These are the words of writer James Morris and I think we all know what he means, as Oman now joins the Middle East and North African democracy bun-fight. As I noted on Friday, too, China has not been spared the so-called “Jasmine Revolution” either, although the scale of anti-Government demonstrations is impossible to determine or estimate.
What is clear, though, is that the rallying cry via the Internet has been vociferous and persistent (despite LinkedIn being down for 24 hours Friday through Saturday). The police presence has also been the same and, on Sunday in Shanghai, at least 23 police vehicles were stationed around Shanghai’s Peace Cinema in the shopping area of People’s Square. Similarly, the police in Beijing co-opted paramilitary units with Rottweilers and German Shepherds. Several foreign journalists were also removed from the streets and/or asked, by telephone, to “obey reporting rules”.
An open letter from a US sourced website named Boxun.com called on people to gather in at least 27 sites around the country for Jasmine rallies. “Come out and take a stroll at two o’clock on Sundays to look around”. It also called for the Communist Party to fight corruption, create an independent judiciary and reduce income inequality; or else “exit the stage of history”. The letter added, too, that economic growth in both Taiwan and South Korea had been achieved with a much more equitable spread of income levels.
By way of defence, Premier Wen Jiabao used the internet himself for an online two hour interview with Chinese citizens on the site of the official Xinhua News Agency. Herein, he promised much, including control of inflation and punishment of any abuse of power by the Government and/or officials. Wen also pledged to boost agricultural production and punish hoarding and price manipulation; plus he claimed that the Country has sufficient grain and foreign currency reserves to control food prices. “Growing inequality is a threat to social stability”.
More broadly, and by way of a sneak preview of the National People’s Congress (from 5 March), Wen said that the Nation has set a lower growth target for the period from 2011 through 2015 - in order to foster a more sustainable economy. This means that the Government has set annual economic growth at 7.0% for its 12th five year plan. Previously, China’s target was 7.5% for the period from 2006 to 2010, with actual growth exceeding that each year. “We want to put the emphasis of our work on the quality and the benefits of economic growth. We want the fruits of development to benefit the people”. China cannot “blindly” pursue economic growth that is unsustainable, he added. Generally, too, these comments were welcomed by commentators.
Wen also spoke about property and house prices, with an emphasis on controlling speculators and prices; and using legal and economic measures against those who hoard land. Best of all, though, Wen said China will build 36 million affordable houses over the next five years. Little wonder, then, that the share prices of cement manufacturers rose. The Yuan also rose close to a 17 year high as the Chinese Premier (leaving no stone unturned) said a stronger currency will benefit the Nation’s economy.
In fact, the whole market had a not-too-bad-a-day (+0.9%) this Monday either, but the really good news is that February (+4.1%) showed the first month-on-month rise in the Shanghai Composite since October. This also means that in the year-to-date, the Index has risen by 3.5%.
“The word February is believed to have derived from the name ‘Februa’ taken from the Roman Festival of Purification” - Mystical WWW
Shanghai Composite:
Today: +0.92% to 2,905.05 at close
Last week: -0.7%
February: +4.1%
Since 5 July: +22.9%
Since 8 Nov: -8.1%
YTD: +3.5%
Hang Seng:
Today: +1.42% to 23,338.02 at close
Last week: -2.5%
February: -0.5%
Since 25 May: +22.9%
Since 8 Nov: -6.5%
YTD: +1.3%
Oil futures: $99.31
Gold futures: $1412.40
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3784
JASMINE
• Wen promises to control inflation as the ‘Jasmine Revolution’ percolates; and he will also punish the ‘abuse of power’ by Government and/or officials
• Economic growth target reduced to 7% amid calls for sustainability
• Wen opines on property too
• Wen pledges to combat graft and improve income inequality, as police seek to neutralise protests
MONEY
• Repo rate falls to lowest level in a week as interest rate swaps touch to a two week low - as PBOC injects $39 billion into the system
• Yuan rises back towards its 17 year peak after Premier Wen says a strong currency is beneficial; as Forwards point to a further +2.4%
• China's return on FX investments dip
EQUITIES, DOMESTIC & INTERNATIONAL
• Shares in February show their first monthly rise (+4.1%) since October; as Wen announces plans to build 36 million affordable homes over the next five years
• Lowly rated bank shares are barometer for economy
• China’s 2010 energy consumption rises 5.9%; but falls 4.01% per unit of GDP
• Chinese banks will increase lending to Greek shipping industry
IRON & STEEL
• Record iron ore prices loom, says FT; and China sets new record for imports in January (69 million tons)
• Rio and BHP may raise Q2 iron ore prices by at least 23%
Monday 28 February 2011
Friday 25 February 2011
Not noon (yet)
“Good news always sleep ‘till noon”, says the peerless Michael Timmins and if you live in Tripoli or Christchurch that is certainly true (and then some). Respectively, what is happening in Libya and environs is quite extraordinary: people power and history in the making, fuelled by cyber-space. The World will never be the same again and tyrants everywhere beware! Meantime, in New Zealand (the Nation of my birth), there has been more literal seismic activity with a 6.2 tremblor on Tuesday, which reportedly lasted a rare, but interminable, 60 seconds. The devastation is as extraordinary as the events in the Middle East and North Africa and the loss of life (113 and counting) similarly astonishing for a country with a population of only 4.5 million. Like the World, NZ may never be the same again but there is an indefatigability of spirit amongst Kiwis articulated by the dictum “she’ll be right”; which is much more profound than it may first appear.
Unsurprisingly, too, there has been a dearth of news outside the Mediterranean and Southern Pacific, with China being no exception; and my blogging fingers have been veritably twitching. For the record, though, the Shanghai Composite - after a bright start on Monday - then fell each day until today which means the first weekly deficit (-0.7%) since w/e 21 January. It could have been worse, though, and in Hong Kong it was - with a 2.5% fall in the week (despite a sterling effort on Friday).
That said, those nice (and very bright) people at CICC noted that the Shanghai Composite is up 2.5% in the year-to-date. They also say that stocks may extend these gains as money supply growth approaches a level which will force the Government to ease its “tightening campaign”. M1 growth, which averaged 17% for the past 16 years, has rebounded each time it neared 10% - such as in 1998, 2002, 2005 and 2008, says CICC. The rate slowed to 13.6% last month, compared with a 15 year high of 39% in January 2010. “Whenever M1 growth approached 10%, money supply growth started to rebound, and together with it the A and H shares in Shanghai and Hong Kong”. This week, too, both the seven day repurchase rate (down 29 basis points to 3.11%) and interest rate swaps eased as international turmoil sped up.
Elsewhere, both CICC (again) and Shenyin Wanguo Securities said that February’s inflation rate could ease back 0.1% to 4.8%. This may not sound that great, but previously CICC was forecasting 5.6%.
More broadly, the Nation is to spend $228 billion on airports and aviation infrastructure through 2015, says the Civil Aviation Administration of China; which is a lot of money, even for China.
In real estate, the Government has underlined its commitment, this week, to build a mass of new social housing and to expand the public rentals sector. It will also provide tax cuts and finance to help. Some commentators took this as bearish news for developers, and their sub-Index within the Shanghai Composite is down 3.2% since 21 February (at 3397.12). However, China Vanke, the Nation’s number one, says it is confident that its sales will stay above Yuan 100 billion ($15.2 billion) for a second year. It breached this remarkable level last year having set itself 2014 as the target year to do so. But there was also a barb in the tail, when it added that “it will also depend on Government policies”.
Similarly in Hong Kong, as part of this week’s budget, the Government has said that it will increase auctions of land and build more apartments to avert a real estate bubble. Elsewhere, house prices in Macau and Taiwan continue to race ahead by 15 to 20%, although Taiwan is now seeking to curb investor speculation by taxing them 15% if they sell a unit within a year of purchase.
Even more fundamental, the putative “Jasmine Revolution” continues to ripple through a minority of folks in China, with a web-based call for anti-Government rallies every Sunday at 14.00 in 13 major conurbations. “Jasmine Z” and his or her “Jasmine Voice” cyber discussion group has also emerged this week, although the platform - LinkedIn - has now been blocked. No coincidence then that, this week, too, President Hu made a speech extolling the virtues of socialism with Chinese characteristics. His new five year plan will also be promulgated in a few days from now after the National Peoples’ Congress which starts on 5 March. No pressure.
“Never get out of bed before noon” - Charles Bukowski
Shanghai Composite:
Today: -0.04% to 2,878.57 at close
This week: -0.7%
Since 5 July: +21.8%
Since 8 Nov: -7.2%
YTD: +2.5%
Hang Seng:
Today: +1.82% to 23,012.32 at close
This week: -2.5%
Since 25 May: +21.2%
Since 8 Nov: -7.8%
YTD: -0.1%
Oil futures: $97.97
Gold futures: $1404.80
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3791
EQUITIES
• Weekly equity decline is first in more than a month; although CICC is positive
• Minsheng Bank to seek $4.6 billion from a share and bond sale, it is reported
MONEY
• Repo rate and swaps ease on international political instability; bond yields rise
• February’s inflation may ease 0.1% to 4.8%, say CICC and Shenyin
• Ministry of Finance 30 year bonds at 4.31%
• CBRC asks banks which have lent to local governments to recalculate their capital levels by 31 March
ECONOMY
• Chinese consumer confidence slides on inflation
• China may invest $228 billion in aviation through 2015
• Volvo/Geely is reported to have selected Chengdu as the site for it first Chinese factory
• Rolls-Royce aims to boost car sales at least 10% in 2011 on the back of Chinese demand
REAL ESTATE
• Government will financially assist new social house-building and public sector rentals
• China Vanke is “confident” that its sales will stay above Yuan 100 billion for a second year
• Five Beijing banks end mortgage discounts
DOMESTIC
• China’s ‘Jasmine’ rally organiser calls for weekly gatherings via the web
• LinkedIn is blocked in China after “Jasmine” pro-democracy postings and commentary
• PBOC to make Yuan 10 Billion loans to aid drought regions
• China’s progress shows “superiority” of system, says Politburo
INTERNATIONAL
• Kazakhstan embraces Chinese investment
• China’s investment in Africa is to increase to $50 billion by 2015, says Standard Bank
HONG KONG, MACAU & TAIWAN
• Tsang says Hong Kong's main task is “fighting inflation”
• Hong Kong to boost land auctions and build apartments to avert a bubble, says Tsang
• Macau home prices may gain up to 20% in 2011 on growth in the casino trade (which dwarfs las Vegas)
• Taiwan may impose 15% tax on investors who re-sell houses within a year
IRON & STEEL
• Iron ore prices in China fall as buyers utilise stock piles, says Deutsche Bank
• China plans to increase iron ore investments abroad to where they meet 40% of imports in five years, says CISA
• CISA says China should better mange it iron ore stocks and steel manufacturing capacity; as finished product prices dip
• Demand to ship iron ore will rise 6% in 2011, says Clarkson
• Vale’s Q4 net profit rose almost four-fold on iron ore prices: volumes rose 17%, while prices averaged $121 per ton, which is an increase of 216%
• Vale plans to out spend rivals this year with a $24 billion budget
• Vale to spend more than $1 billion building Guinea railroad to access iron ore
• Taiwan’s China Steel sees Q4 net income collapse 71% on increased raw material cost; and now raises prices for second time this year
• Afripalm signs a deal to build a South African steel mill
Unsurprisingly, too, there has been a dearth of news outside the Mediterranean and Southern Pacific, with China being no exception; and my blogging fingers have been veritably twitching. For the record, though, the Shanghai Composite - after a bright start on Monday - then fell each day until today which means the first weekly deficit (-0.7%) since w/e 21 January. It could have been worse, though, and in Hong Kong it was - with a 2.5% fall in the week (despite a sterling effort on Friday).
That said, those nice (and very bright) people at CICC noted that the Shanghai Composite is up 2.5% in the year-to-date. They also say that stocks may extend these gains as money supply growth approaches a level which will force the Government to ease its “tightening campaign”. M1 growth, which averaged 17% for the past 16 years, has rebounded each time it neared 10% - such as in 1998, 2002, 2005 and 2008, says CICC. The rate slowed to 13.6% last month, compared with a 15 year high of 39% in January 2010. “Whenever M1 growth approached 10%, money supply growth started to rebound, and together with it the A and H shares in Shanghai and Hong Kong”. This week, too, both the seven day repurchase rate (down 29 basis points to 3.11%) and interest rate swaps eased as international turmoil sped up.
Elsewhere, both CICC (again) and Shenyin Wanguo Securities said that February’s inflation rate could ease back 0.1% to 4.8%. This may not sound that great, but previously CICC was forecasting 5.6%.
More broadly, the Nation is to spend $228 billion on airports and aviation infrastructure through 2015, says the Civil Aviation Administration of China; which is a lot of money, even for China.
In real estate, the Government has underlined its commitment, this week, to build a mass of new social housing and to expand the public rentals sector. It will also provide tax cuts and finance to help. Some commentators took this as bearish news for developers, and their sub-Index within the Shanghai Composite is down 3.2% since 21 February (at 3397.12). However, China Vanke, the Nation’s number one, says it is confident that its sales will stay above Yuan 100 billion ($15.2 billion) for a second year. It breached this remarkable level last year having set itself 2014 as the target year to do so. But there was also a barb in the tail, when it added that “it will also depend on Government policies”.
Similarly in Hong Kong, as part of this week’s budget, the Government has said that it will increase auctions of land and build more apartments to avert a real estate bubble. Elsewhere, house prices in Macau and Taiwan continue to race ahead by 15 to 20%, although Taiwan is now seeking to curb investor speculation by taxing them 15% if they sell a unit within a year of purchase.
Even more fundamental, the putative “Jasmine Revolution” continues to ripple through a minority of folks in China, with a web-based call for anti-Government rallies every Sunday at 14.00 in 13 major conurbations. “Jasmine Z” and his or her “Jasmine Voice” cyber discussion group has also emerged this week, although the platform - LinkedIn - has now been blocked. No coincidence then that, this week, too, President Hu made a speech extolling the virtues of socialism with Chinese characteristics. His new five year plan will also be promulgated in a few days from now after the National Peoples’ Congress which starts on 5 March. No pressure.
“Never get out of bed before noon” - Charles Bukowski
Shanghai Composite:
Today: -0.04% to 2,878.57 at close
This week: -0.7%
Since 5 July: +21.8%
Since 8 Nov: -7.2%
YTD: +2.5%
Hang Seng:
Today: +1.82% to 23,012.32 at close
This week: -2.5%
Since 25 May: +21.2%
Since 8 Nov: -7.8%
YTD: -0.1%
Oil futures: $97.97
Gold futures: $1404.80
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3791
EQUITIES
• Weekly equity decline is first in more than a month; although CICC is positive
• Minsheng Bank to seek $4.6 billion from a share and bond sale, it is reported
MONEY
• Repo rate and swaps ease on international political instability; bond yields rise
• February’s inflation may ease 0.1% to 4.8%, say CICC and Shenyin
• Ministry of Finance 30 year bonds at 4.31%
• CBRC asks banks which have lent to local governments to recalculate their capital levels by 31 March
ECONOMY
• Chinese consumer confidence slides on inflation
• China may invest $228 billion in aviation through 2015
• Volvo/Geely is reported to have selected Chengdu as the site for it first Chinese factory
• Rolls-Royce aims to boost car sales at least 10% in 2011 on the back of Chinese demand
REAL ESTATE
• Government will financially assist new social house-building and public sector rentals
• China Vanke is “confident” that its sales will stay above Yuan 100 billion for a second year
• Five Beijing banks end mortgage discounts
DOMESTIC
• China’s ‘Jasmine’ rally organiser calls for weekly gatherings via the web
• LinkedIn is blocked in China after “Jasmine” pro-democracy postings and commentary
• PBOC to make Yuan 10 Billion loans to aid drought regions
• China’s progress shows “superiority” of system, says Politburo
INTERNATIONAL
• Kazakhstan embraces Chinese investment
• China’s investment in Africa is to increase to $50 billion by 2015, says Standard Bank
HONG KONG, MACAU & TAIWAN
• Tsang says Hong Kong's main task is “fighting inflation”
• Hong Kong to boost land auctions and build apartments to avert a bubble, says Tsang
• Macau home prices may gain up to 20% in 2011 on growth in the casino trade (which dwarfs las Vegas)
• Taiwan may impose 15% tax on investors who re-sell houses within a year
IRON & STEEL
• Iron ore prices in China fall as buyers utilise stock piles, says Deutsche Bank
• China plans to increase iron ore investments abroad to where they meet 40% of imports in five years, says CISA
• CISA says China should better mange it iron ore stocks and steel manufacturing capacity; as finished product prices dip
• Demand to ship iron ore will rise 6% in 2011, says Clarkson
• Vale’s Q4 net profit rose almost four-fold on iron ore prices: volumes rose 17%, while prices averaged $121 per ton, which is an increase of 216%
• Vale plans to out spend rivals this year with a $24 billion budget
• Vale to spend more than $1 billion building Guinea railroad to access iron ore
• Taiwan’s China Steel sees Q4 net income collapse 71% on increased raw material cost; and now raises prices for second time this year
• Afripalm signs a deal to build a South African steel mill
Monday 21 February 2011
Rate of reserve
Alliteration, acronyms and after-hours are all favourites of the Chinese authorities and so it was late on Friday that the PBOC raised RRRs again. For the uninitiated, Reserve Ratio Requirements control how much cash banks have to have on hand in proportion to what they lend i.e. it is a way of restraining liquidity and, thereby, reducing inflation. In any event for the largest banks in China, this ratio will rise from 19.0 to 19.5% from 24 February, although there may be some additional, individual requirements here and there. Many commentators believe that this is a more effective damper than raising interest rates and China has used it eight times (including this latest one) since the start of last year. But note, too, it has also hiked interest rate three times since October in a belt-and-braces policy.
The timing of the move was doubly interesting, too, in that it came hours before G20 finance ministers and central bankers convened for their regular knees-up, this time, in Paris. This was intended to show that the Chinese Government is serious about fighting inflation, an intention galvanised by the added statement that the Nation will extend its four month old cycle of interest rate increases. The latter, in particular, was also designed to try and defuse criticism of the Yuan’s supposed under-valuation; and for good measure it is at a 17 year high today of 6.5676 (and Standard Chartered is plumping for 6.2 by the end of the year).
Despite this, there was still veiled (Bernanke) and unveiled (Geithner) criticism of the Yuan at the G20. Nonetheless, China contributed whole-heartedly to the proposed formulation of an early warning system to detect economic fissures. This is designed to smooth lopsided trade and investment flows and avoid a re-run of the GFC. The scorecard will be enforced through peer pressure rather than hard targets and comprise budget deficits, external imbalances and private saving rates. If will not, however, include currency reserves which was kiboshed, principally by the World's number one holder of such things, China (with support from fellow BRICs, Brazil, Russia and India). China also objected to the use of the current account, the widest measures of trade, as a benchmark. It said that this would give the West an opening to force up the Yuan. And so, in what Geithner called “deft diplomacy”, the statement was euphemised to include the current account’s components - trade and investment income - and labelling them the “external imbalance”.
Domestically, too, China is taking this G20-type initiative further with its bank regulator reported to be planning to instruct all lenders (especially the systemically important) to set up procedures to restore their finances in the event of a crisis; a step which some commentators have labelled “self-rescue”.
Nor is life quiet in real estate where Shanghai and Guangzhou will now ban residents who own two or more homes from buying more property and non-local homeowners from making additional purchasers. Nanjing and Harbin are apparently doing the same. Nonetheless, the sub-Index of developers within the Shanghai Composite firmed 0.6% to 3,509.88. just as the Composite itself did (+1.1%) to where it is now 4.4% ahead in 2011 to date.
Finally, in the truly unsavoury department is China’s blocking of phone messages and websites showing the pro-democracy demonstrations taking place in the Middle East. Despite this, too, there has already been putative copy-cat action known as the ‘Jasmine Revolution’ and more than 20 cities have stepped up security, especially in an around universities. In a nation of 1.3 billion people, though, the scale of protects has been tiny, unlike the Middle East. It is a reminder, however, of how China works and the social challenges - in particular - for current Vice President Xi Jinging who assumes the top job next year.
“The time to stop a revolution is at the beginning, not the end” - Adlai Stevenson
Shanghai Composite:
Today: +1.12% to 2,932.25 at close
Last week: +2.6%
Since 5 July: +24.0%
Since 8 Nov: -7.2%
YTD: +3.3%
Hang Seng:
Today: -0.47% to 23,485.43 at close
Last week: +3.4%
Since 25 May: +23.7%
Since 8 Nov: -5.9%
YTD: +2.0%
Oil futures $87.87
Gold futures: $1398.50
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3693
MONEY
• Yuan rises to 17 year high as PBOC signals room for gains
• PBOC to raise bank reserve ratios again by 0.5% to a minimum 19.5% for the large banks from 24 February
• China may require its banks to plan for the risk of a financial crisis
ECONOMY
• China increases retail fuel prices after crude oil prices rise
EQUITIES
• HSBC recommends avoiding China shares until H2 2011
REAL ESTATE
• Shanghai and Guangzhou limit home purchases
• China eases limits on trust loans to developers, says Caijing
DOMESTIC
• China blocks coverage of protests in the Middle East
INTERNATIONAL
• China’s Hasan plans to invest $4 billion in Ghana
• China gives $8 million to Togo
G20
• G20 agrees to set imbalance yardsticks and an early warning system, despite China opposition
• Bernanke reiterates US criticism of China’s Yuan policy – in theory but not by name
• Russian Finance Minister says that China is failing to drive global growth, as it should
The timing of the move was doubly interesting, too, in that it came hours before G20 finance ministers and central bankers convened for their regular knees-up, this time, in Paris. This was intended to show that the Chinese Government is serious about fighting inflation, an intention galvanised by the added statement that the Nation will extend its four month old cycle of interest rate increases. The latter, in particular, was also designed to try and defuse criticism of the Yuan’s supposed under-valuation; and for good measure it is at a 17 year high today of 6.5676 (and Standard Chartered is plumping for 6.2 by the end of the year).
Despite this, there was still veiled (Bernanke) and unveiled (Geithner) criticism of the Yuan at the G20. Nonetheless, China contributed whole-heartedly to the proposed formulation of an early warning system to detect economic fissures. This is designed to smooth lopsided trade and investment flows and avoid a re-run of the GFC. The scorecard will be enforced through peer pressure rather than hard targets and comprise budget deficits, external imbalances and private saving rates. If will not, however, include currency reserves which was kiboshed, principally by the World's number one holder of such things, China (with support from fellow BRICs, Brazil, Russia and India). China also objected to the use of the current account, the widest measures of trade, as a benchmark. It said that this would give the West an opening to force up the Yuan. And so, in what Geithner called “deft diplomacy”, the statement was euphemised to include the current account’s components - trade and investment income - and labelling them the “external imbalance”.
Domestically, too, China is taking this G20-type initiative further with its bank regulator reported to be planning to instruct all lenders (especially the systemically important) to set up procedures to restore their finances in the event of a crisis; a step which some commentators have labelled “self-rescue”.
Nor is life quiet in real estate where Shanghai and Guangzhou will now ban residents who own two or more homes from buying more property and non-local homeowners from making additional purchasers. Nanjing and Harbin are apparently doing the same. Nonetheless, the sub-Index of developers within the Shanghai Composite firmed 0.6% to 3,509.88. just as the Composite itself did (+1.1%) to where it is now 4.4% ahead in 2011 to date.
Finally, in the truly unsavoury department is China’s blocking of phone messages and websites showing the pro-democracy demonstrations taking place in the Middle East. Despite this, too, there has already been putative copy-cat action known as the ‘Jasmine Revolution’ and more than 20 cities have stepped up security, especially in an around universities. In a nation of 1.3 billion people, though, the scale of protects has been tiny, unlike the Middle East. It is a reminder, however, of how China works and the social challenges - in particular - for current Vice President Xi Jinging who assumes the top job next year.
“The time to stop a revolution is at the beginning, not the end” - Adlai Stevenson
Shanghai Composite:
Today: +1.12% to 2,932.25 at close
Last week: +2.6%
Since 5 July: +24.0%
Since 8 Nov: -7.2%
YTD: +3.3%
Hang Seng:
Today: -0.47% to 23,485.43 at close
Last week: +3.4%
Since 25 May: +23.7%
Since 8 Nov: -5.9%
YTD: +2.0%
Oil futures $87.87
Gold futures: $1398.50
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3693
MONEY
• Yuan rises to 17 year high as PBOC signals room for gains
• PBOC to raise bank reserve ratios again by 0.5% to a minimum 19.5% for the large banks from 24 February
• China may require its banks to plan for the risk of a financial crisis
ECONOMY
• China increases retail fuel prices after crude oil prices rise
EQUITIES
• HSBC recommends avoiding China shares until H2 2011
REAL ESTATE
• Shanghai and Guangzhou limit home purchases
• China eases limits on trust loans to developers, says Caijing
DOMESTIC
• China blocks coverage of protests in the Middle East
INTERNATIONAL
• China’s Hasan plans to invest $4 billion in Ghana
• China gives $8 million to Togo
G20
• G20 agrees to set imbalance yardsticks and an early warning system, despite China opposition
• Bernanke reiterates US criticism of China’s Yuan policy – in theory but not by name
• Russian Finance Minister says that China is failing to drive global growth, as it should
Friday 18 February 2011
68-out-of-70 looks like a great score
Pity the poor residents of Quanzhou and Nanchong in south east and west China, respectively, where new home prices failed to rise in January; and they were the only two cities out of 70 monitored by the Government. Pick of the bunch, was Haikou with a 21.6% gain, while 10 other cities were at 10% or more. In Beijing the rise was a more sedate 6.8% while Shanghai struggled by on +1.5%. These numbers are also the first from the Government’s new method of calculation. Volume gains, however, were more modest with Beijing and Shanghai on 0.8% and 0.9% respectively, although only one city was negative: Chongqing (-0.1%).
Views are divergent about what this means, with the likes of Standard Chartered saying that the Government needs to tighten liquidity and raise interest rates. Others such as Credit Suisse and Mizuho said that there may have been a surge in demand ahead of further Government constraints being introduced. These includes new measures in Beijing which has banned residents from owning more than two houses; and non-locals will only be able to buy one - and, then, only after producing five years of tax documentation.
Meantime, BNP Paribas added that “although property is being targeted with tightening measures, overall credit growth in the economy remains expansionary. The memories of the 2008 downturn in exports and housing prices are still too fresh at central and local government level to create another downturn”.
Similarly, Fitch Ratings said “demand will be restrained in the beginning of the year after the Government measures” and it has a “neutral” view on the sector. Nonetheless, it also said that China’s home prices will rise about 5 to 10 % this year because property remains a hedge against inflation.
The stock market couldn’t make its mind up either and the sub-Index of property developers within the Shanghai Composite rose and fell before settling 0.2% lower at 3318.04, albeit this is still 5.1% up in the year to date (after an awful 2010).
However, Ronnie Chan, Chairman of Hang Lung Properties (which means “eternal prosperity”) is betting $5.1 million on Chinese consumers. He plans to build some 1.5 million square feet of malls and offices in five Chinese cities outside Shanghai over the next five years. And, this will follow the opening of a fourth mall in Jinan in August (after which the Company’s rent roll in China will be greater than in Hong Kong: HK 2.61 billion in the year to June 2010).
More broadly, Macquarie says that China, over the next five years, will spends some Yuan 3.5 trillion on railway construction plus the same amount on highways; and a few billion here and there on airports and docks. And this follows rampant spending on the same over the last two years in a progamme, which RBC says was the same size as the entire Swiss economy. This will also serve to open up regional China in unprecedented fashion and bring with it gargantuan development opportunities.
In the more general, contemporary economy, however, it was disappointing that The Conference Board’s leading economic index for China fell in December for the first time since 2008 – by 0.5% to 154.3 from November. It did say that it was “too early to tell” if the World’s second largest economy will have an economic slowdown; although it added construction and consumer sectors were weakening, as growth in the industrial sector remains strong. I would also add that this index is often subject to revision.
Another double edged note was sounded with FDI, which rose 23.4% in January to $10 billion, with investment in the service sector and western China particularly strong. Yes, this is good news, of course, although it may also stoke liquidity and inflation – which could lead to further tightening; and to further calls for the Yuan to rise. The latter has already been raised at today's (and tomorrow’s) G20 policy makers meeting in Paris.
Finally, the Shanghai Composite dipped (0.9%) for the first time in seven sessions albeit that it is ahead 3.3% in the year to date. Neither figure is particularly exciting and ‘torpor’ is a word that springs to mind. In turn, this puts more pressure on next month’s National People’s Congress and where there are expected to judicious commentaries, encouragement and a raft of new pro-growth policies. All are needed.
“Whatsoever, after due examination and analysis, you find to be kind, conducive to the good, the benefit, the welfare of all beings that doctrine believe and cling to, and take it as your guide” - Hindu Prince Gautama Siddharta
Shanghai Composite:
Today: -0.93% to 2,899.79 at close
This week: +2.6%
Since 5 July: +22.7%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.3%
Hang Seng:
Today: +1.26% to 23,955.34 at close
This week: +3.4%
Since 25 May: +24.3%
Since 8 Nov: -5.5%
January: +1.8%
YTD: +2.4%
Oil futures: $86.14
Gold futures: $1387.10
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3573
ECONOMY
• China leading index falls for first time since 2008
• FDI rises 23.4% in January
• Inflation in wider economy is up faster than the CPI, says Nomura
• Inflation is likely to remain “relatively high” in Q1 before easing in Q4, says Statistics Bureau
• Inflation may rise to 5.2% in February, says State Info Center
• China's car sales growth slows to 16% after tax incentives end
• Vehicle exports rise 40% (but imports of same double)
MONEY
• Money market rates are set for weekly gain
• China’s regulator tells banks to reduce the use of external ratings
• “Hot money” inflows were at $35.5 billion last year, says SAFE; which Credit Agricole says “is not a major problem” – nor will it restrain PBOC rate hikes
• PBOC pumps Yuan 55 billion into the system this week; less than the previous one
• PBOC sells Yuan 10 billion of 3 month bills at unchanged 2.6243%
• Ministry of Finance sells Yuan 30 billion 5 year bonds at 3.60%
• China may loosen deposit rate controls, says Deutsche and Mizuho
• Capital ratios to rise again?
REAL ESTATE
• Home prices rise in 68 out of 70 cities
• Government releases new housing price index
• Beijing City limits home purchases
• CBRC warns on property loans
• Property bonds tank
• Hang Lung Properties makes $5 billion bet in China
TRANPORT LINK EXPANSION
• China plans to spent “trillions” of Yuan on rail and transport links over the next five years; which will open up inland regions and cities
DOMESTIC
• Wheat price rebounds as China's drought may restrict domestic output and lead to imports
INTERNATIONAL
• G20 tensions continue on the Yuan
• EU imposes duties as high as 62.9% on Chinese glass fibres
• Ghana expects to commence building a $6 billion rail network in April, with Chinese contractors and Chinese cash
• Ghana will also receive $167 Million from China for the Bui hydroelectric project
HONG KONG
• Hong Kong retail sales rose 18.5% in December as unemployment fell and visitor levels increased (including a 26% rise for visitors from mainland Chinese)
IRON & STEEL
• Iron ore imports to China may dip by up to 3% in 2011 (for the second year running), says Mysteel and Ministry of Industry; as domestic production rises
• Steel prices rise again for Wuhan and Baoshan
• Capesize bookings for deliveries to China increased 20% last month, says Clarkson
• Wuhan Steel and Canada’s Century Iron Mines agree to develop mining projects; which comes two days after Wuhan’s deal with Adriana to develop Lac Otelnuk
• BHP Billiton may spend $25 billion on iron ore, says Citigroup
• Novolipetsk and Metalloinvest sign a four year iron ore supply contract; and local bank forecasts 38% increase in prices this year
• Cliffs Natural Resources best analysts' estimates as net profits triple and margins double to 28.7%
Views are divergent about what this means, with the likes of Standard Chartered saying that the Government needs to tighten liquidity and raise interest rates. Others such as Credit Suisse and Mizuho said that there may have been a surge in demand ahead of further Government constraints being introduced. These includes new measures in Beijing which has banned residents from owning more than two houses; and non-locals will only be able to buy one - and, then, only after producing five years of tax documentation.
Meantime, BNP Paribas added that “although property is being targeted with tightening measures, overall credit growth in the economy remains expansionary. The memories of the 2008 downturn in exports and housing prices are still too fresh at central and local government level to create another downturn”.
Similarly, Fitch Ratings said “demand will be restrained in the beginning of the year after the Government measures” and it has a “neutral” view on the sector. Nonetheless, it also said that China’s home prices will rise about 5 to 10 % this year because property remains a hedge against inflation.
The stock market couldn’t make its mind up either and the sub-Index of property developers within the Shanghai Composite rose and fell before settling 0.2% lower at 3318.04, albeit this is still 5.1% up in the year to date (after an awful 2010).
However, Ronnie Chan, Chairman of Hang Lung Properties (which means “eternal prosperity”) is betting $5.1 million on Chinese consumers. He plans to build some 1.5 million square feet of malls and offices in five Chinese cities outside Shanghai over the next five years. And, this will follow the opening of a fourth mall in Jinan in August (after which the Company’s rent roll in China will be greater than in Hong Kong: HK 2.61 billion in the year to June 2010).
More broadly, Macquarie says that China, over the next five years, will spends some Yuan 3.5 trillion on railway construction plus the same amount on highways; and a few billion here and there on airports and docks. And this follows rampant spending on the same over the last two years in a progamme, which RBC says was the same size as the entire Swiss economy. This will also serve to open up regional China in unprecedented fashion and bring with it gargantuan development opportunities.
In the more general, contemporary economy, however, it was disappointing that The Conference Board’s leading economic index for China fell in December for the first time since 2008 – by 0.5% to 154.3 from November. It did say that it was “too early to tell” if the World’s second largest economy will have an economic slowdown; although it added construction and consumer sectors were weakening, as growth in the industrial sector remains strong. I would also add that this index is often subject to revision.
Another double edged note was sounded with FDI, which rose 23.4% in January to $10 billion, with investment in the service sector and western China particularly strong. Yes, this is good news, of course, although it may also stoke liquidity and inflation – which could lead to further tightening; and to further calls for the Yuan to rise. The latter has already been raised at today's (and tomorrow’s) G20 policy makers meeting in Paris.
Finally, the Shanghai Composite dipped (0.9%) for the first time in seven sessions albeit that it is ahead 3.3% in the year to date. Neither figure is particularly exciting and ‘torpor’ is a word that springs to mind. In turn, this puts more pressure on next month’s National People’s Congress and where there are expected to judicious commentaries, encouragement and a raft of new pro-growth policies. All are needed.
“Whatsoever, after due examination and analysis, you find to be kind, conducive to the good, the benefit, the welfare of all beings that doctrine believe and cling to, and take it as your guide” - Hindu Prince Gautama Siddharta
Shanghai Composite:
Today: -0.93% to 2,899.79 at close
This week: +2.6%
Since 5 July: +22.7%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.3%
Hang Seng:
Today: +1.26% to 23,955.34 at close
This week: +3.4%
Since 25 May: +24.3%
Since 8 Nov: -5.5%
January: +1.8%
YTD: +2.4%
Oil futures: $86.14
Gold futures: $1387.10
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3573
ECONOMY
• China leading index falls for first time since 2008
• FDI rises 23.4% in January
• Inflation in wider economy is up faster than the CPI, says Nomura
• Inflation is likely to remain “relatively high” in Q1 before easing in Q4, says Statistics Bureau
• Inflation may rise to 5.2% in February, says State Info Center
• China's car sales growth slows to 16% after tax incentives end
• Vehicle exports rise 40% (but imports of same double)
MONEY
• Money market rates are set for weekly gain
• China’s regulator tells banks to reduce the use of external ratings
• “Hot money” inflows were at $35.5 billion last year, says SAFE; which Credit Agricole says “is not a major problem” – nor will it restrain PBOC rate hikes
• PBOC pumps Yuan 55 billion into the system this week; less than the previous one
• PBOC sells Yuan 10 billion of 3 month bills at unchanged 2.6243%
• Ministry of Finance sells Yuan 30 billion 5 year bonds at 3.60%
• China may loosen deposit rate controls, says Deutsche and Mizuho
• Capital ratios to rise again?
REAL ESTATE
• Home prices rise in 68 out of 70 cities
• Government releases new housing price index
• Beijing City limits home purchases
• CBRC warns on property loans
• Property bonds tank
• Hang Lung Properties makes $5 billion bet in China
TRANPORT LINK EXPANSION
• China plans to spent “trillions” of Yuan on rail and transport links over the next five years; which will open up inland regions and cities
DOMESTIC
• Wheat price rebounds as China's drought may restrict domestic output and lead to imports
INTERNATIONAL
• G20 tensions continue on the Yuan
• EU imposes duties as high as 62.9% on Chinese glass fibres
• Ghana expects to commence building a $6 billion rail network in April, with Chinese contractors and Chinese cash
• Ghana will also receive $167 Million from China for the Bui hydroelectric project
HONG KONG
• Hong Kong retail sales rose 18.5% in December as unemployment fell and visitor levels increased (including a 26% rise for visitors from mainland Chinese)
IRON & STEEL
• Iron ore imports to China may dip by up to 3% in 2011 (for the second year running), says Mysteel and Ministry of Industry; as domestic production rises
• Steel prices rise again for Wuhan and Baoshan
• Capesize bookings for deliveries to China increased 20% last month, says Clarkson
• Wuhan Steel and Canada’s Century Iron Mines agree to develop mining projects; which comes two days after Wuhan’s deal with Adriana to develop Lac Otelnuk
• BHP Billiton may spend $25 billion on iron ore, says Citigroup
• Novolipetsk and Metalloinvest sign a four year iron ore supply contract; and local bank forecasts 38% increase in prices this year
• Cliffs Natural Resources best analysts' estimates as net profits triple and margins double to 28.7%
Tuesday 15 February 2011
Leaks and liberties
Most markets, financial or commodity, don’t like surprises. Additionally, as my fifth grade maths teacher told me: “if you don’t like the answer, change the question”. In practice, Chinese policy makers appear to be adhering to both tenets, as evidenced by the handling of the latest inflation data.
Indeed, not for the first time in recent months, figures have been ‘leaked’ ahead of official promulgation. For example, up until early yesterday the median estimate of 27 economists in a Bloomberg survey was for a CPI of 5.4%. But then Central China Securities came out and said it would be 4.9%. The Shanghai Composite rose 2.5%. And, today, what-do-you-know, inflation in January was 4.9% and equities closed unchanged.
Part 2 of this delivery, though, came in the form of jiggery pokery in the data calculation. China cut the weighting of food in the consumer price index by 2.21%, although it failed give the new weighting (it is thought that food previously accounted for a third of the basket of goods which made up the index). BGC called it a “fudging of the numbers”, although others, including Citigroup, were more generous. Similarly, Nomura has turned bullish on China’s stocks for the first time since November – calling them “inexpensive”. It also said that valuations and money supply growth favour equities even as interest rates increase. “Growth in money supply is still supportive for asset prices even with three increases in borrowing costs since mid-October”.
No, inflation hasn’t gone away either for consumers or producers - and the latter's prices rose from 5.9 to 6.6% in January; and the Statistics Bureau tinkered with the calculation here as well, thereby reducing it by 0.05%.
However, the Government may be simply buying time with the hope/expectation that inflation will moderate as the year proceeds. Note, too, that although new bank lending in January was Yuan 1.2 trillion ($182 billion) - and up from Yuan 481 billion in December - it was less than January last year when it was Yuan 1.4 trillion.
Similarly, China’s benchmark money market rate fell to the lowest level in a month on speculation the PBOC may pursue less aggressive monetary tightening. The seven day repurchase or ‘repo’ rate fell eight basis points to 2.64%, which is the lowest level since 2.58% on 17 January.
The more general economy also appears alive and well with passenger car sales in January up 15.3% from a year and imports of iron ore surging 48% in the same month as output in construction and the automobile industries rose.
“There’s a wind in my sails which will protect and prevail” – from 'Six Months in a Leaky Boat' by Split Enz
Shanghai Composite:
Today: +0.00% to 2,899.24 at close
This week: +2.5%
Since 5 July: +22.6%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.3%
Hang Seng:
Today: -0.96% to 22,899.78 at close
This week: +0.3%
Since 25 May: +20.6%
Since 8 Nov: -8.3%
January: +1.8%
YTD: -0.6%
Oil futures: $85.16
Gold futures: $1366.30
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3512
ECONOMY
• Shares rise on lower than - initially - expected CPI at 4.9%
• Food prices rise 10.3% (as it’s weighted it reduced)
• Car sales rise 15.3% in January
MONEY
• January lending, as leaked, jumps to Yuan 1.2 trillion: up sharply on December but lower than January last year
• Money market rate dips
• Bill yields rise
• First official hedge fund in China
• China Construction Bank plans to expand its stockbroking research team by 40%
REAL ESTATE
• Second home mortgage rates may rise
• Developer raises finance at 4.75%
DOMESTIC
• Wheat prices surge to a record level on drought in China
INTERNATIONAL
• North Korea’s Kim Jong Il calls for closer ties with China, says Xinhua News Agency
IRON & STEEL
• Iron imports to China rise 48% in January
• Global trade gathers momentum as ships at anchor fall; including an out-performance in China
Indeed, not for the first time in recent months, figures have been ‘leaked’ ahead of official promulgation. For example, up until early yesterday the median estimate of 27 economists in a Bloomberg survey was for a CPI of 5.4%. But then Central China Securities came out and said it would be 4.9%. The Shanghai Composite rose 2.5%. And, today, what-do-you-know, inflation in January was 4.9% and equities closed unchanged.
Part 2 of this delivery, though, came in the form of jiggery pokery in the data calculation. China cut the weighting of food in the consumer price index by 2.21%, although it failed give the new weighting (it is thought that food previously accounted for a third of the basket of goods which made up the index). BGC called it a “fudging of the numbers”, although others, including Citigroup, were more generous. Similarly, Nomura has turned bullish on China’s stocks for the first time since November – calling them “inexpensive”. It also said that valuations and money supply growth favour equities even as interest rates increase. “Growth in money supply is still supportive for asset prices even with three increases in borrowing costs since mid-October”.
No, inflation hasn’t gone away either for consumers or producers - and the latter's prices rose from 5.9 to 6.6% in January; and the Statistics Bureau tinkered with the calculation here as well, thereby reducing it by 0.05%.
However, the Government may be simply buying time with the hope/expectation that inflation will moderate as the year proceeds. Note, too, that although new bank lending in January was Yuan 1.2 trillion ($182 billion) - and up from Yuan 481 billion in December - it was less than January last year when it was Yuan 1.4 trillion.
Similarly, China’s benchmark money market rate fell to the lowest level in a month on speculation the PBOC may pursue less aggressive monetary tightening. The seven day repurchase or ‘repo’ rate fell eight basis points to 2.64%, which is the lowest level since 2.58% on 17 January.
The more general economy also appears alive and well with passenger car sales in January up 15.3% from a year and imports of iron ore surging 48% in the same month as output in construction and the automobile industries rose.
“There’s a wind in my sails which will protect and prevail” – from 'Six Months in a Leaky Boat' by Split Enz
Shanghai Composite:
Today: +0.00% to 2,899.24 at close
This week: +2.5%
Since 5 July: +22.6%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.3%
Hang Seng:
Today: -0.96% to 22,899.78 at close
This week: +0.3%
Since 25 May: +20.6%
Since 8 Nov: -8.3%
January: +1.8%
YTD: -0.6%
Oil futures: $85.16
Gold futures: $1366.30
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3512
ECONOMY
• Shares rise on lower than - initially - expected CPI at 4.9%
• Food prices rise 10.3% (as it’s weighted it reduced)
• Car sales rise 15.3% in January
MONEY
• January lending, as leaked, jumps to Yuan 1.2 trillion: up sharply on December but lower than January last year
• Money market rate dips
• Bill yields rise
• First official hedge fund in China
• China Construction Bank plans to expand its stockbroking research team by 40%
REAL ESTATE
• Second home mortgage rates may rise
• Developer raises finance at 4.75%
DOMESTIC
• Wheat prices surge to a record level on drought in China
INTERNATIONAL
• North Korea’s Kim Jong Il calls for closer ties with China, says Xinhua News Agency
IRON & STEEL
• Iron imports to China rise 48% in January
• Global trade gathers momentum as ships at anchor fall; including an out-performance in China
Monday 14 February 2011
The St Valentine's Day Rejuvenation
China’s mail bag, today, was overflowing with gifts – as affection for the Nation rebounded. Japan was first in line as it admitted, officially (what we had all known for some time), that China is the World’s number two economy: $5.88 trillion of GDP in 2010 against Japan’s $5.47 trillion.
Second was a present from multiple givers, as China reported a smaller than forecast trade surplus of $6.5 billion in January as import growth (+51%) outpaced export gains (+38%) for a fourth month. Okay, its relevance is coloured by the timing of the Chinese New Year, but it nonetheless supports the ‘consumption-in China-becoming-a dominant-force’ theory.
Thirdly, Fidelity’s star investor, Anthony Bolton, underlined a continuing conviction about the case for investing in China (where he has been living for almost a year). It is not just any emerging market, he said in the FT, but the dominant economy in Asia and one of the two most important in the World. Yes, there are concerns but all emerging markets, China included, will have to get used to structurally higher inflation. But rising prices are currently being driven by food inflation, which accounts for around 70% of the increase in China’s consumer price index. “It is important to realise that Chinese consumers are not affected by rising interest rates in the same way as they are in the west. Consumer borrowing is very underdeveloped in China, although it is growing. With high levels of cash savings, Chinese consumers might even benefit from rising rates”. Finally, “for a stock-picker such as me, China is a treasure trove of investment opportunity”.
Fourth, is the expectation that January’s CPI (out tomorrow) will be less than expected i.e. Central China Securities says consumer prices may have climbed by 4.9% in January, compared with a consensus estimate of 5.4% (which would be a 30 year high). In advance of this, too, the Shanghai Composite jumped 2.5% to its best level since 21 December. Similarly, the property developer sub-Index within the Composite also rose 2% today. What's more this comes after a note of caution from the Nation's number one real estate operator, China Vanke, and its forecast of a "sharp" fall in sales in February. However, Vanke and its competitors also said that it/they are spreading their wings away from Shanghai and Beijing to smaller regional cities. For example, Evergrande, based in Guangzhou (which sells the second most properties after Vanke) generated more than 90% of its sales in central and western cities including Changsha, Chongqing, Chengdu and Wuhan - the new transportation hub for China’s high speed trains. In addition, land sales in Wuhan rose 163% last year to Yuan 78.2 billion.
By way of background noise, some relief from the drought has come from fresh snow falls and the World’s rice crop appears to be recovering. Elsewhere, PetroChina is intending to spend $5.4 billion on a gas project in Canada, which takes total energy acquisitions this year by Chinese companies to $46 billion. National largesse also continues in Zimbabwe and Guinea. Closer to home, the Government intends to spend an extra $4.6 billion on rural roads and cement consumption is forecast to rise 12% by the China Cement Association.
Happy Valentine’s
“Grow old with me, the best is yet to be” - Robert Browning
Shanghai Composite:
Today: +2.54% to 2,899.13 at close
Last week: +1.0%
Since 5 July: +22.6%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.2%
Hang Seng:
Today: +1.28% to 23,121.06 at close
Last week: -4.5%
Since 25 May: +21.8%
Since 8 Nov: -7.4%
January: +1.8%
YTD: +0.4%
Oil futures: $85.50
Gold futures: $1358.10
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3457
ECONOMY
• China reports smaller than expected trade surplus to $6.5 billion: exports rose 37.7% to $150.7 billion; while imports rose 51% to $144.3 billion
• Rural roads to receive $4.6 billion of spending in 2011
• Fighting the drought remains tough despite fresh snow
• State Grid power consumption rises 9.4%
MONEY
• Yuan stable ahead of G20 finance chiefs’ meeting in Paris later on this week
• China acts to adjust the reserve ratios for some small banks, says the Securities Journal
• Domestic takeovers by foreign companies to be reviewed
• UBS to double workforce in China over five years to 1200
• IMF urges a strengthening of global monetary system and adding Yuan to SDRs
• Fidelity’s Anthony Bolton: “Rabbit that will shape China’s future”
CEMENT
• Cement demand to 12% in 2011 to some 2.1 billion tones
REAL ESTATE
• China Vanke expects a “sharp” drop in sales
• Chinese developers spread their interests beyond Shanghai and Beijing to smaller regional cities
INTERNATIONAL
• World rice output receives Asia fillip
• China and Taiwan to hold economic co-op meeting on 22 February
• China seeks economic cooperation with Zimbabwe and calls for sanctions to be lifted
• China and Guinea agree to sign cooperation accords
• PetroChina proposes paying $5.4 billion for a stake in Encana Corporations’s gas project in Canada
• North Korea discontinues talks with the South
HONG KONG
• Home prices rise
IRON & STEEL
• Kumba confirms that 2010’s net income more than doubles as Indian and China demand drives up prices; and forecasts Chinese demand to rise 5 to 10% this year
• Kumba says Thabazimbi mine expansion project is not open to ArcelorMittal in the RSA
• Rio Tinto’s 2010 pretax profit rise 161% to $20.6 billion on iron ore prices in China; and launches $5 billion share buy-back
• Rio Tinto extends Riversdale offer as CSN lifts stake
• Dry bulk shipping rates may rise over the next six months says Deutsche Bank; but they are still down 34% year-to-date
• India allows accumulated stocks of iron ore to be shipped from Karnataka; in temporary lift of export ban
Second was a present from multiple givers, as China reported a smaller than forecast trade surplus of $6.5 billion in January as import growth (+51%) outpaced export gains (+38%) for a fourth month. Okay, its relevance is coloured by the timing of the Chinese New Year, but it nonetheless supports the ‘consumption-in China-becoming-a dominant-force’ theory.
Thirdly, Fidelity’s star investor, Anthony Bolton, underlined a continuing conviction about the case for investing in China (where he has been living for almost a year). It is not just any emerging market, he said in the FT, but the dominant economy in Asia and one of the two most important in the World. Yes, there are concerns but all emerging markets, China included, will have to get used to structurally higher inflation. But rising prices are currently being driven by food inflation, which accounts for around 70% of the increase in China’s consumer price index. “It is important to realise that Chinese consumers are not affected by rising interest rates in the same way as they are in the west. Consumer borrowing is very underdeveloped in China, although it is growing. With high levels of cash savings, Chinese consumers might even benefit from rising rates”. Finally, “for a stock-picker such as me, China is a treasure trove of investment opportunity”.
Fourth, is the expectation that January’s CPI (out tomorrow) will be less than expected i.e. Central China Securities says consumer prices may have climbed by 4.9% in January, compared with a consensus estimate of 5.4% (which would be a 30 year high). In advance of this, too, the Shanghai Composite jumped 2.5% to its best level since 21 December. Similarly, the property developer sub-Index within the Composite also rose 2% today. What's more this comes after a note of caution from the Nation's number one real estate operator, China Vanke, and its forecast of a "sharp" fall in sales in February. However, Vanke and its competitors also said that it/they are spreading their wings away from Shanghai and Beijing to smaller regional cities. For example, Evergrande, based in Guangzhou (which sells the second most properties after Vanke) generated more than 90% of its sales in central and western cities including Changsha, Chongqing, Chengdu and Wuhan - the new transportation hub for China’s high speed trains. In addition, land sales in Wuhan rose 163% last year to Yuan 78.2 billion.
By way of background noise, some relief from the drought has come from fresh snow falls and the World’s rice crop appears to be recovering. Elsewhere, PetroChina is intending to spend $5.4 billion on a gas project in Canada, which takes total energy acquisitions this year by Chinese companies to $46 billion. National largesse also continues in Zimbabwe and Guinea. Closer to home, the Government intends to spend an extra $4.6 billion on rural roads and cement consumption is forecast to rise 12% by the China Cement Association.
Happy Valentine’s
“Grow old with me, the best is yet to be” - Robert Browning
Shanghai Composite:
Today: +2.54% to 2,899.13 at close
Last week: +1.0%
Since 5 July: +22.6%
Since 8 Nov: -8.2%
January: -0.6%
YTD: +3.2%
Hang Seng:
Today: +1.28% to 23,121.06 at close
Last week: -4.5%
Since 25 May: +21.8%
Since 8 Nov: -7.4%
January: +1.8%
YTD: +0.4%
Oil futures: $85.50
Gold futures: $1358.10
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3457
ECONOMY
• China reports smaller than expected trade surplus to $6.5 billion: exports rose 37.7% to $150.7 billion; while imports rose 51% to $144.3 billion
• Rural roads to receive $4.6 billion of spending in 2011
• Fighting the drought remains tough despite fresh snow
• State Grid power consumption rises 9.4%
MONEY
• Yuan stable ahead of G20 finance chiefs’ meeting in Paris later on this week
• China acts to adjust the reserve ratios for some small banks, says the Securities Journal
• Domestic takeovers by foreign companies to be reviewed
• UBS to double workforce in China over five years to 1200
• IMF urges a strengthening of global monetary system and adding Yuan to SDRs
• Fidelity’s Anthony Bolton: “Rabbit that will shape China’s future”
CEMENT
• Cement demand to 12% in 2011 to some 2.1 billion tones
REAL ESTATE
• China Vanke expects a “sharp” drop in sales
• Chinese developers spread their interests beyond Shanghai and Beijing to smaller regional cities
INTERNATIONAL
• World rice output receives Asia fillip
• China and Taiwan to hold economic co-op meeting on 22 February
• China seeks economic cooperation with Zimbabwe and calls for sanctions to be lifted
• China and Guinea agree to sign cooperation accords
• PetroChina proposes paying $5.4 billion for a stake in Encana Corporations’s gas project in Canada
• North Korea discontinues talks with the South
HONG KONG
• Home prices rise
IRON & STEEL
• Kumba confirms that 2010’s net income more than doubles as Indian and China demand drives up prices; and forecasts Chinese demand to rise 5 to 10% this year
• Kumba says Thabazimbi mine expansion project is not open to ArcelorMittal in the RSA
• Rio Tinto’s 2010 pretax profit rise 161% to $20.6 billion on iron ore prices in China; and launches $5 billion share buy-back
• Rio Tinto extends Riversdale offer as CSN lifts stake
• Dry bulk shipping rates may rise over the next six months says Deutsche Bank; but they are still down 34% year-to-date
• India allows accumulated stocks of iron ore to be shipped from Karnataka; in temporary lift of export ban
Wednesday 9 February 2011
Interesting vacation
“Holidays have no pity”, according to Italian poet Eugenio Montale (1986-1981) and so it was with the Chinese New Year vacation as, effective today, the PBOC has raised interest rates (for the third time since mid-October). This means that the benchmark one year lending rate will increase 25 basis points from 5.81 to 6.06%; and so will the core deposit rate - by the same amount - to 3.0% (with five year deposits attracting 45 basis points extra).
Inflation, of course, is the party pooper with the hawks looking for as much as even 6.0% in January when the figures are promulgated next week (the consensus forecast is 5.3%). This also means that ‘the birds of prey’ expect as many as three or four further hikes in interest rates this year. But was the increase in rates a surprise? No, but human nature being what it is, expectation and actuality are two different things.
That said, at least one eagle-eye was pragmatic. For example, Gavin Parry, MD of the eponymous Hong Kong-based Parry International Trading said “a rate rise was expected, but given they delayed to the end of Chinese New Year, it created anxiety over the potential severity. Now that uncertainty is removed, the markets can focus on the January trade, and the producer prices and consumer price data next week. At least there’s a bit more stability on a sentiment basis. I think it’s going to wash through and we can carry on”.
Unsurprising, too, is the rise in the Yuan towards a 17 year high. This morning it was up 0.2% at 6.5824 to the US dollar (in the first day of trading since 1 February). Meantime, Twelve-month Non-deliverable Forwards strengthened to 6.4230, reflecting bets the currency will rise 2.5%. However, the consensus view is for +4.5% to circa 6.3; with the most extreme view (Clariden Leu) at 6.0. Similarly, the one year interest rate swap rate rose the most in more than two years i.e. 22 basis points to 3.87% at lunchtime today. Note, too, that the US Treasury stopped short of calling China a currency manipulator in its latest report.
In other news during the holidays, veteran investor icon, Barton Biggs, reiterated his positive views on China at a conference in New York. “I think China is going to be one of the two or three, maybe the best major markets in the World. Basically the Chinese have done a really superb job of engineering a soft landing. They did what we should have done going into the crisis. They applied massive stimulus very quickly. They came booming out of their slowdown. They may have overdone it a little bit”. Biggs also had advice for arch-China bear, Jim Chanos: “I suggest he go to China before he gets too negative on it”.
In real estate, developer shares predictably fell today and their sub-Index within the Shanghai Composite was the worst industry group (from five) performer at -2.1%. Citigroup, however, said that Chinese interest rates are not powerful enough to halt home buying. And, while policy tightening has become more meaningful, homebuyers have already factored in reasonable increases in borrowing costs. Nonetheless, Premier Wen Jiabao, in a New Year speech, pledged to restrain property speculation and add more affordable housing.
Elsewhere, droughts in China may threaten grain harvest (but ironically heavy snow falls may ease the former). As a Nation, too, it continues to invest in Africa, with the latest targets Zimbabwe, Congo and Kenya.
As is well documented, we are now in the Year of the Rabbit which is the fourth animal in the 12 year cycle of the Chinese Zodiac. It is, reputedly, one of energy and optimism and the perfect time to try something new. Similarly, if you are bold and confident the year should bring great rewards. It is also, apparently, a good one for metals.
“A clever rabbit will have three openings to its den” - Chinese proverb
Shanghai Composite:
Today: -0.89% to 2,774.07 at close
Last week: +0.3%
Since 5 July: +17.4%
Since 8 Nov: -12.2%
January: -0.6%
YTD: -1.2%
Hang Seng:
Today: -1.36% to 23,164.03 at close
Last week: +2.0%
This week: -3.1%
Since 25 May: +22.0%
Since 8 Nov: -7.1%
January: +1.8%
YTD: +0.6%
Oil futures: $87.52
Gold futures: $1365.40
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3650
INTEREST RATES
• China raises interest rates to slow inflation – for third time since October last year
• More rate increases to come…….
• Rate decision should be “well received”, says Daiwa
• Julius Baer looks to the Yuan at 6.2 to 6.4 to the US dollar
• The delay in the interest rate increases caused “anxiety”, says Parry International
MONEY
• Yuan forges towards 17 year high on interest rate rise
• Interest rate swaps rise the most in more than two years
ECONOMY
• Barton Biggs says Asian stocks will beat the S&P in next year; and is “big bull” of China
• Nassim Taleb is “comforted” by Russia but nervous about the US and China
• Roubini says China and other of the World's emerging markets face a risk of "hard landing"
• Morgan Stanley’s Roach says the US faces a decline in the dollar as China relies less on its exports
REAL ESTATE
• Developers shares fall on rate rise
• Wen pledges to control property speculation in New Year speech
INTERNATIONAL
• US Treasury says China needs to do more on the Yuan but refrains from calling the Nation a currency manipulator
• North Korea meets South for first time since artillery attack
• China sells Japanese debt
• Asia need to raise interest rate to avoid over-heating and a “hard landing”, says IMF
• China seeks access to diamonds and platinum in Zimbabwe
• China Loans $368 million to Congo for Hydroelectric Plant
• China may take over $826 million Kenyan road project
• Chinese steel drill pipe exporters to face US dumping duties
DOMESTIC
• Droughts affect wheat and other grain crops
• Snow in northern China may relieve drought
• China’s largest energy users raise efficiency 20%
• Private business exports reach $481.3 billion – up 223% since 2005
• Private -business tax hits Yuan 1.1 trillion – up 172% since 2005
HONG KONG
• Home sales in January fall 16.5% on December
IRON & STEEL
• Iron ore import prices to China may rise after the New Year holidays, says Deutsche Bank
• Iron ore price to rise 21% this year, says Credit Suisse (NB this is a reiteration from January)
• Asia’s number three iron ore miner, NMDC, sees Q3 net profit rise four fold on iron ore prices
• BHP Vale and Rio are set for record profits (totalling $52 billion) on iron ore pricing; as steel makers go the other way
• Vale may build an iron ore shipping port in northern Brazil in 2015
• Nippon Steel and Sumitomo Metal to merger and create World number two…..and Kobe Steel may also be asked to join merger
• Kobe Steel’s Q3 profit doubles on Asian demand
• CSN increases it stake in Usiminas (part owned by Nippon Steel)
• CSN raises its stake in Riversdale, which is subject to $4 billion Rio Tinto takeover bid
• ArcelorMittal’s share price advances to a nine month high on its 2010 performance – which was the best 12 months for industry volumes (+15%) for more than 50 years; and it continues to seek further direct ownership of iron ore
Inflation, of course, is the party pooper with the hawks looking for as much as even 6.0% in January when the figures are promulgated next week (the consensus forecast is 5.3%). This also means that ‘the birds of prey’ expect as many as three or four further hikes in interest rates this year. But was the increase in rates a surprise? No, but human nature being what it is, expectation and actuality are two different things.
That said, at least one eagle-eye was pragmatic. For example, Gavin Parry, MD of the eponymous Hong Kong-based Parry International Trading said “a rate rise was expected, but given they delayed to the end of Chinese New Year, it created anxiety over the potential severity. Now that uncertainty is removed, the markets can focus on the January trade, and the producer prices and consumer price data next week. At least there’s a bit more stability on a sentiment basis. I think it’s going to wash through and we can carry on”.
Unsurprising, too, is the rise in the Yuan towards a 17 year high. This morning it was up 0.2% at 6.5824 to the US dollar (in the first day of trading since 1 February). Meantime, Twelve-month Non-deliverable Forwards strengthened to 6.4230, reflecting bets the currency will rise 2.5%. However, the consensus view is for +4.5% to circa 6.3; with the most extreme view (Clariden Leu) at 6.0. Similarly, the one year interest rate swap rate rose the most in more than two years i.e. 22 basis points to 3.87% at lunchtime today. Note, too, that the US Treasury stopped short of calling China a currency manipulator in its latest report.
In other news during the holidays, veteran investor icon, Barton Biggs, reiterated his positive views on China at a conference in New York. “I think China is going to be one of the two or three, maybe the best major markets in the World. Basically the Chinese have done a really superb job of engineering a soft landing. They did what we should have done going into the crisis. They applied massive stimulus very quickly. They came booming out of their slowdown. They may have overdone it a little bit”. Biggs also had advice for arch-China bear, Jim Chanos: “I suggest he go to China before he gets too negative on it”.
In real estate, developer shares predictably fell today and their sub-Index within the Shanghai Composite was the worst industry group (from five) performer at -2.1%. Citigroup, however, said that Chinese interest rates are not powerful enough to halt home buying. And, while policy tightening has become more meaningful, homebuyers have already factored in reasonable increases in borrowing costs. Nonetheless, Premier Wen Jiabao, in a New Year speech, pledged to restrain property speculation and add more affordable housing.
Elsewhere, droughts in China may threaten grain harvest (but ironically heavy snow falls may ease the former). As a Nation, too, it continues to invest in Africa, with the latest targets Zimbabwe, Congo and Kenya.
As is well documented, we are now in the Year of the Rabbit which is the fourth animal in the 12 year cycle of the Chinese Zodiac. It is, reputedly, one of energy and optimism and the perfect time to try something new. Similarly, if you are bold and confident the year should bring great rewards. It is also, apparently, a good one for metals.
“A clever rabbit will have three openings to its den” - Chinese proverb
Shanghai Composite:
Today: -0.89% to 2,774.07 at close
Last week: +0.3%
Since 5 July: +17.4%
Since 8 Nov: -12.2%
January: -0.6%
YTD: -1.2%
Hang Seng:
Today: -1.36% to 23,164.03 at close
Last week: +2.0%
This week: -3.1%
Since 25 May: +22.0%
Since 8 Nov: -7.1%
January: +1.8%
YTD: +0.6%
Oil futures: $87.52
Gold futures: $1365.40
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3650
INTEREST RATES
• China raises interest rates to slow inflation – for third time since October last year
• More rate increases to come…….
• Rate decision should be “well received”, says Daiwa
• Julius Baer looks to the Yuan at 6.2 to 6.4 to the US dollar
• The delay in the interest rate increases caused “anxiety”, says Parry International
MONEY
• Yuan forges towards 17 year high on interest rate rise
• Interest rate swaps rise the most in more than two years
ECONOMY
• Barton Biggs says Asian stocks will beat the S&P in next year; and is “big bull” of China
• Nassim Taleb is “comforted” by Russia but nervous about the US and China
• Roubini says China and other of the World's emerging markets face a risk of "hard landing"
• Morgan Stanley’s Roach says the US faces a decline in the dollar as China relies less on its exports
REAL ESTATE
• Developers shares fall on rate rise
• Wen pledges to control property speculation in New Year speech
INTERNATIONAL
• US Treasury says China needs to do more on the Yuan but refrains from calling the Nation a currency manipulator
• North Korea meets South for first time since artillery attack
• China sells Japanese debt
• Asia need to raise interest rate to avoid over-heating and a “hard landing”, says IMF
• China seeks access to diamonds and platinum in Zimbabwe
• China Loans $368 million to Congo for Hydroelectric Plant
• China may take over $826 million Kenyan road project
• Chinese steel drill pipe exporters to face US dumping duties
DOMESTIC
• Droughts affect wheat and other grain crops
• Snow in northern China may relieve drought
• China’s largest energy users raise efficiency 20%
• Private business exports reach $481.3 billion – up 223% since 2005
• Private -business tax hits Yuan 1.1 trillion – up 172% since 2005
HONG KONG
• Home sales in January fall 16.5% on December
IRON & STEEL
• Iron ore import prices to China may rise after the New Year holidays, says Deutsche Bank
• Iron ore price to rise 21% this year, says Credit Suisse (NB this is a reiteration from January)
• Asia’s number three iron ore miner, NMDC, sees Q3 net profit rise four fold on iron ore prices
• BHP Vale and Rio are set for record profits (totalling $52 billion) on iron ore pricing; as steel makers go the other way
• Vale may build an iron ore shipping port in northern Brazil in 2015
• Nippon Steel and Sumitomo Metal to merger and create World number two…..and Kobe Steel may also be asked to join merger
• Kobe Steel’s Q3 profit doubles on Asian demand
• CSN increases it stake in Usiminas (part owned by Nippon Steel)
• CSN raises its stake in Riversdale, which is subject to $4 billion Rio Tinto takeover bid
• ArcelorMittal’s share price advances to a nine month high on its 2010 performance – which was the best 12 months for industry volumes (+15%) for more than 50 years; and it continues to seek further direct ownership of iron ore
Tuesday 1 February 2011
100 not out
The Americans are sceptical about the game of cricket. “How can you play for five days and have a tie?”, they ask. In any event, to the aficionado, it is a game of sublime skill and tactics. At its most simple, too, there are a number of key benchmarks of success (or otherwise), with perhaps the most renowned being scoring an unbeaten century i.e. 100 runs not out – which is like scoring 100 points. With this in mind, I am delighted to tell you that today marks my century in official blogs on China – having been launched, on to an unsuspecting public, in May last year.
The subject of my musings, however, is not so fortunate. And, at this time, I liken China to a batter in a cricket match who wants (like all players) to score 100, but who is stuck on about 60. This is a respectable score but not enough to win. Something has to give or, at least, go very right; and, for a start, a few slower balls coming towards him would be a start.
The first of these would be inflation which is expected to have continued at a fast pace in January to more than 5%. Its trajectory, too, was underlined by at least one of today’s brace of PMI surveys. On the one hand, the Logistics Federation said it’s PMI for manufacturing dipped in January from 53.9 to a lower-than-expected 52.9 (albeit anything above 50 indicates continued expansion). But, on the other, input prices rose from 66.7 to 69.3. Similarly, the State Council said, that while a slowdown in industrial output may be “bottoming out”, inflationary pressure appears to be rebounding. It also added that slower output growth in real estate related industries such as furniture, textiles, glass and cement needs attention. Elsewhere, the HSBC/Markit PMI for January inched up from 55.4 to 54.5.
Interestingly, the Shanghai Composite rose for a fifth consecutive trading day (as did stock futures) and the gain since 24 January is now 4.5%. Maybe the bulls are winning? With two of these being Prudential Financial and USAA Investment Management who point out that Chinese stock valuations are at a record low versus Hong Kong: 11.7x estimated 2011 earnings versus 17.5x based on the MSCI China Index (on Monday). For its part, too, USAA said “the valuation disparity will probably return to normal. Chinese regulators are trying to engineer a soft landing-type of situation and they will probably be able to manage that. That would make for a decent buying opportunity”.
This toing and froing is also evident in the money markets. For example, the PBOC has set an M2 growth target this year of +16% to help slow credit growth and inflation (in 2010, M2 grew at 19.7%). However, the China Securities Journal says that January’s loans were probably around Yuan 1.1 trillion and that Q1 could soar to Yuan 3 trillion which is 35 to 40% of the full year target. Despite this, a time-out has come from the seven day repurchase rate (which measures available funding) as it fell by the most since October 2007 i.e. down 4.88 to 3.30%.
The same goes in the real estate test match, where SouFun says that January saw the largest month-on-month rise (1%) in house prices in six months. Similarly, Citibank says that the residential market is headed for a bubble because investment here is equivalent to 6.1% of nominal GDP (the same as in the US in 2005). Nonetheless, SouFun also said that sales volumes slumped in 23 of the 30 cities it monitors closely, with 15 of them declining by more than 20% in January from December. Similarly, CICC says transaction volumes are now expected to drop 10% this year to 940 million square metres (it was earlier looking for a 5% rise). Lending to developers and mortgage loans may also both fall by 30% this year, it added. Elsewhere, ICBC has reportedly abandoned its 15% mortgage rate discount for first time buyers and CCTV claims that Shanghai may extend is property tax trial from new homes to existing ones.
As Hu and his team-mates pack their kit for the Chinese New Year tour, they will also realise that ‘sublime skill and tactics’ will be needed to win this particular game.
“Cricket is a most precarious profession; it is called a team game but, in fact, no one is so lonely as a batsman facing a bowler supported by ten fieldsmen and observed by two umpires to ensure that his error does not go unpunished” - John Arlott
Shanghai Composite:
Today: +0.30% to 2,798.96 at close
This week: +0.3%
Since 5 July: +18.4%
Since 8 Nov: -11.4%
January: -0.6%
YTD: -0.3%
Hang Seng:
Today: +0.15% to 23,482.95 at close
This week: +0.2%
Since 25 May: +23.7%
Since 8 Nov: -5.9%
January: +1.8%
YTD: +1.9%
Oil futures: $91.80
Gold futures: $1339.60
(new ‘immediate delivery’ high of $1431.25 on 7 December)
Euro/$ spot: 1.3723
ECONOMY
- Manufacturing growth slows but causes divergent views
- China may face increasing difficulty in meeting the future demand for food
- Former PBOC advisor says Chinese growth rate may be lower than 8% in next five years
REAL ESTATE
- Home prices in January rise by the most (1%) in six months, says SouFun
- China's housing market is heading for a bubble based on international empiricism, says Citigroup i.e. it already accounts for 6.1% of GDP
MONEY
- Interest rate swaps fall by the most in more than eight weeks; as the money market rate falls the most since October 2007
- China sets M2 target growth at 16% this year and underlines risk of inflation
- Yuan rises for first day in four to 6.5924
- Q1 loans may be as much as Yuan 3 trillion ($45.7 billion), says China Securities Journal
- Shanghai’s SAFE warns about “hot money” entering property and equity markets
- China is reported to be planning to raise the capital ratios for its major banks
- Lending rates rise faster than the PBOC benchmark
- China’s 10 year bonds fall due to a shortage of bank cash; as yields nudge highest level since 2008
- Dim Sum bond yields may rise as funds are allowed to go ‘onshore’
EQUITIES
- Shares in China show record discount to Hong Kong – which means “buy”, says Prudential Financial and USAA
HONG KONG
- Hong Kong weekend sales of existing home falls 34%, says the Centaline agency
- Yuan deposits rise 13% in Hong Kong to a new record level of Yuan 314.9 billion
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