Arms and legs

Paul the Octopus, who predicted, correctly, every result for the German soccer team at this year’s World Cup - and the winner of the final - has died in Oberhausen. The two and a half year old cephalopod became an international media sensation during the tournament in South Africa as he picked the winners by choosing between two mussel-filled containers sporting the flags of each team. Maybe, it is something about having eight arms that makes predicting the future easier. In any event, asking a devilfish (as they are also known) for help underlines our desperation to know what is going to happen.

For my part, I find Merrill Lynch an altogether more palatable alternative and they have raised their Q4 GDP estimate for China from 9.0 to 9.3% (and for the full year from 10.1 to 10.3%). This also comes on the same day that the 1,181 public companies reported a 48% rise in net income for the first nine months of 2010 (albeit cash went the other way). Similarly, the Shanghai Composite leads 89 other benchmark indices for October (+13%) and YCMNet says the rally still “has legs”. Meantime, the Government, with one eye on the inflation rate, has, this week, also raised gasoline and diesel prices by 3%.

In real estate, too, there was good news as those clever people at Citigroup said the measures to control property speculation will have only a temporary effect on demand “given excessive liquidity in the Country, the Government’s dependence on real estate for revenues and the lack of investment alternatives. In our view, policy should not be paid too much attention”. In addition, new loans to the real estate sector rose 32.9% in the first nine months from a year ago to Yuan 1.72 trillion, according to the PBOC.

Finally, the Yuan weakened by the most in 22 months (-0.25% to 6.6795) following Vice Commerce Minister, Zhong Shan’s comments that this year’s trade surplus will be “definitely” smaller than in 2009. Comments from Professor Wang Yong, a PBOC researcher, also had an impact when he said that China should resist pressure from the US and Europe to let the currency appreciate. That said, Yuan Forwards are still looking to 2.6% appreciation (although this is down 100 basis point from last week). In addition, China’s largest shipbuilder listed in Singapore, Yangzijiang, is currency hedging the Yuan at 3% appreciation per year in expectation that it will rise, but that the Government will prevent gains above that pace. An ASEAN meeting takes place in Hanoi tomorrow and Friday and the Yuan is expected to be front and centre in discussions.

“Talent without discipline is like an octopus on roller skates. There’s plenty of movement, but you never know if it’s going to be forward, backwards, or sideways” - H. Jackson Brown Jr

Shanghai Composite:
Today: -1.46% at 2,997.45 at close
(best since 16 April)
This week: +0.7%
October: +12.9%
Since 5 July: +26.8%
YTD: -8.6%

Hang Seng:
Today: -1.85 at 23,164.58 at close
This week: -1.5%
YTD: +5.9%

Oil futures: $81.79
Gold futures: $1333.30
(new ‘immediate delivery’ high of $1387.35 on 14 October)
Euro/$ spot: 1.3819

HEADLINES

YUAN & MARKETS

• Yuan falls most in almost two years
• Yangzijiang Shipbuilding Holdings hedges for 3% annual appreciation of the Yuan
• PBOC Professor defends Yuan
• Shanghai Composite is best global index in the month of October with 13% gain

ECONOMY

• Merrill Lynch raises Q4 GDP forecast form 9.0 to 9.3%
• Nine month profit of listed Chinese companies rises 48% to Yuan 198 billion, but net cash flow falls
• China hikes fuel prices to help cool the economy
• China ranks itself as the World's 17th most competitive economy, which is a gain of 56 places since 1990

REAL ESTATE

• Developers share prices surge on Citigroup comments that property controls will have only a temporary effect
• Nine month new loans to the real estate sector advance 33% to Yuan 1.72 trillion
• Chongqing may introduce a property tax on both second and large first homes
• Singapore and China top league table of house price rise, says Knight Frank

INTERNATIONAL

• ASEAN meeting in Hanoi likely to focus on Yuan
• Rice price is likely to extend rally as flooding and storms damage Asian harvest

BONDS

• Finance Ministry sells 10 year bonds at 3.67% yield
• One year bills at 2.2913% yield and first rise since 8 June
• Bank bonds lead declines after surprise interest rate rise

DOMESTIC

• Transport gridlock drives price of coal to a four month high
• Thousands of students are reported to have marched on Japanese consulate in Chongqing

HONG KONG

• Hong Kong luxury home prices exceed 1997’s peak

IRON & STEEL

• ArcelorMittal shares fall on demand outlook and selling prices
• EU imposes 22.3% five year tariff on Chinese car wheels