This time, it’s different

“It’s like all these times when you second guess yourself and you probably wake up a little earlier than you’re used to, and maybe you put an extra finger of scotch in the glass”.

So said investment legend, Laszlo Birinyi, as he reiterated his positive stance on US equities. President of the eponymous US money manager and aged 67, Birinyi was one of the first to say buy when the current bull market began in 2009. Others have joined in, too, as Wall Street tanked 4.3%, or more than 500 points, yesterday in what was part of a global rout of stock values. Fear has gripped investors and, as for the reasons why, take your pick from a perm of European sovereign debt default, a US double dip, global depression, etcetera.

In China, the Shanghai Composite was mild today by comparison with a mere 2.2% fall to its lowest level since 29 September last year. Indeed, look at the Hang Seng which fell more than 900 points (and over 1,000 at one stage) to close 4.3% down.

And, just as the insensitive journalist asked at Ford’s Theatre in 1865: “apart from that Mrs Lincoln how was the play?” - for China, the performance wasn’t at all bad. Its economy was beginning to slow but not stall, there were indications that inflation was moderating (aside from July’s number which is due on Tuesday) and the Yuan hit a new post-deregulation record against the US dollar of 6.4386 (on Thursday). Even the seven day repurchase rate was playing ball. In June, this benchmark measure of money market liquidity averaged 5.90% (the highest since January 2004) and in July 5.26%. At lunchtime today, however it was 3.0135%, which is regarded as pretty close to a manageable/sustainable level. It may not be a slam dunk in terms of there being no more interest rates, but it could well be an assist.

Near term, most bets are off. Medium and longer term, though: is it different this time? Yes it is; and no it isn’t. “Yes” because the global bail out worth $1,879 per head for every person on the planet preceded this latest crisis; and “no” because, recovery will follow slump as it always has - unless the paradigm has shifted (which it has not). And, in particular, Chinese equities are cheap fundamentally and relative to their global peers.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful” - Warren Buffett

SHANGHAI COMPOSITE
Today: -2.15% to 2,626.42 at close
This week: -2.79%
July: -2.2%
YTD: -6.5%
Year ago: +0.2%

HANG SENG:
Today: -4.29% to 20,946.29 at close
This week: -6.66%
July: +0.2%
YTD: -9.1%
Year ago: -2.8%

OIL: $85.84
GOLD: $1666.70
(new ‘immediate delivery’, intra-day high of $1681.72 on 4 August 2011)
EURO/$ SPOT: 1.4128

ECONOMY
• PBOC says inflation may rebound if policy is loosened
• Manufacturing growth in July hits 28 month lows with official PMI at 50.7 (Nov. 2010: 55.2); with HSBC/Markit more cautious at 49.3 at the smaller end
• Non-manufacturing PMI up from 57.0 to 59.6 in July; though HSBC/Markit dips from 54.1 to 53.5 (focus on private companies)
• No China bubble, says Standard Chartered CEO
• Primavera Chairman says China has seen “a clear slowdown. But that might be just what the doctor ordered”

CASH
• The PBOC has suspended borrowing by domestic companies from overseas banks; plus there are new limits for borrowing by foreign-invested companies
• CRBC is reported to have told banks to set aside more to cover losses on loans to local governments
• Ministry of Finance begins selling $3.52 billion of three year bonds for local governments at a yield of 4.07%.
• China rating agency, Dagong Global, has downgraded US sovereign debt from A+ to A with a negative outlook.

COMPANIES
• China Vanke’s July property sales tumble 32% to Yuan 9.08 billion month on month; but still +64% in first seven months of 2011
• China’s cement makers had a combined profit of Yuan 35.2 billion in the first five months, up 170% year on year
• Cement prices in China rose Yuan 54.24 in June
• TCC is to buy 97.9% of Scitus Cement China for $130.2 million

HK
• Hong Kong’s June retail sales jump 29% (to $4 billion) on tourists from China