“Beginning of the Great Revival”

This is the title of the latest Chinese blockbuster movie which was launched at a glittering party this week. It was pure Hollywood, unlike the subject matter which marks the 90th anniversary of the Chinese Communist Party and traces its origins from the 1911 revolution through the official founding on 31 July 1921. It is part of a series of events.

How the PBOC must wish that reality-imitates-art and that “Beginning the Great Revival” could also be a stock market headline. At the close today, the Shanghai Composite had nudged up but was still nearly 1% down this week, which makes it minus 3.7% for the year and minus 11.4% from April’s peak. This is despite, a growing number of commentators (the latest being HSBC, Credit Suisse and Deutsche) saying that it is time to buy the market, with HSBC looking for a 20% bounce by year-end.

But there is clearly no audio loop in this cinema and nor will there be until the PBOC raises interest rates. South Korea did so today (up 25 basis points to 3.25%) for what will be the same reasons as China. This was a bit of a surprise, though, whereas it won’t be in China. And, by way or a trailer, the repo rate has risen 130 basis points this week to 4.77% (in morning trade), the biggest gain since January and including some 63 basis points today. In any event, the main movie, May’s RPI data, is shown on Tuesday (14/06).

By way of a happier first feature, China today reported a less than expected $13.1 billion trade surplus for May as imports jumped 28% and exports slowed to 19% growth. Okay, this is up on April’s $11.4 billion but it was also significantly less than May 2010 ($19.5 billion). The bulls took this to mean that the Government is managing the economy and easing it away from being an export-led economy towards a consumer society; whereas the bears said the data underlined a slowing World economy and a domestic hard landing.

In its title credits, the PBOC can also claim to be directing the Yuan with some aplomb. For example, the spot rate dipped today to 6.4779 - after the Bank eased its fixing rate. This follows a record spot high of 6.4755 on Wednesday. It is clear now that appreciation of the currency (+1.7% this year) has a supporting role in the fight against inflation. Nonetheless, the PBOC maintains a hands-on approach towards the pace of gains with a weather eye on other economic variables.

In the real estate cinema, May made a very good showing with Agile, Gemdale, Poly RE and Yuexiu all reporting higher sales values and volumes in the month; with Gemdale in the lead role with a tripling to Yuan 2 billion ($309 million). Not that the prime investment audience agrees and the property sub-index within the Shanghai Composite is down nearly 4% so far this year. Also negative, is the story that home purchase restrictions may be extended to China’s third and fourth tier cities, according to China Business Journal. More positive, though, is the fact that the nationwide construction of low cost housing (36 million units over five years) should begin by the end of November, reports the Shanghai Securities News. Similarly, the Government has allocated Yuan 5 billion in a special fund to improve the safety of primary and junior high school buildings across the Country.

Have we seen this one before? I hope so; and I was always a sucker for a happy ending.


SHANGHAI COMPOSITE
Today: +0.07% to 2,705.13 at close
This week: -0.84%
May: -5.8%
June (to date) -1.4%
YTD: -3.7%
Since 05/07/10: +14.4%
Since 08/11/10: -14.4%

HANG SENG:
Today: -0.84% to 22,420.37 at close
This week: -2.312%
May: -0.2%
June (to date) -5.3%
YTD: -2.3%
Since 25/05/10 +18.1%
Since 08/11/10: -10.2%

OIL FUTURES: $101.57
GOLD FUTURES: $1545.00
(new ‘immediate delivery’ high of $1577.40 on 2 May 2011)
EURO/$ SPOT: 1.4479


ECONOMY
• May’s trade surplus is less than expected at $13.1 billion
• China is an “economic success story”, says Warburg Pincus
• Every boom busts and China will be no exception, says Blackhorse

EQUITIES
• Shanghai stocks to rally 20% by year end
• Deutsche Bank upgrades too
• Car sales dip in April after two stellar years

CASH
• Money market's seven day repurchase rate is on target for its largest weekly increase since January
• Yuan Forwards rise
• Yuan edges lower on PBOC direction; although further appreciation is expected
• Rising Yuan will help rebalance Chinese economy, says IMF

REAL ESTATE
• Developers see sales in May soar, with Gemdale tripling
• China to extend home purchase restrictions as speculative buying increases in lower-tier cities
• Affordable housing push will begin by the end of November, reports Shanghai Securities News

DOMESTIC
• China launches star-studded propaganda movie
• Floods kill 18 and injure over 100 in central China
• Earthquake measuring 5.3 hit Toksun County on Wednesday

INTERNATIONAL
• China to develop economic development zones in North Korea
• CICC’s UK Unit becomes LSE's first Chinese member firm

COMMODITIES
• Baosteel announces a reduction in cuts July steel product prices by Yuan 100-200 per tonne
• Iron ore prices may remain around a two week high, says SSY
• UBS says there is potential for 500 million of new iron ore supply
• Noble Group trumps Exxaro bid for Australia’s Territory Resources
• Miners search far and wide in Australia for new sources of iron ore