Sharp-eyed readers will note that this missive was penned over t’weekend. I am speaking at the Intercem Conference in Barcelona early next week and will be off-blog point until Thursday. Good luck. www.intercem.com
It was St Ambrose in the year AD 390 who coined the much plagiarised precept: “when in Rome, do as the Romans do”. In practice, it advises that it is both polite, and advantageous, to abide by the customs of a society when one is a visitor.
China’s Premier Wen Jiabao is a pretty astute fellow and the first thing he did on his current Europe tour (24 through 28 June) was to pen an exclusive opinion piece for the Financial Times. Herein, he said that China’s efforts to reduce inflation have worked and that the pace of consumer price rises will slow. “There is concern as to whether China can rein in inflation and sustain its rapid development - my answer is an emphatic yes. China has made capping price rises the priority of macroeconomic regulation and introduced a host of targeted policies. These have worked. The overall price level is within a controllable range and is expected to drop steadily”.
Wen also pointed to evidence of a moderation in lending and money supply, an “oversupply of main industrial products” and “abundant” grain. For example, new loans ($549 billion) for the first five months of 2011 are an annualised 12% lower, while M2 in May rose the least (15%) since November 2008.
Straight away China’s money market rate declined, ending seven days of advances, on speculation that the PBOC will cease raising interest rates i.e. the seven day repo rate fell 56 basis points to 8.48% on Friday morning, having touched 9.20% earlier, the highest level since October 2007.
Similarly, the Shanghai Composite hauled itself off the floor and ended the day 2.2% to the good and 3.9% on the week. Okay, it is still 10.2% off its 2011 high (18 April) but at one stage was 14.3% down on this basis (at 2621.25 on Monday). The Hang Seng did pretty much the same thing (although it is a net 8.1% off its April peak, having been down 10.5%).
Even the Yuan joined in and, after bouncing off another spot record of 6.4643 (on Wednesday), it closed the week at 6.4715. Furthermore, Twelve Month Non-deliverable Forwards decreased 0.3% last week to 6.3927 per US dollar on Friday morning. The contract was at a 1.2% premium to the spot rate in Shanghai.
And, finally, Ai Weiwei was released on bail after more than two months in jail; and another prominent dissident Hu Jia, who has just completed a three-and-a-half-year jail term, was also released.
Back on tour, at his first port of call in Budapest, Wen pledged support for Europe at this time of crisis and added that China will remain an investor in European markets, including sovereign debt. “In recent years, we have increased by quite a big margin our holdings of government bonds. We will consistently continue to support Europe and the Euro”.
China will also buy a “certain amount” of Hungarian government bonds, he added. In fact China is targeting an increase in trade with Hungary from $8.7 billion last year to $20 billion by 2015. It is also extending a Euro 1 billion loan via its State Development Bank to finance projects in Hungary. In addition, China plans to set up a European transportation logistics base as part of 12 agreements which the two nations signed on the visit; plus make a $1 billion investment in the Hungarian chemical industry.
At the time of writing, on Sunday (CET), Wen was in the UK, where he will most probably be hobnobbing with PM David Cameron at his country residence - ahead of further meetings in London. Then its Angela Merkel’s turn in Berlin.
In other news, China’s manufacturing industry may well have expanded at its slowest pace in 11 months in June, according to a preliminary or ‘flash’ PMI. The 50.1 level reported from HSBC and Markit compares with a final reading of 51.6 in May. A number above 50 indicates expansion. “Demand is cooling thanks to the effect of tightening measures and the slackness in external markets” said HSBC. “But hard landing worries are unwarranted as inflation pressures are easing and industrial production can maintain momentum”. HSBC/Markit’s early PPI is based on 85 to 90% of the total responses to its monthly survey of more than 400 companies. The final reading will be published on 1 July.
Even more startling, is RBS’s view on Chinese equities. It says that the MSCI-China Index could see 40 to 80% of upside through 2012. Okay it is not alone (Citic is newly positive and HSBC is plumping for a 20% rise) but it is the most bullish. RBS points to easy US monetary policy and China’s macro approach which will help the MSCI China Index reach a PER of 18.2x next year; this compares with the current year’s 11.4x. It also believes that rising participation of the private sector in social housing will help support fixed asset investments and provide further impetus. RBS noted, too, that although the private sector housing market appears to be under some pressure, property developers have quietly hopped on the Government’s social housing bandwagon.
Even Henry Kissinger (now 88) is positive, saying - at the Second Global Think Tank Summit held in Beijing - that China, with its growing financial assets and expanding global economic reach, has gained a new confidence; particularly during the fight against the global financial crisis. He also said that China’s growth was one of the essential factors which had prevented a far worse global downturn in 2008; and reminded his audience of the IMF calculations which show that an additional 1% of real growth in China, sustained for five years, adds 0.4% to global growth.
Morgan Stanley’s Chairman Stephen Roach is another high profile bull and likes, in particular, China’s dynamic refocusing towards its consumers. He expects China’s private consumption as a share of GDP will rise as much as five percentage points between now and 2015. In 2008, he says consumption accounted for just 35% of GDP. “I think it’s a great start in the direction of getting the Chinese consumer going and I encourage all of you to take a look at what they’re proposing in terms of job growth, boosting wages and building up the safety net. Over the next five years you’re going to see a powerful impetus from the Chinese consumer, allowing export-led China to wean itself from the zombie American consumer”.
Elsewhere, ING’s Tim Congdon has gone as far as saying that there will be no further interest rates this year (okay he’ s bit lonely right now). “We think the balance of risks for the State Council has shifted to growth from inflation” and “we view Wednesday’s comment by an NDRC official that inflation could accelerate (to 6%) in June as preparing public opinion for higher inflation”.
The PBOC has raised interest rates twice this year (to 6.31%) and the banks’ reserve ratios requirements six times (to 21.5% for the big boys). In my view RRRs are a rapier to interest rate's hatchet; and if ‘Roman’ Wen is right the medicine is working.
“Veni, vidi, vici” (I came, I saw, I conquered”)
- Julius Caesar 100 to 44 BC
SHANGHAI COMPOSITE
Friday: +2.16% to 2,746.21 at close
Last week: +3.91%
May: -5.8%
June (to date) +0.1%
YTD: -2.2%
Since 05/07/10: +16.2%
Since 08/11/10: -13.1%
HANG SENG:
Friday: -1.90% to 22,171.95 at close
Last week: +2.20%
May: -0.2%
June (to date) -6.4%
YTD: -5.5%
Since 25/05/10 +16.8%
Since 08/11/10: -11.2%
OIL FUTURES: $91.16
GOLD FUTURES: $1500.90
(new ‘immediate delivery’ high of $1577.40 on 2 May 2011)
EURO/$ SPOT: 1.4188
HEADLINES
WEN’S EUROPEAN TOUR 24 to 28 JUNE
• Chinese inflation is firmly under control says Wen in an FT article at start of Europe visit
• Wen says China will continue to buy European government debt and supports the Euro
• China will buy a “certain amount” of Hungarian Government bonds; and agrees to extend a Euro 1 billion loan
• China plans a transport logistics base in Hungary; and will invest $1 billion in its chemical industry
• HK Chairman of China’s sovereign fund (CIC), Laurence Lau says China is positive about Euro and a solution in Greece
ECONOMY
• HSBC/Markit ‘Flash’ PMI says China manufacturing in June looks set to slow – due to policy tightening
• Kissinger says China gains new confidence during GFC
• Vice Premier Li Keqiang jumps on ‘top priority is to tackle inflation’ bandwagon
• Inflation rate to slow, says State Information Center; although NDRC says it may hit 6% in June (highest since July 2008)
• China should raise rates soon to curb inflation, says China Securities Journal
• Asian consumers are needed to fight “American zombies” says Morgan Stanley’s Stephen Roach
• China food prices spike as floods ruin farmland
• China to give priority to hydro-electric development to 284 gigawatts by 2015
EQUITIES
• Chinese stocks could rise by 40 to 80% next year, says RBS
• Buffet-backed BYD online Shenzhen offering is 21 times oversubscribed; although at a projected $219 million, the IPO will raise less than expected for ‘Build Your Dreams’
• Anthony Bolton's Fidelity Special Situations Fund disappoints
• Macquarie and China Everbright have raised a $729 million China infrastructure fund
CASH
• Money market rate falls after Wen speaks on inflation
• Yuan Forwards declined last week (6.3927); Wen again
• Bank reserve ratio requirement hikes have created cash "pools" for future easing
• Chinese banks falter on monetary tightening
• PBOC tightens controls on offshore Yuan deals
• Credit squeeze has seen smaller companies paying five times base interest rates for debt
• US companies urge US Government to avoid legislation against value of Yuan
• Bigger international role for the Yuan only works with a more open capital account, says Ex-PBOC Advisor Fan Gang
• China should halt gains in Yuan, say two leading economists
• Greenspan says China is mistakenly using currency manipulation to increase employment; US not perfect either
• Hong Kong to provide daily Yuan benchmark from 27 June
REAL ESTATE
• Developers embrace projects for tourists in significant new trend
• Former Premier Zhu Rongji criticises policy of allowing local governments to retain land sale proceeds; but likes the affordable housing programme
COMPANIES
• TCC to spend $3 billion over the next five years expanding its cement operations in China
• Holcim says it is monitoring consolidation in Chinese cement
• Caterpillar remains bullish on China, despite Q2 sales decline
• Porsche Cayenne sales soar in China; as do other SUVs
• ICBC to buy Standard Bank Argentine unit for $700 to 800 million
INTERNATIONAL
• China and India to resume military ties after a year’s hiatus
• Russia and China are the best of the BRICs, says Jim O’Neill of Goldman Sachs
DOMESTIC
• Ai Weiwei released on bail in Beijing
• Prominent Chinese disident Hu Jia is released from jail
• Rains continue as floods kill dozens and force major evacuations
• Strong winds, heavy rains predicted along East China coast as tropical storm Meari approaches
• China offers riot informers cash and other awards
• Government blocks website (www.ibribery.com) which allowed citizens to report payoffs and bribes made to officials
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment