It is difficult to believe today - looking at the Shanghai Composite’s 1.7% drop - that there are good things happening. Okay, stocks fell, led by lenders and commodity producers, on concern that banks’ capital raising will harm the market and the Government will continue to tighten policies to contain inflation and real estate. But is this new news? No. Similarly, the fabled economist John Maynard Keynes said that inflation cannot acceptably control itself without government intervention. I agree, as does the PBOC and there are already signs of success.
On a similarly brighter note, China’s trade surplus eased to $13.1 billion against expectations of $20 billion. This is positive because it will serve to calm international (especially US) criticism and because of its composition: exports rose 17.9% while imports were up 25.6% i.e. China is moving towards balanced trade and increasing domestic consumption. As HSBC said the full year gap also narrowed 6% to $183.1 billion even as trade bounced back from the financial crisis with both exports and imports rising to records in December. “China lowered last year’s whole year trade surplus to around 3% of GDP, from the 2007 peak of over 11%. In other words, China has already rebalanced its trade surplus, weakening the case for a fast Yuan appreciation”. For its part the Yuan fell for a fifth day, declining 0.1% to 6.6326 per US dollar as of 11.24am; and Forwards suggest just 2.7% appreciation over the coming year.
Turning to real estate, the imminence of property taxes is nigh as Chongqing and Shanghai look at targeting luxury properties and new homes, respectively, this quarter. However, Daiwa Securities says that only about 10 to 20% of new homes in the two cities may be affected by the taxes. Similarly, RBS adds that Chongqing is likely to impose a 1% tax on properties priced at three times the average. “This is quite low”.
More broadly, CLSA says that China’s property market is not a bubble because household incomes are rising in line with prices. House prices in so-called second tier cities, where most urban Chinese live, are about 75% lower than in larger cities such as Beijing and Shanghai, and increases are slower. Larger cities, where house price gains are excessive, account for about 5% of China’s new transactions, it added. Property prices nationwide have risen by an average 10% per annum over the past six years, compared with an average 13% increase in household incomes. “That’s really a pretty healthy balance and people tend too much to focus on first tier cities. When people talk about bubbles, they are not looking at details. They are just looking at headlines”. CLSA is also sanguine about property taxes, “if you look at all the rumours going around, the tax rate is not that big. Our view is that they are not going to put in place a property tax which adds a big new burden for the average home owner. That’s part of the process of creating a normal economy in China”.
It is also significant that Shanghai is now the World’s busiest port as it pushed Singapore into second place in 2010. This achievement has also come 10 years ahead of the Government’s target. Note, too, that capsize shipping rates are forecast, by Clarkson, to fall 34% this year - which is good news for both inflation and margins (unless you are a shipping company). Iron ore imports to China also rose to a nine month high in December (despite dipping in 2010 as a whole) and steel exports soared by a staggering 73% last year. Finally VW is to invest Euro 10.6 billion in China (which is its biggest market) through 2015.
And, yet another forecaster, S&P, has come out with a bullish forecast for the Shanghai Composite this year i.e. +34% in value.
“Character, in the long run, is the decisive factor in the life of an individual and of nations alike” - Theodore Roosevelt
Shanghai Composite:
Today: -1.66% to 2,791.81 at close
Last week: +1.1%
December: -0.4%
2010: -14.3%
Since 5 July: +18.1%
YTD: -0.6%
Hang Seng:
Today: -0.67% to 23,527.26 at close
Last week: +2.9%
December: +0.1%
2010: +5.3%
Since 25 May: +23.9%
YTD: +2.1%
Oil futures: $88.73
Gold futures: $1373.90
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.2995
ECONOMY
- Trade surplus for December is smaller than expected at $13.1 billion as imports out pace exports
- PBOC show support to EU and Euro
- Shanghai is officially the World’s busiest port, as Singapore slips to number two
- Volkswagen to spend Euro 10.6 billion in China as its 2010 sales rise 37% to 1.92 million vehicles
MONEY
- Yuan dips again to 6.6326 as Forwards point to +2.7% over the next 12 month
- FX reserves set for nudge $2.8 trillion in Q4
- Money market rate falls to lowest in a month
- Wenzhou to let individuals invest outside China
REAL ESTATE
- Chongqing considers tax on luxury property, as Shanghai looks at taxing new homes
- House prices are rising in line with incomes and there is no bubble, says CLSA
EQUITIES
- S&P says China’s shares will rise 34% in 2011
IRON & STEEL
- December’s iron ore imports to China rise to a nine month high; although 2010 saw a dip for first time since 1998
- Iron ore prices at $172.6 - the highest since May
- China’s steel products exports rise 73% in 2010
- Global seaborne iron ore shipments to rise 7.5% in 2011 to record 1.04 billion tons, says Clarkson
- Shipping rates are forecast to fall 34% this year as supply of new capsize vessels rises by around 200 (or nearly a fifth) - from Clarkson again
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