Long weekend

Everyone in the UK (Bank Holiday) and the US (Memorial Day) has a long weekend, including today. For the Chinese people it is a normal working day – at a time when they could do with a break i.e. check out today’s headlines which focus on the prospect of higher interest rates, power outages and, in real estate, a possible extension of the property tax; not to mention the drought and civil unrest in Mongolia.

The known enemy here is Inflation (okay this is better than his depressive brother ‘Deflation’). And, as is well documented, the bulls maintain that he is a temporary visitor, while the bears view him as one who has come to stay. Food prices are, of course, the prime consideration (accounting for 30% of CPI's suitcase) and this won’t be helped by the drought in and around the Yangtze. In fact water levels in the river’s midstream are six metres lower than the same time a year ago, with rainfall only a fifth of what it was in 2010, according to the China Daily. Similarly, China’s meteorological office said on Wednesday that average rainfall in Anhui, Jiangsu, Hunan, Hubei, Jiangxi, Zhejiang and Shanghai, which are China’s major rice producing areas, is the lowest since 1954.

This makes the words of iconic US investor Jim Rogers all the more pertinent. “I don’t mind if China has civil war, epidemics, panics, depressions, all of that. You can recover from that. The only thing you cannot recover from is water. If China doesn’t solve its water problems than there’s no China story”. That said, Rogers (who is not everyone’s cup of green tea) also acknowledged that the Nation is spending large amounts of money to solve this problem.

The Shanghai Composite also dipped again today (-0.13%) for the eighth in a row, which is the longest losing streak (-5.7%) since December 2008. With one trading day to go, too, the month of May is now 7.1% in the red (and they say April is the cruellest month) and 11.4% off its 2011 peak on 19 April; not to mention being 2.5% negative in 2011 so far. Today, developers were in sharp focus, too, as Xinhua reported that a property tax trial in two or three principal cities may be expanded nationwide. Similarly, a number of academics at a weekend conference talked about a fall in house prices of 10% or more. No surprise then that the Property Sub-index within the Composite fell 1.5% (to 3334.5) including China Vanke, the Nation’s number one developer, at a 10 month low (-1.3% to Yuan 7.80).

The money markets had some better news, if curate-like. The Yuan touched 6.4858 to the US dollar on 26 May, the highest since 1993. Many commentators claim that China’s currency could be used to ease Inflation’s temper. These include Tim Geithner and a number of his countrymen. And it was significant, at the weekend, that the US Treasury stopped short of branding China a ‘currency manipulator’; despite adding that the progress on letting the Yuan rise was “insufficient”. The cynical view here, too, is that the report was deliberately released on a holiday weekend so as not to attract too much attention.

“If we are facing in the right direction; all we have to do is keep on walking” - Buddhist Saying


SHANGHAI COMPOSITE
Today: -0.13% to 2,706.36 at close
Last week: -5.20%
March: -0.8%
April: -0.6%
May (to date): -7.1%
YTD: -3.6%
Since 05/07/10: +14.3%
Since 08/11/10: -14.6%

HANG SENG
Today: +0.29% to 23,184.32 at close
Last week: -0.35%
March: +0.8%
April: +0.8%
May (to date): -2.3%
YTD: +0.7%
Since 25/05/10 +22.1%
Since 08/11/10: -7.1%

OIL FUTURES: $99.97
GOLD FUTURES: $1536.30
(new ‘immediate delivery’ high of $1577.40 on 2 May 2011)
EURO/$ SPOT: 1.4286


EQUITIES
• Jim Rogers says China’s number one issue is water
• Stocks fall and rise on tightening concerns; led by developers
• Societe Generale is “underweight” on China stocks

ECONOMY
• Copper gains on optimism about Chinese demand
• Home appliance sees sharp fall in the rate of growth in April; less so for first four

MONEY
• Yuan completes second sees weekly gain
• US does not name China as a currency manipulator

REAL ESTATE
• Home prices likely to fall by more than 10% this year

DOMESTIC
• Emergency response to drought
• Drought in China raises worries about global grain supply
• Non-infectious chronic diseases become major health threat, claiming 85% of deaths in China
• China to change mine rules after Mongolia unrest

INTERNATIONAL
• Chinese top legislator calls for deeper business cooperation with South Africa