CHINA FOCUS : Doing Their Own Thing As A New Global Leader

China came  back strongly on Wednesday, her equity markets logging in gains to close the week up and for the CNH to close the gap against the CNY, strengthening, of course, as the HK protests fade into nothing and China’s GDP, PPP adjusted, overtakes the US for 2014.

Source : FT

Source : FT

 

China, HK, Mongolia, Pakistan, Vietnam, Sri Lanka, Indonesia and Laos were the only Asian markets logging gains this week for their equities.

And after a hectic week of central bank talk, talk and more talk, PBOC coolly ended the week at the World Bank and IMF annual meetings in Washington,  saying they will continue to do their own thing.

” Oct. 11 (Bloomberg) — The nation will stick to “macroprudential” policies to ensure reasonable growth in money and credit, PBOC Governor Zhou Xiaochuan says in meeting of IMF’s governing body in Washington.”

That sounds as reliable and consistent as you can get compared to all the mixed signals from everyone else. Because they say so.

This is the main difference between free markets and China markets.

And that is why the ECB is looking to add the Chinese yuan into their foreign currency reserves and the UK will be the first western government in history to issue offshore yuan bonds. http://www.bloomberg.com/news/2014-10-10/ecb-weighing-first-step-to-buying-yuan-for-foreign-reserves.html

At the same IMF conference above, even the Fed’s Williams made a comment that the USD is not at risk of losing their global role …. for the next 10 years as he acknowledges that the China yuan is looking encouraging.

And as for the U.S. dollar’s role as the global reserve currency, Williams said it is too early to talk about those risks, adding it’s a conversation that should happen in about 10 years.https://mninews.marketnews.com/index.php/sf-feds-williams-rmb-liberalization-natural-healthy-step?q=content/sf-feds-williams-rmb-liberalization-natural-healthy-step

China also says not to expect much more from them.

”     Oct. 11 (Bloomberg) — China won’t need to do a “big stimulus” package for the foreseeable future, PBOC Chief Economist Ma Jun says. Ma:
• “I don’t see the reason now for big stimulus in the foreseeable future, for at least two reasons.”
• “Even if GDP is slowing down a bit, the job market looks pretty stable.”
• “Secondly, we need to avoid further increase in leveraging in some sectors, for example, real estate, some SOEs and local government financing vehicles.””

In the meantime, they are reforming in small steps eg. “Shanghai Stock Exchange, CSI to Introduce 6 USD Hedging Tools” and,

”     Oct. 9 (Bloomberg) — China outlined plans to allow citizens to invest in overseas stocks and property as well as let the nation’s companies sell yuan-denominated shares abroad, furthering efforts to internationalize its currency.”

Commodities wise, looking week as China imposes taxes on inbound coal, nat gas and crude.

CNH UPDATE

On bonds, the world awaits the first of the Chinese bank Cocos in USD from Bank of China which is anticipated to be at a coupon level of 6.5-7% and launched as early as next week, with the sheer size of the deals sending some panic signals in asian bond space as investors fear that there will be portfolio mass liquidations to make room for the deals.

Oct. 9 (Bloomberg) — Bank of China Ltd.’s sale of as much as $6.5 billion in offshore preference securities may push up high-yield borrowing costs in Asia as investors sell to make room in their portfolios for the deal, Morgan Stanley says.
Bank of China hired nine banks for its Basel III-compliant Reg S issue, which will count as additional Tier 1 capital, and plans to meet with investors in Asia and Europe from tomorrow,people familiar said. Meetings finish Oct. 14 and the sale could come as early as next week, the people said, asking not to be identified because the matter is private.http://www.mynextfone.co.uk/news/bank-of-china-ltd-s-sale-of-as-much-as-6-5-billion-h68680.html

Chaori Solar, the company in default, is proposing to pay back 20% on their defaulted bond which will become a new precedence for future defaulting companies. That is good news for market clarity. http://www.bloomberg.com/news/2014-10-07/chaori-solar-restructuring-plan-seeks-haircuts-up-to-80-.html

Elsewhere, big Chinese developer Agile’s stock suspension remains cloaked in intrigue and mystery as the company cancelled their rights issue and denied allegations of links with former Chinese power chief, Zhou Yong Kang, whose corruption trial will soon take centrestage in news media in the coming weeks. http://www.bloomberg.com/news/2014-10-10/agile-property-says-hk-2-8-billion-rights-offering-won-t-proceed.html

Behind the iron curtain, we do not ask more. Just enough to know that there will be demand for Chinese assets as we go ahead as China takes on a bigger role in global reserves and the Chinese yuan will weather through better than the rest.

Table of China’s Annual Trade Counterparties

CHINA ANNUAL TRADE

Leaving you with the indicative prices.

CNH BONDS

CNH BONDS 2