CHINA Focus : Talk To The Hand
Shanghai Composite Index at an 18 month high tells us to TALK TO THE HAND and charts suggest another 4-5% upside as we head into the opening of the Shanghai-HK stock exchanges connect on 27 October, after the Golden Week national holiday on the 1-7th of October. On a separate note, the HSI posted a 2.6% weekly decline.
The USDCNH saw a nice drift lower forming its own Death Cross to rival the Russell 2000 Index’s highly publicised one, meaning if you had not bought the week before, then too bad (although I see 6.13 as an interim support). Note that there is some talk that the CNY’s strength could be due to the Alibaba ipo and inflows expected from the HK-Shanghai Connect.
I notice that China has been busy-busy on the foreign relations front whilst America is busy trying to eradicate the ISIS rebels. And the poor HK protesters are not really getting a whole of news coverage or sympathy on line and globally. http://www.scmp.com/news/hong-kong/article/1602958/live-occupy-central-kicks-hundreds-classroom-boycott-students-leave
Seriously ? Who Dares To Stand Up To China ? Just Go Talk To the Hand !
And there is a conspiracy theory about that China could be behind the recent disappearance of Kim Jong-Un and a potential coup.
“While North Korea’s state media later admitted that Kim has been “suffering discomfort,” Duowei claims that the real reason Kim has not been seen since Sept. 3 is because of dire instability in his regime. Citing rumors circulating in North Korea’s political circles, Duowei suggests that Kim may have already been placed under house arrest by Hwang, who forced Kim elevate him to second-in-command as part of his plan to eventually usurp Kim’s throne.” http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1101&MainCatID=11&id=20140928000103
News this week.
* Aug Industrial Profits Fall 0.6% YoY, Jan-Aug profits rise 10% YoY. Notable declines in steel, chemical and electronics.
* Aug Leading Economic Index Rise 0.7% MoM.
* China Sept HSBC Flash PMI 50.5 vs expectations of 50.0
* China Watchdog find USD 10 bio in fake currency trades in the port of Qingdao resulting in further commodity price weakness but hardly affecting the rise of the Shcomp index. http://www.bloomberg.com/news/2014-09-25/china-foreign-exchange-watchdog-finds-10-billion-in-fake-trade.html
* More Chinese cities dump home purchase limits as prices fall and Chinese banks poised to relax mortgage rates. http://english.caixin.com/2014-09-22/100731662.html
* China may replace PBOC head which market is perceiving to be market friendly. http://online.wsj.com/articles/china-considers-replacing-central-bank-head-party-officials-say-1411566509
* China Extends $1b of Credit Lines to Belarus; Noble Americas Said to Loan Ecuador State Oil Company $1 Billion; China, Spain to Sign Over $4b of Deals During Rajoy Visit; India Asks China to Bid for Highway Projects…
The big political event is the China-US defense ministries dialogue session in Mid Oct. http://news.mod.gov.cn/headlines/2014-09/25/content_4539887_2.htm
In all, the view is for a Chinese slowdown and GDP to creep lower to between 6.5-7% for the years ahead which suggests the rest of Asia may stagnate along in a period of slower growth (note that Goldman differs on this). S&P ratings agency finds it unlikely that there will be widespread default even as Chaori Solar fails to find a buyer and another Chinese steel trader defaulted on their debt. http://www.bloomberg.com/news/2014-09-24/china-steel-trader-huaikuang-modern-defaults-on-debt.html
Major Chinese developer Wanda is seeking the largest Chinese real estate listing in HK for a US 5- 6 bio ipo. http://online.wsj.com/articles/dalian-wanda-files-hong-kong-listing-application-for-its-ipo-1410877944 We are starting to see a distinct segregation of real estate companies into the “too big to fails” vs the rest and Chinese real estate developer bonds are the best performing this quarter.
It is going to be choppy – defaults and no defaults and rumours of defaults like Sinosteel (Too Big To Fail – former Fortune 500 company) which are then denied by state owned ICBC. http://english.peopledaily.com.cn/business/n/2014/0924/c90778-8787072.html
Thus I still ascribe to the TALK TO THE HAND theory and that China will be a pretty good safe haven bet ahead.
Government bond yields have crapped lower with the 10 year at an 11 month low as the bond curve flattened in preparation for slowing growth. Nice going into the end of September, end of the 3rd quarter and into the Golden Week.
Leaving with the indicative CNH bond prices.