Style français

Chateaux Lafite Rothschild wines were served at the Elysee Palace in Paris last night as President Hu was feted by President Sarkozy; but not just any old ones. For example, top of the bill was a 1942 CLR to celebrate the year of Hu’s birth. This was followed by wines from: 1949 to mark the establishment of the PRC; 1964 to commemorate Charles de Gaulle’s decision to recognise the Chinese communist regime; 1978 for the start of China’s economic reforms; 2002 for Hu’s ascension to power; and 2008 for the Beijing Olympic games. No one was left standing.

Earlier in the day Hu, who is on a three day visit, and Sarkozy sealed Euro 16 billion ($22.7 billion) of contracts benefiting Airbus, Areva, Total and Alcatel-Lucent. The Chinese leader also said he wanted to double trade between China and France to $80 billion by 2015.

This impeccably tasteful/sharply commercial tandem is typically French. It also serves to underline China’s rising global pre-eminence and its rising importance as a buyer/consumer. The latter, combined with $600 million of US Fed buying of Treasuries, has pushed the Shanghai Composite to its sixth weekly consecutive gain and to a level 32% up on early July. Similarly, the deficit for the year-to-date now is just 4.5%. The logic is that the Fed will stoke global growth and global demand for commodities (see oil futures below). Hong Kong has proved no slouch either and is now at its best level since May 2008; and 14% up year-to-date.

The World Bank also jumped on the band-wagon this week with raised GDP forecast for China from 9.5 to 10.0% this year and 8.5 to 8.7% next. It also said interest rates would have to go up; as did Standard Chartered Bank (with the key one-year lending rate rising from 5.56% to 5.81% before year-end). Not that this worries, Templeton guru, Mark Mobius who is “very bullish” on China which he says has “no big problems”. Goldman Sachs is also positive and, in Hong Kong, is looking for the market to rise by a further 16% (half of it by 31 December).

In other news, the sabre-rattling continues ahead of next week’s G20 Summit and the smart money says that Tim Geithner’s proposal to limit current account deficits to 4% of GDP has a snowball’s chance in hell. The Yuan has also had its first weekly gain (+0.11%) in three weeks as it girds its loins for the inevitable flow of inward capital (Yuan Forwards are pointing to +3.5% over 12 months). International trade transactions settled in Yuan also more than doubled in Q3 and China has, this week, commenced trading Yuan-denominated credit-default swaps but with tighter regulations than most other places.

Meantime, in real estate the market remains very buoyant and luxury home sales in Shanghai rose 82% in September (which is the highest monthly gain in five years); albeit the clouds of property tightening/tax continue to gather. More specifically, developers can now only borrow up to 50% of a project's value and additional rules have been applied to second home purchases. The smart money, again, says the property market can take this in its stride.

“Wait until it is night before saying that it has been a fine day” - French Proverb

Shanghai Composite:
Today: +1.38% to 3,129.50 at close
(best since 16 April)
This week: +5.1%
Since 5 July: +32.4%
YTD: -4.5%

Hang Seng:
Today: +1.39% to 23,876.82 at close
(best since 22 May 2008)
This week: +7.7%
YTD: +13.7%

Oil futures: $87.64
Gold futures: $1382.90
(new ‘immediate delivery’ high of $1394.40 on 5 November)
Euro/$ spot: 1.4120

EQUITIES & ECONOMY

• Stocks record sixth weekly gain
• Mobius is bullish and likes China
• Hu and Sarkozy sign Euro 22.7 billion worth of deals for Airbus and others domestic companies
• Geithner's 4% solution may Be “unworkable” as APEC gathers
• World Bank says China needs to raise rates further as increases GDP forecasts
• China's non-manufacturing Purchasing Managers Index falls from 61.7 to 60.5 in October
• PBOC estimates a 2010 annual inflation at about 3% but pressures remain
• ChiNext Stock Exchange tightens the rules for managers selling shares to prevent flood of seller

YUAN

• Yuan is set for weekly rise on speculation of more foreign pressure
• Yuan settlements jump 160% in Q3 as Nokia and Metro turn away from US dollars

BANKING ETC

• China says US Fed Reserve must explain bond buying or endanger recovery
• China begin Yuan-denominated credit default swaps: but rejects “naked swimming”
• Capital adequacy ratios rise at Chinese banks in Q3
• China is reported to be seeking changes in the way local government loans and made and managed

BONDS

• PBOC sells three year Government bonds at 2.68% yield
• PBOC sells three month bills at unchanged 1.7726% yield

REAL ESTATE

• Shanghai luxury home sales volumes rises in September by most (82%) in five years
• Shanghai will crack down on illegal new home presale practices, says Daily
• China property tax may lead to a 20% decline in house prices, says Citic
• China may introduce more property tightening steps in Q4, says Nomura
• Walt Disney signs JV with China's Shanghai Shendi Group to build new park
• Developer loans to be limited to 50% of project value, says Securities Times
• China to require a 50% down payment for second home for those using housing funds
• China Vanke's sales in October more than double from a year earlier to $2.33 billion
• Poly Real Estate’s contracted home sales were Yuan 8.9 billion in October

DOMESTIC

• Communist Party says Nobel Peace Prize award to Liu is a “political tool”

HONG KONG & TAIWAN

• Stocks hits highest level since May 2008 and has its best week for some 18 months
• Hang Lung Properties falls after placement
• Taiwan Dollar jumps most in almost 10 years on Fed easing