Correction not a ceiling

When the Yuan appreciates it seems that share prices in China rise - and vice versa. Today, for example, is the fifth out of the last six when the Shanghai Composite has fallen - having briefly visited the sunny uplit lands of 3,000 last Thursday and Friday. And, is it a coincidence that the Yuan is at its weakest level today since 30 September? Perhaps my eschewing of a career as an equity trader was a smart move after all. In any event China’s toymakers will be pleased and at a trade fair in Guangzhou this week, currency was the number one issue; and as one manufacturer said: “if the Yuan rises to six to the dollar we’re doomed”.

Okay, some of this weakness in the Yuan is driven by a stronger dollar; and there seem to be more and more of them according to Commerce Minister Chen Deming who said that the US Fed’s “uncontrolled” issuance of dollars is adding to inflation risks in China. Similarly, commodity prices are also priced in dollars which provides further exacerbation. But despite what Chen said were “difficulties” for Chinese firms he believes the Nation will see stable growth in exports and a “relatively big jump” in imports next year, 2011.

The State Council or ‘Cabinet’ is also in robust mood following its Q4 economic meeting. It said that while it is not all plane sailing, the economy is “moving in the expected direction”, growth is steady and relatively fast and momentum “further cemented”. However, it remains hawkish on food costs and property prices. Today it was also reported, in the Securities Times, that China may levy a 0.6% property tax on the value of all new homes other than first ones and work on trails may commence before year end.

Premier Wen is also in the spotlight and was seemingly attacked in an editorial in the People’s Daily. It disputed criticism that political reform is lagging behind economic growth, in what analysts said may be an attack on his calls for greater openness. Similarly, Professor Huang Jing (of the National University of Singapore) said that this was an “anti-reform statement”.

As I mentioned, trading day-to-day is not my forte but, as October wends its way to a close, the very positive big picture remains. And, I was particularly heartened by both HSBC, which sees a further 15% rise in equities (even with another 50 basis points on interest rates this year) and CICC, which said the recent decline in China’s stocks is “a correction rather than a ceiling”.

Shanghai Composite:
Today: -0.15% to 2,992.58 at close
(best since 16 April)
This week: +0.6%
October: +12.7%
Since 5 July: +26.6%
YTD: -8.7%

Hang Seng:
Today: +0.20 to 23,210.96 at close
This week: -1.3%
YTD: +6.1%

Oil futures: $82.04
Gold futures: $1325.00
(new ‘immediate delivery’ high of $1387.35 on 14 October)
Euro/$ spot: 1.3809

HEADLINES

MONEY

• Yuan falls to weakest level in October
• “Uncontrolled” printing of US dollars by the Fed poses threat of higher inflation in China
• Loans may exceed the Government’s target this year, says State Researcher
• PBOC sells three month bills at 1.77% yield
• Three year bills at 2.85% - the first rise in a year

ECONOMY

• Cabinet focuses on and food and property economic momentum is maintained
• Yuan appreciation is tough on toy makers

REAL ESTATE

• Property tax may be struck at 0.6% of value (for all but first homes), says Securities Times

DOMESTIC

• Wen may be the focus People's Daily leading article

HONG KONG

• Rally of China share in Hong Kong is intact, says CICC