The 11th month

“No shade, no shine, no butterflies, no bees, no fruits, no flowers, no leaves, no birds. November” – Thomas Wood

With apologies to Southern Hemisphere readers, those of us in the North know that November (even with one day to go) can be a miserable month; and in Shanghai share prices showed the first month on month fall (-5.3%) since June. Further monetary tightening is imminent and, in many ways, it would be better if the Government simply got on with it, rather than sitting on its hands. In fact money market rates (after a pause for breath yesterday) are already there as the seven day repurchase rate rose 63 basis points today to 3.31%. Similarly, the Chinese Academy of Social Sciences says benchmark interest rates could rise 200 basis points (albeit with no timetable).

Nor does the background noise from Europe help; and let’s not forget that this is China’s single biggest (albeit multi-national) market taking around one fifth of exports. Tensions on the Korean Peninsula continue, too, albeit WikiLeaks points to evidence that China may be beginning to distance itself from, North Korea and in one exchange between China and the US - apparently - China’s Vice Foreign Minister said the Government in Pyongyang was acting “like a spoiled child”.

In real estate, Moody’s gives with one hand and takes away with the other i.e. the property market was given a stable outlook but with a moderate downward correction. “The improved liquidity positions of developers, resulting from robust sales over the last year, and the low debt leverage of buyers together reduce the risk of any panic sales”; and this will help “avoid any drastic correction”. However, the latest set of regulatory measures will be “progressively enforced”.

Moody’s also says that contracted sales values, or a combination of sales volumes and prices, for the 23 Chinese developers tracked by the credit rating company will drop 15 to 20% in 2011. But this is “manageable” for most of the real estate companies. Similarly, home sales volumes in 17 of 35 major cities increased last week from the previous week, according to SouFun, which operates China’s biggest real estate website. That said, the dollar bonds of China real estate companies had their first loss (-0.35%) of this half year after the PBOC imposed restrictions intended to limit developers’ access to bank loans and slow mortgage growth.

Back in the stock market, only Citigroup remains positive. “The liquidity driven rally will likely carry on in the next six months. We remain bullish on China in coming months”. Given the inflationary environment and prospects for further Yuan appreciation, Citigroup recommends an “overweight” allocation for cement companies, automakers, heath care companies as well as technology stocks.

“Happiness is an attitude. We either make ourselves miserable, or happy and strong. The amount of work is the same” - Francesca Reigler

Shanghai Composite:
Today: -1.61% to 2,820.18 at close
This week: -1.8%
In November: -5.3%
Since 5 July: +19.5%
YTD: -13.9%

Hang Seng:
Today: -0.68% to 23,007.99 at close
This week: +0.6%
In November: -0.4%
YTD: +5.2%

Oil futures: $85.64
Gold futures: $1369.80
(new ‘immediate delivery’ high of $1424.30 on 9 November)
Euro/$ spot: 1.3103

EQUITIES & MONEY

• Stocks set to show first month’s fall since June; Citigroup remains positive
• Seven day repurchase rate rise 63 basis points to 3.31%
• “Prudent” monetary policy advocated by former banker
• Yuan trades near three week low
• Emerging markets attract new record level of funds at $84 billion; as China has best week since September

KOREA

• China is beginning to distance itself from North Korea, according to WikiLeaks

REAL ESTATE

• Moody’s sees stable outlook property but also a 15 to 20% drop in contracted sales values in 2011
• Real estate US dollar bonds show first loss

DOMESTIC

• China will cut prices of 17 medications
• Rolls-Royce pushes $990,000 cars among China’s new rich
• China approves 5.6 gigawatts of hydropower projects in Sichuan Province

HONG KONG

• China’s Yuan 3 billion debt sale in Hong Kong to individuals may offer 2% yield
• PBOC is unlikely to expand Yuan quota for Hong Kong

IRON & STEEL

• Baltic Index drops for three days running as capesize vessel supply increases
• Seaborne iron ore volumes set for 6% rise in 2010
• Chinese steel prices rise 7.2% in November; as production rises
• Vale may invest $158 million in Malaysia next year, says Business Times