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