Fruit salad

My sixth grade algebra teacher said that the golden rule was not to create fruit salad. By that he meant “don’t mix up the letters to the point of insolubility”. The G20 is similarly multifarious and, last week, simply swished around on its summit plate and, may be even curdled. Certainly its communiqués lacked any bite or fresh taste.

That said, China looks like being the G20 cherry and ING said “We have to give this round to the Chinese. In an international negotiation like this China has seized on QE to its advantage and managed to deflect any kind of criticism the US might have been able to give”. Similarly, Fortress Investments added the following: “the Chinese have done a masterful job of playing the cards on this one. They’ve turned a problem of them having a pegged currency into our problem”.

In fact the Yuan has declined since last week’s two summits, first the G20 in Seoul followed directly by APEC in Yokohama. And Hu said that currency reform will continue at a steady pace. Yuan Forwards point to +2.75% over the next 12 months, while others, such as Citigroup, are nearer +6%.

In any event finance ministers from the G20 will work on a set of “indicative guidelines” designed to identify large economic imbalances and the actions needed to fix them, according to a joint statement released in Seoul. The indicators will be selected with the help of the IMF and developed next year when the G20 presidency will be held by France. The G20 also said that emerging markets facing a surge of capital inflows can adopt regulatory steps to cope; or as it called them ‘macro prudential measures’.

In addition, the IMF said exchange rate flexibility in major emerging countries was “essential” to achieving “strong and balanced” growth. It also said that G20 growth forecasts are “distinctly more optimistic” than would be supported by past recoveries. Finally, APEC said that its leaders had taken “concrete steps” towards creating a “comprehensive free trade agreement, albeit without setting a timetable. Meantime, the US is pushing its own version of the same with its Trans-Pacific Partnership.

In other news, the Shanghai Composite regained some poise with a gain of almost 1% to clear 3,000 again today, after Friday’s interest-rate-driven 5.2% drop (the largest since August 2009). Similarly, both Goldman Sachs and HSBC are positive on equities, with the latter saying it was a buying opportunity and forecasting a 15% rise by July. Today’s gain was also made despite a report that China’s four largest banks have stopped new loans to developers.

On a positive note, too, China surpassed Japan in Q3 in terms of GDP to be the World Number 2 and Standard Chartered says that by 2020, China will have overtaken the US to be Number 1.

“Well, there won't be any berries in the fruit salad now, so we all lose” - Oh in ‘Year One’

Shanghai Composite:
Today: +0.97% to 3,014.41 at close
Last week: -4.6%
In November: +1.2%
Since 5 July: +27.5%
YTD: -8.0%

Hang Seng:
Today: -0.76% to 24,027.18 at close
Last week: -2.6%
In November: +4.0%
YTD: +9.9%

Oil futures: $85.29
Gold futures: $1364.50
(new ‘immediate delivery’ high of $1424.30 on 9 November)
Euro/$ spot: 1.3654

HEADLINES

EQUITIES & YUAN

• Stocks recover from Friday’s 5.2% drop
• After stocks have their biggest fall in more than a year, HSBC says “buy”
• Yuan Forwards dip and point to 12 month appreciation of 2.75%; BoA says 6.4 next year and Citigroup 6.25

G20, APEC ET AL

• Yuan appreciation eases after “masterful” job at G20
• G20 supports regulatory steps to combat capital flows
• China promises to adopt “steady” currency reform after G20
• Banks win a year reprieve as G20 holds back on introducing new measures on risk
• “I’ll give this round to the Chinese” says ING
• Commerce Minister attacks QE and “imported inflation”
• IMF tells G20 that exchange rate flexibility is a key foundation for growth
• IMF says that G20 forecast may be optimistic
• US and South Korea fail to agree trade pact on cars and beef
• China’s trade with Brazil and Portugal is rising fast
• US wants more Yuan appreciation by Hu’s visit in January
• APEC leaders speak of “concrete steps” towards free trade
• Japan and China make up (but no kissing)
• US push to conclude Asia Pacific trade talks by next year

REAL ESTATE

• Four largest domestic banks to make no more loans to developers this year

DOMESTIC

• Interest rate forecasts see 6.31% at end-2011
• China’s economy was bigger than Japan in Q3 to be World Number Two
• China may over-take US by 2020, says Standard Chartered
• China's annual $26 billion diabetes cost is to skyrocket
• Starbucks sets up coffee facilities in Yunnan

HONG KONG

• Hong Kong GDP expands by higher-than-expected 6.8% in Q3
• Hu says worst is over for Hong Kong

IRON & STEEL

• Xstrata to invest $6 billion in Mauritania iron ore mines
• New issues, including Zanaga Iron Ore, highlight appeal of AIM
• Anglo offloads steel units in Canada and Chile