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
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