Mexican Stand-off

A Mexican Stand-off or MS is a stalemate/impasse i.e. a confrontation in which neither side is sure of winning and which is, thus, exceptionally dangerous for all parties involved. In the movies, an MS is usually portrayed as two opponents with guns drawn and ready but neither is willing to shoot for fear of being shot in return; yet neither one is prepared to relinquish his weapon for fear that his opponent will shoot him.

On the Korean Peninsula we have a KS or Korean Stand-off. On 23 November, North Korea attacked the island fishing community and military outpost of Yeonpyeong. This was the first shelling of South Korean soil since the 1950-53 war and it left four dead. Today, South Korea proceeded with a live firing drill – the threat of which has prompted North Korean to threaten retaliation; the latter said this “would make it impossible to prevent the situation on the Korean Peninsula from exploding”. Nor could an emergency session of the UN Security Council ease tensions i.e. it ended last night without agreement as China blocked moves to condemn the North and Russia urged the drills be scrapped.

Amid such waves of bellicosity, I admire the buoyancy of RBC Investment Asia, which said: “there’s also a slight concern on escalating tensions in the Korean Peninsula, though it’s unlikely to develop into a major skirmish”. The Shanghai Composite, however, was off 1.4% today (albeit above its worst).

In other news, you will be comforted to know that the Governor of the PBOC, Zhou Xiaochuan, keeps a weather eye on the stock market when determing economic policy..... The Nation will also have to learn to live with higher inflation (4 to 5% next year) if the State Council is taken at its word. Domestically, too, China has decided to reduce 658 drug prices by an average of 40%, it is reported. Elsewhere, Komatsu is selling many more excavators than expected in China with now a 25% forecast increase in Q4 sales versus an estimate of 15% in October. “Komatsu is less vulnerable to a shift to tightening policies as its operations are related to the area that needs spending” said Retela Crea Securities. “There’s no change in the trend that the Country will invest in construction projects and resources”. Similarly, Taiwan’s AU Optronics is to build a $3 billion LCD plant in China. Finally, I am also, palpably, encouraged by Shanghai Jin Jiang and its plans to build the World’s tallest hotel in Shanghai at 632 metres – and the World’s number two tower. There is life after war.

Internationally, China continues to throw money around like a man with no hands,as Premier Wen returns from Pakistan boasting his agreement to $25 billion of Chinese investment there. Similarly, Citic intends to build 10,000 housing units in Venezuela which will be funded by using some of the $20 billion loan which China made to the South American nation earlier; President Hugo Chavez also says that this loan is “renewable”. Meantime, in Greece, China Development Bank is opening a branch in the port of Piraeus, near Athens. The move is partly the result of a decision by the Chinese government to set up a $5 billion fund to facilitate purchases of Chinese-built ships by Greek owners.

“Creating an undesired stalemate is the height of stupidity” - Anon

Shanghai Composite:
Today: -1.41% to 2,852.92 at close
Last week: +1.9%
December: +1.2%
Since 5 July: +20.7%
YTD: -12.9%

Hang Seng:
Today: -0.33% to 22,639.08 at close
Last week: -1.9%
December: -1.6%
Since 25 May: +19.2%
YTD: +3.5%

Oil futures: $88.00
Gold futures: $1385.80
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3160

KOREA
• Stocks drop on tension in Korean Peninsula – shadowed by interest rate Concerns
• China says it is “deeply” worried about Korea

ECONOMY
• PBOC Governor says China is trying to consider economic policy impact on stock market
• 2011 inflation to be 4 to 5% (with peaks of 6%) says State Council
• US Ambassador Huntsman says it is in China’s interests to allow Yuan to appreciate

MONEY
• Derivatives rules increase risks in new market for swaps
• South Korea imposes levy on FX borrowings

REAL ESTATE
• Shanghai's Jin Jiang to build World's tallest hotel – and World’s number two tower

DOMESTIC/INTERNATIONAL
• Taiwan's AU Optronics to build $3 billion LCD plant in China
• Komatsu's quarterly sales of excavators in China surpass estimates
• Wen commits to $25 billion of investment in Pakistan
• Chinese fisherman dies with one missing after clash with South Korea patrol boat
• Russia pipeline to supply 15 million tons of oil per year to China
• China may reduce drug prices by an average of 40%

HONG KONG/TAIWAN
• Hong Kong stocks fall to two month low, with developers weak
• Mixed views on weekend existing home sales in Hong Kong, as prices weaken
• Taiwan may raise Chinese tourist daily limit to 4,000

IRON & STEEL
• ArcelorMittal raises bid for Baffinland by 14% to $485 million; and reduces acceptance level
• Nunavut says lower acceptance conditions in Baffinland bid battle are unfair