for a third month in July with a (preliminary) gain of 0.5%, which follows a revised 0.7% in June and 0.9% in May. This signals the continuation of moderate economic growth albeit that this may become less evenly shared among manufacturers, investment and consumers.

The Yuan is also at its highest (6.7470) since 1993 which prompted Merrill Lynch to say that “China doesn’t want to see the relationship with the US get hurt because of the currency issue. There will be more space for Yuan appreciation also because signs show the economy will have a soft landing”. ML is looking for 6.6 by year-end.

All pretty good to be getting on with. If it’s not, though, and you are a Chinese citizen, you can now send messages online to a Communist Party bulletin board and harangue senior political leaders, says the FT. What would you say?

Shanghai Composite:
Today: +0.01% at 2,688.52 at close
This week: +1.0
YTD: -18.0

Hang Seng:
Today: +0.17 at 21,696.04 at close
This week: +2.1
YTD: -0.8

Oil futures: $77.18
Gold futures: $1251.60
Euro/$ spot: 1.2866

Headlines

• Wen says China's economy is in “good shape”, but cautions on property
• Conference Board’s leading economic index increases for third month
• Yuan surges to highest level since 1993
• PBOC sells one year bills at unchanged yield of 2.0929%
• China plans to introduce credit-default swaps by year end
• China may remove net asset limit on bond placements, says the 21st Herald
• Hong Kong will lead global house price league table in 2011
  

Surprise, surprise

Posted on Monday, 13 September 2010 [GMT +1]

Children and equity markets like pleasant surprises and, whether choreographed, or not that is what we had this morning. On Friday, speculation was rife that the reason behind the Government’s early publication of economic data (on Saturday rather than Monday) was a forerunner of an increase in benchmark Chinese interest rates (lending, deposit or both). It didn’t happen. What we did get, though, was confirmation of a still vibrant economy, albeit one in which the pace of growth is moderating - to the extent that CICC called it ‘Goldilocks’: not too hot; not too cold (and with fewer bears sitting at the kitchen table). On a more prosaic note, Merrill Lynch said GDP will expand at least 9.4% this quarter and 9.0% in Q4; and that “domestic demand is robust and the Chinese economy is heading for a smoother and softer landing than people had feared”.

Inflation remains a concern at 3.5% in August, albeit 1.8% of this was driven by agricultural pricing. Similarly, producer prices dipped from 4.8 to 4.3%. Nonetheless, a satisfactory performance here remains a vital metric.

Urban fixed asset investment also remains strong, with a run-rate of 25% (January through August), while bank lending rose for the first time in four months in August (+2.3%); as did M2, the broadest measure of money supply (+19% year-on-year in August and the first pickup in nine months). Despite this proving that there has been some financial loosening, most commentators believe the Government’s target of a 22% reduction in new lending (to Yuan 7.5 trillion) this year remains viable. That said, the debate on raising interest rates, especially for deposits, continues. South Korea, Malaysia and India already have.

Elsewhere, the Yuan hit a record high against the US dollar today of 6.7568 (correct at time of going to press); although this will, inevitably, not be sufficient for US legislators. However, the US-China Council (comprising more than 200 companies, including the likes of Caterpillar) says leave China and its currency alone. It can only see opportunity in the Country and believes tariffs and the like are “counterproductive”.

“The surprise is half the battle. Many things are half the battle, losing is half the battle. Let’s think about what’s the whole battle”. (David Mamet).

Shanghai Composite:
Today: +0.94 at 2,688.32 at close
Last week: +0.3
YTD: -18.0

Hang Seng:
Today: +1.89 at 21,658.25 at close
Last week: +1.4
YTD: -1.0

Oil futures: $77.95
Gold futures: $1245.70
Euro/$ spot: 1.2839

Headlines

• Record high for the Yuan versus US dollar
• Inflation hits 3.5%; but producer prices dip half a point to 4.3%
• China faces upward pressure on CPI from agricultural pricing, says NBS
• Industrial output tops forecast on “robust” growth
• Urban fixed-asset investment rises nearly 25% in first eight months of 2010
• New lending, rebounds and money supply unexpectedly picks up speed
• Goldilocks without the bears (?) as CICC and JPM like what they see, especially in small cap. stocks
• State economist says there is no need to raise rates; however…
• ……deposit rates should be raised, says PBOC advisor
• Swap rates rise to one month high as concerns of an economic slowdown ease
• CBRC may require core capital of 4% of assets, says China Business News
• US-China Council, including Caterpillar, is lobbying to block measures by the US on China’s currency (Ed: yes, this is correct); Stephen Roach adds warning too
• Yuan flexibility is a long term goal to meet economic needs, says Dow Jones
• China has 24 million job seekers and 12 million vacancies, reports Xinhua
• August power output surges to record due to very hot summer
• China will pass US as the largest credit card market by the year 2020, says MasterCard
• The historic China and Taiwan economic agreement took effect on 12 September
• China is also to allow individual tourists to Taiwan
  

Electric

A record 13,102 bolts of lightning struck ground in Hong Kong in the hour after midnight today as a storm raged from 21.00 yesterday through 04.00. If China raises interest rates on Monday morning, as speculated, this would be similarly shocking. Such conjecture arose because the Government has brought forward the announcement of its inflation figures to tomorrow (Saturday) instead of Monday. Industrial output is also promulgated tomorrow.

Today, China posted its third straight monthly trade surplus in excess of $20 billion (i.e. $20.03 billion) and although this is significantly up on the same month last year ($15.7 billion), it is lower than July’s tally of $28.7 billion; imports actually grew a tad more than exports in percentage terms. Similarly, the total for the year through August narrowed 14.6% to $103.9 billion. Not that this will provide succor to the US Yuan hawks, even as the Chinese currency posted its biggest weekly gain (+0.47%) since the end of June.

The property sector remained front and centre, too, as prices in 70 major cities climbed by an annual 9.3% in August. But this was the slowest in eight months and showed no change over July. Transactions and investment (+34% to $66 billion) continued to perform robustly, though, and opinion is divided on whether prices will fall or not (albeit, Jing Ulrich and I think they will). If they don’t, however, the Government is expected to introduce more controls. In any event the sub-index of property stocks in Shanghai slid a further 1.7% today to where it is off 28% year to date.

Remember, too as Willie Tyler said, “the reason lightning doesn’t strike twice in the same place is that the same place isn’t there the second time”.

Shanghai Composite:
Today: +0.26% at 2,663.21 at close
This week: +0.3%
YTD: -18.7%

Hang Seng:
Today: +0.43% at 21,257.39 at close
This week: +1.4%
YTD: -2.8%

Oil futures: $75.86
Gold futures: $1251.20
Euro/$ spot: 1.2726

Headlines

• China posts $20 billion trade surplus in August; Yuan has biggest weekly gain since late June
• China is set to announce inflation data earlier – which make point to an interest rate rise
• China property price gains slowed to 9.3% in August; slowest in eight months
• Investors are over-reacting to China’s credit growth as lending winds down, says UBS
• Banking regulator orders enhancements of risk management by trusts
• Top prices paid for building land in Beijing
• August passenger car sales growth accelerates to almost 19%
• China clean-energy aid triggers trade complaint from US union
• China trade unions plans to increase role at foreign companies
• Hong Kong public housing apartment sells for record price

Sweet and low

“China will soon hit another of its sweet spots, with an economy that is neither too hot nor too cold. They don’t come along too often these days, so don’t let it go to waste”. So says Stephen Green (no, not that one) who is Chief China Economist at Standard Chartered. Templeton agrees and says that China is a “bright spot” (it also says no global double-dip). These comments come ahead of a mass of economic data to be promulgated over the next few days, including trade figures (tomorrow) followed by industrial production and inflation (where the smart money says that its strength is short term and driven by a temporary spike in food).

Developers, however, remain unloved and their sub-index within the Shanghai Composite has fallen 26% this year, the worst performer among the five industry groups. At the time of writing, too, developers were down 1% today and look set to close at their lowest level since 19 July. JLL says that further constraints on property are inevitable. Jing Ulrich of JPMorgan (who is ranked by Forbes as among the 100 most powerful women in the World) disagrees and not only says that China should eschew further policy tightening (as the Government boosts the supply of affordable housing to ease prices) - but that it will not happen. PBOC Advisor Xia Bin agrees.

Meantime, US Treasury Secretary Tim Geithner said, yesterday, that Chinese officials need to allow the Yuan to rise more quickly against the dollar, in order to show China’s trading partners that it is following through on its promises. The currency gained 0.11% to 6.7868 per US dollar as of 10.29am in Shanghai, the first rise in three days. 12 month Non-deliverable Yuan Forwards, however, currently indicate appreciation of just 1.2%. In turn, this prompted International Strategy & Investment to say that “the greatest risk to the global economy in the coming years is US-China trade friction”.

Don’t worry though, because Goldman Sachs says that China’s stock market will be worth $41 billion against $5 trillion today, making it the World Number One; okay, that’s in 2030.

Shanghai Composite:
Today: -1.44% at 2,656.35 at close
This week: nc
YTD: -18.9%

Hang Seng:
Today: +0.37% at 21,167.27 at close
This week: +0.9%
YTD: -3.2%

Oil futures: $74.71
Gold futures: $1257.80
Euro/$ spot: 1.2697

Headlines

• China to introduce more property speculation measures, says Jones Lang LaSalle
• China does not need extra property controls amid new supply boost, says JPM’s Ulrich
• PBOC Adviser says property price increase is short term
• Gemdale property sales rose 41% in August; but are off 28% in first eight months
• China money rate drops to right-day low which supports demand for new debt
• PBOC may cut reserve requirement in H2
• PBOC sells three year bills at unchanged yield of 2.65%: and three months bills at 1.5704% (also unchanged)
• Templeton says World to avoid double-dip recession; and China is a "bright spot"
• Goldman sees $80 trillion emerging nations stock market by 2030, with China as number one at $41 billion
• Savile Row suit retailer expands in China
• Taiwan Stock Exchange looks to attract more than 50 listings on improved China ties

Back at work

Fresh from vacation, European sovereign debt scared just about everyone in the office yesterday; and out of sight has clearly been (albeit irrationally) out of mind. The contagion also spread to China where the Shanghai Composite eased back from a near four month high (and a whisker under 2,700). Nor did domestic news help, with 21st Century saying that a second round of measures to control the property market may now be introduced in the face of a continued surge in sales and prices. Similarly, the CBRC is reportedly drafting a plan which will require banks to maintain loan-loss reserves of 2.5% of total lending. At this time, only one (AgriBank) of the five largest State-owned banks exceeds this tally and, if introduced next year, it will reduce profits and restrict loan growth.

Elsewhere, steel company share prices eased, too, after Monday and Tuesday’s surge on production constraints and higher product prices. There was also caution from the Government on the economy with the Ministry of Industry talking about a slowdown, and VP Xi saying that, while there are positives, “the global recovery isn’t yet firmly established”. The Yuan is also being kept firmly under control (despite US fretting) with the reference rate seeing the steepest cut (0.16%) since 12 August; again with a weather eye on Euro sovereign debt. That said, the Chinese currency will soon be tradable with the Russian Ruble. Also on a positive note, Ernst & Young says that China is the most attractive country in which to invest in renewable energy.

And, finally, as Elbert Hubbard said “no one needs a vacation so much as the person who has just had one”.

Shanghai Composite:
Today: -0.11% at 2,695.29 at close
This week: +1.5%
YTD: -17.8%

Hang Seng:
Today: -1.46% at 21,088.86 at close
This week: +0.6%
YTD: -3.6%

Oil futures: $73.41
Gold futures: $1260.30
Euro/$ spot: 1.2684

Headlines

• Surging property sales trigger speculation of further tightening
• Property collateral is being used for consumption loans to fund third homes, says China Business News
• Yuan drops as China resists US pressure
• Yuan trading against Russian Ruble said to start within weeks in Shanghai
• Industrial output slowdown will deepen in H2, says Ministry
• Global economy emerging from “shadow” of crisis, says China VP Xi Jinping
• CBRC to require 2.5% loan-loss reserves, says Guosen
• Repurchase rate rises
• PBOC sells one year bills at unchanged yield of 2.0929%
• China takes top spot from US in Ernst & Young’s ranking for renewable energy
• Gates and Buffett to issue public explanation for trip to China
• Yangzijiang rises in debut of first China company to sell shares in Taiwan

Kiwi logic

For probably the first time in the thirty years or so that I have lived away from the country of my birth, New Zealand, it took the top spot in most news bulletins on Saturday, including CNN. Sadly, this was due to a 7.1 earthquake in Christchurch, the Nation’s second city. Miraculously, too, there was no loss of life (due to the tremblor’s timing at around 04.00 hours) but some $US1.4 billion of damage was caused. Typically, too, the NZ stock market closed up 1.2% today as building companies leapt 4 or 5%, which more than made up for insurance companies (including AMP) going the other way.

It is not surprising that New Zealand is not in the news so much, given its population of just 4.3 million. Chongqing (the World’s largest City), for example is nearly 7.5x larger – let only China, itself, which is more than 300 times the size. For me this underlines the awesome scale that is the PRC; not to mention its equally awesome potential.

My second lesson from the weekend and Monday’s events is the naked efficiency of the stock market. How could it be otherwise? But equity markets are not always correct and they often move too far in one direction or the other (i.e. up or down).

The Shanghai Composite is down some 18% in the year to date, but last week it rose 1.7% (with Hong Kong a touch better) and both started this week similarly. Positive economic news from the US was the catalyst. There was also a veritable crescendo of domestic news over the weekend, most of it positive. Of particular note, too, is the performance of Chinese property company bonds, most of which have recovered some 75% of their losses since May. As International Strategy and Investment said “credit investors are looking over this valley and while there may be some disruptions in the short term, they can see that the underlying demand for housing in China remains strong”.

Similarly, SAP talks about the “thrilling potential” that is China and wants to make its “second home” here. The IMF has also perked up after a conference in South Korea, while both RCM and BNP Paribas are buyers of Chinese stocks. The Yuan is also being polite to its latest US visitor (Larry Summers), who is to be followed soon by Warren Buffett and Bill Gates. Finally (okay there’s much more to talk about), FDI looks set to top $100 billion this year, after last year’s $90 billion.

As a New Zealand pragmatist might say: “she’ll be right, mate”.

Shanghai Composite:
Today: +1.54% at 2,696.25 at close
Last week: +1.7%
YTD: -17.7%

Hang Seng:
Today: +1.83% at 21,355.77 at close
Last week: +1.8%
YTD: -2.4%

Oil futures: $74.27
Gold futures: $1250.90
Euro/$ spot: 1.2886

Headlines

• Property bonds boom
• SAP talks of the "thrilling potential" in China and wants it to become “a second home”
• IMF underlines confidence in the global recovery
• China stocks advance as export outlook improves
• RCM says China shares are poised for a significant rally; BNP and others agree
• Yuan rises most in three weeks as US official visits China
• China’s 2010 Foreign Direct Investment may exceed $100 billion; up from $90 billion in 2009
• China to “aggressively” expand imports, say Ministry
• China to promote mergers in auto, cement and steel industries, says State Council
• Draft wage regulation to be revived
• China needs new measures to avoid carmaker overcapacity, says Xinhua
• Imax theatres to quadruple to 100+
• Chinese company profits rose 25% in 2009
• China allows insurers to invest and hold stakes in property assets of unlisted companies
• HSBC to distribute China Development Bank Certificates of Deposit in Yuan
• Shanghai to let banks and companies use offshore Yuan for investment in trial
• Chinese drive to list UK engineer, Precision Technologies
• China's small-cap stocks decline as restrictions on sale of shares expire
• Warren Buffett and Bill Gates to visit Beijing this month
• China may outstrip US retail sales at $5 trillion by 2016
• Traffic jam on Beijing-Tibet road begin to ease as car limits are removed
• Bank of China says its plans the sale of Yuan 5 Billion of bonds in Hong Kong
• Weekly house sales fall in Hong Kong's 10 largest projects
• Taiwan to study proposals for more financial industry investments in China

Butch & Sundance

Posted on Friday, 3 September 2010 [GMT +1]

Another day, another bearish property story……and as Butch Cassidy said to the Sundance Kid “don’t those guys get tried”. Evidently not, and today, the fabulously named, StarRock spoke about a “a very big bubble” in Chinese real estate and BNP Paribas added that house prices in China would fall (but it did not say by how much). More worrying, actually, are the latest estimates of local government loans at $1.6 trillion plus an up-tick in so-called ‘special-mention’ loans at China’s four State-owned banks (these loans are one level above non-performing).

In other news, ICBC has sold all of its Yuan 25 billion of bonds, while varying views on inflation continue. On a more positive note, Shenzhen is to spend $5.9 billion to make a ‘Manhattan’ in the Pearl River Delta and Hong Kong’s house sales have reached the highest in almost three years.

As Butch also said “I got vision, and the rest of the world wears bifocals”.

Shanghai Composite:
Today: -0.46% at 2,643.50 at 11.30
This week: +1.3%
YTD: -19.3%

Hang Seng:
Today: +0.07% at 20,882.54 at 11.57
This week: +1.4%
YTD: -4.5%

Oil futures: $74.75
Gold futures: $1252.10
Euro/$ spot: 1.2819

Headlines

• Local government loans may top $1.62 trillion
• Special-mention loans increase at the four State-owned banks (they are one level above non-performing)
• Property market in China in “very big bubble” says StarRock
• House prices in China to decline starting this month says BNP Paribas (although no number given)
• Shanghai issues regulations on property pre-sales
• China must reform Consumer Price Index calculation methodology, says researcher
• China does not face inflation risk this year, says former PBOC Advisor Fan
• China foreign currency reserves are ‘close to’ 65% in US dollars
• ICBC sells Yuan 25 Billion of six year convertible bonds
• Shenzhen to invest $5.9 billion in Qianhai area, says Securities Times
• Hong Kong house sales increased to highest in almost three years in August

Good in (almost all) parts

Today was also less-curate-like than yesterday with equities rising smartly (in excess of 1%) along with a 59% surge in August’s auto sales and the Yuan behaving itself (+0.18%). There was also positive (‘getting its own back’) news from China Vanke with Yuan 10 billion of apartment sales in August; plus in Shanghai, new home sales jumped 70%. The sole niggle was Deutsche Bank which said any hope that the Government will relax existing control measures on property had “vanished”; and they could well be strengthened (echoing yesterday’s sentiment from the CBRC).

Finally, I leave you with a statistic from John Lee, author of ‘Will China Fail?’ and a visiting fellow at the Hudson Institute in Washington DC. He says that China’s domestic consumption as a proportion of GDP, at just over 30%, is “the lowest of any major country in modern economic history”. Clearly this presents a wonderful opportunity but it is not a risk free one.

Shanghai Composite:
Today: +1.25% at 2,655.78 at close
This week: +1.7%
YTD: -19.0%

Hang Seng:
Today: +1.19% at 20,868.92 at close
This week: +1.3%
YTD: -4.6%

Oil futures: $73.82
Gold futures: $1250.30
Euro/$ spot: 1.2790

Headlines

• Yuan rises most (+0.18%) in two weeks on reference rate reflecting US dollar declines
• August’s auto sales climb 59%
• China may toughen property curbs, says Deutsche Bank; but China Vanke does well
• Shanghai's new home sales jump 70% in August as prices rebounded too
• China Railway Group aims to boost 2010 property sales 80%
• PBOC sells three month bills at unchanged 1.5704% yield
• Ping An to merge banking unit with Shenzhen Development Bank; and moves to majority control
• EU Chamber of Commerce speaks about “frustration” with pace and scope of Chinese deregulation