Green Monday

‘Green Monday’ is a first novel by ex-investment banker Michael M Thomas about manipulation of global oil prices and their impact on the stock market. It was first published in 1980 (i.e. there really is nothing new). The title refers to the potential uplift at the beginning of a trading week on the back of weekend news. Premier Wen Jiabao is no doubt familiar with the term and did his best at the weekend’s National People’s Congress (NPC) to deliver one; and today the Shanghai Composite rose nearly 2% which takes it 6.7% to the good in 2011 so far.

The NPC is an annual gathering but more special this time because it unveils the Government’s new five year plan (the modern Nation’s 12th in 61 years). Wen said that his number one priority is to fight inflation and to ease the social unrest which higher prices has exacerbated. He also intends to reverse the widening income gap “as soon as possible” through fiscal measures and stoke domestic consumption. China’s annual economic growth target, as previously promulgated, will be 7% (maybe 8% in reality) with inflation pegged at 4%; and the strap-line being bandied about (and attributed to President Hu Jintao) is “inclusive growth”.

More specifically, fiscal spending will rise 11.9% this year to Yuan 10 trillion, although the budget deficit will be held at 2% of GDP (2010 = 2.5%). Similarly, cash for housing will rise 9.6% to Yuan 258 billion (although this disguises a 35% increase for low income housing). Hand in hand, too, will come an “adjust and improve” on real estate tax policies to control “exorbitant” house prices.

Turning to currency, the NPC also opined that the Yuan could happily rise 3 to 5% per annum. The PBOC’s Deputy Governor also said the currency was as close to equilibrium as it had ever been. The money market agreed, too, as the seven day repurchase or 'repo' rate galvanised its three month low (at 2.18%).

CICC says that the average gain for the stock market in the four weeks following the NPC (since 2006) is 13%; and 2011 will be similar. It likes the Government for what it calls “maintaining stability”. Similarly, Robeco speaks of a “window of opportunity”. I was also encouraged by the stoicism of China Overseas Land & Investment. It is the Hong Kong listed developer controlled by the Nation’s Ministry of Construction. It plans to set up a real estate fund of $300 to 500 million to invest in commercial and residential property in China where it believes that the demand will prove resilient to Government measures to control it.

Okay, a lot has to go right from here and inflation and inequality are not beaten yet. Nonetheless, investors have their pocket books out once again.

“Monday is the key day of the week” - Gaelic proverb

Shanghai Composite:
Today: +1.83% to 2,996.21 at close
Last week: +1.3%
Since 5 July: +26.8%
Since 8 Nov: -5.2%
YTD: +6.7%

Hang Seng:
Today: -0.41% to 23,313.19 at close
Last week: +1.7%
Since 25 May: +22.8%
Since 8 Nov: -6.6%
YTD: +1.2%

Oil futures: $106.00
Gold futures: $1438.20
(new ‘immediate delivery’ high of $1441.00 on 2 March 2011)
Euro/$ spot: 1.3997

NATIONAL PEOPLE’S CONGRESS
• Wen targets inflation as priority so as to ease social unrest
• Inflation is putting China’s “dream” at risk, says Wen
• +3 to 5% for the Yuan per annum
• Fiscal spending rose 11.9% this year to Yuan 10 trillion
• Housing spend to rise 9.6% to Yuan 258 billion
• China’s spending on internal police force in 2010 was larger than on national defence; and plans to do the same this year
• The 2011 Budget at a glance

EQUITIES
• Shares rise to three month high on economic plan
• Economic plan opens “a window of opportunity” for a stock market rebound, says Robeco

MONEY
• Money market rate declines and sustains three month low
• The Yuan is as close to equilibrium as it has ever been, says PBOC’s Yi

REAL ESTATE
• Property tax will be more effective if applied national, says Mayor of Chongquing
• China Overseas Land plans a $500 million real estate fund, as it bets the Government will not overly constrain property demand

DOMESTIC
• Drought impact on crops is “limited” says Government

INTERNATIONAL
• Relations between China and the US enjoy a “good atmosphere”

HONG KONG
• Hong Kong’s inclusion in China’s five year plan underlines its importance to the PRC
• HK house prices rise 0.9% in last week of February

IRON & STEEL
• Wuhan Steel aims to by more international iron ore resources in push to self-sufficiency; as foreign suppliers plan a dock side spot-selling unit
• Guinea plans a review of all its mining licenses
• Baoshan wins drill pipe anti dumping case in US