Children

My son turned 23 yesterday which stimulates a panoply of emotions, atop of which is the shiver of ancientness and the realisation that you are, at the very least, MA (i.e. middle-aged). I am sure too that, psychosomatically, my perambulation over the last 24 hours has been a little slower and a little stiffer. Second, is that feeling of responsibility and the very clear memory of the very first moment you have a child; this is the day that you stop being one yourself and become an adult for the very first time.

North Korea (NK) is a child and a naughty one at that; and although not a direct descendant of China, it is - at the very least - a step child. ‘Father’ Wen Jiabao (who is on a visit to Russia) also finally said something about NK’s recent bellicose behaviour towards its southern relative (and the death of four people). He called for stability on the Korean Peninsular but, at the same time (through filial loyalty, perhaps) did not find fault with NK. Coincidentally or not, China’s foreign minister (aka NK’s Godfather) cancelled a visit today to South Korea due to scheduling issues (yeah, right).

As for the rest of the family, the Yuan rose for the first time in four days to 6.6502, albeit that it’s recent weakness (-0.31%) has had more to do with dollar strength on the back of Korean hostilities. Yuan Forwards are pointing to +2.2% over 12 months, albeit Standard Chartered says it is more likely to be +7.0% annualised in H1 next year; at the same time 2011 inflation is forecast to rise to 5.5% against 3.2% in the current 12 months. Similarly, money markets are presaging higher interest rates as the PBOC pledged to strengthen liquidity and “normalise” monetary conditions. The seven day repurchase rate, which measures lending costs between banks, jumped 15 basis points to 2.48% which is the highest level since 8 October. And as DBS Bank said “enough has been done on the supply side, but work needs to be done on the demand side”. In the same vein, new loan targets for next year may be as low as Yuan 6.0 to 6.5 trillion (down from Yuan 7.5 trillion+ in 2010).

Meantime, our cousins in real estate took a bit of a battering as the State Council said that it needed to introduce “harsher” measures to restrain speculation. It also pushed for an increase in the supply of affordable housing for low and middle income families. At the same time, the Government also plans to carry out a nationwide property inspection with a focus on local government land supply, affordable housing targets, idle land and misuse. Juxtaposing this, though, are number one developer China Vanke and its doubling of sales in October plus the property sector sub-Index rising 2.4% in early trading in Shanghai.

The bonds playground - Government and corporate - remains busy and Caterpillar has sold Yuan 1 billion of debt in Hong Kong. It is the second US corporate to do so after McDonalds. Chinese IPOs, however, have lost their shine both in Hong Kong and New York with two delayed (Bluestar Adisseo and China Datang) and one falling 15% on debut (Syswin, which provides services to property developers in 17 Chinese cities) respectively.

On a brighter note, Credit Suisse says China’s stocks may climb about 20% in 12 months as “abundant” liquidity and profit growth overshadows the risk inflation. Similarly, while a little more cautious in the short term, JPMorgan has maintained its medium term “positive stance”. It also says that the risk of inflation running out of control has been “exaggerated” while China still has a “solid” economic and corporate growth outlook”.

“Children are like wet cement. Whatever falls on them makes an impression” - Dr Haim Ginott

Shanghai Composite:
Today: -1.95% to 2,828.28 at close
This week: -2.1%
In November: -5.1%
Since 5 July: +19.6%
YTD: -13.7%

Hang Seng:
Today: +0.13% to 23,054.68 at close
This week: -2.3%
In November: -0.2%
YTD: +5.4%

Oil futures: $83.65
Gold futures: $1372.10
(new ‘immediate delivery’ high of $1424.30 on 9 November)
Euro/$ spot: 1.3312

KOREA & EQUITIES

• Wen calls for stability on Korean Peninsula
• Stocks may gain 20% in 2011 on liquidity and profit growth, says Credit Suisse

MONEY

• PBOC says it will strengthen liquidity management and normalise monetary conditions
• Money market rate climbs to highest level in a month
• Yuan rises for first time in four days; with Yuan Forwards pointing to +2.2%
• Yuan appreciation to quicken with inflation, says Standard Chartered in HK
• Commodity exchanges in China increase fees to combat threat of speculation
• Shanghai Futures Exchange to suspend preferential trading fees by charging both sides of transactions

BONDS

• PBOC sells three month bills at static yield of 1.8131%; and same for three year offer at 3.0%
• Seven year bonds sold at 3.83%
• Caterpillar raises $150 million in Hong Kong sale of Yuan bonds
• Chinese State-owned companies look set to double US dollar bond sales

REAL ESTATE

• China needs “harsher”property restraints and increased supply of lower cost housing, says Cabinet official
• Cheng says China may curb developers further
• Ministries to carry out property inspections
• Shimao Property and China Vanke (especially) see very good sales advances in October
• Developers shares rise 2.4% in largest gain since 13 October (but still 5% down in November to date)

INTERNATIONAL

• Syswin shares retreat as Chinese IPOs lose momentum on the New York Stock Exchange
• Tokyo follows Hong Kong with shorter stock market lunch break - back to one hour

DOMESTIC

• China builds French-designed nuclear reactor for 40% less
• China may face power supply issues this winter
• Citigroup may double number of staff in China to 10,000 over three years
• China to encourage foreign investment in “high level” manufacturing
• Machinery industry to grow at 15 to 20%, with focus on items for use in construction

HONG KONG

• Bluestar and Datang delay $2.6 billion Hong Kong IPOs on worries about volatility

IRON & STEEL

• Iron ore investment opportunities abound on London’s AIM
• Steel and cement output to rise as power limits ease, says CICC; selling prices to fall
• Hunan Valin sells $189 million stake in Fortescue Metals