China In Focus : Upbeat For the Wrong Reasons

The relentless 16% rally we have witnessed since end Nov 2014 in the SHCOMP has been for 1 reason – expectations of stimulus.

That strikes me as a rally for all the wrong reasons and we close yet another week higher despite the high profile Kaisa potential default scandal.

shcomp weeklySHCOMP weekly candlestick chart.

What rumours this week ?

Heard this from a local China broker…
Unconfirmed reports that settlement in the A-share market will move to T+0 from T+1. Tis would allow day-trading for the first time. Watch the broker stocks….

Rumor has that CSRC will announce the timetable of ETF options on today’s press conference. Rumor said it will be launched before the Spring Festival. We think the stocks may benefit from it: 1) SSE 50. 2) securities. 3) the stocks have shares on future companies.

What about reality ?

PBOC Says China To Keep Prudent Monetary Policy in 2015
(Bloomberg) — China’s central bank reiterates proper balance between loosening and tightening at a work conference for 2015.

China’s Biggest Banks May See 2015 Net Interest Margins Squeezed
Average net interest margins at China’s eight biggest banks may narrow to 2.43% in 2015 from 2.54% in 2014, based on consensus. The margin squeeze may result from a continuation of asymmetric rate cuts and lower mortgage rates this year. Competition for deposits may also heat up because of a new rate cap for time-deposits set in November.

China Plays Down Stimulus Talk While Xi Trumpets New Normal Growth

Don’t think we need any stimulus at the rate Chinese punters are carrying on which has led to lower suicide rates ? because the recent funeral services IPO, Nirvana Asia Ltd (1438 HK) is floundering at HKD 1.86 from IPO price of HKD 3 last month.

1438 hk

They should have taken it to Japan where in the latest BOJ survey, majority of Japanese households say they’re worse off than a year ago.

But there is nothing to worry about because diabetes will probably be on the rise in China as Dunkin Donuts signed a franchise agreement to add another 1,400 restaurants in China.

Make no mistake that China will be slowing and speculators will be timing their exit carefully.

On the bonds front, we see Huarong price 3.2 bio USD worth of notes which were hurriedly snapped up in a well over subscribed deal, riding on the asset management wave.

And more on Kaisa.

(Bloomberg) — “If Kaisa has some ability to manage this process, full recovery could be possible if it is acquired in part or in whole by a stronger party,”Charles Chang, head of Asia credit strategy at Credit Suisse, writes in a report.

  • This scenario, perhaps similar to Neo-China, SPG Land, Greentown, is more likely than liquidation: Chang
  • If co. is liquidated by courts all onshore liabilities need to be paid first
  • Recovery may be zero if Kaisa doesn’t have ability to manage process
  • “There does not seem to be a coherent theory that explains” recent history of co.
    • “We prefer to remain cautious and agile, while keeping positions small, as it seems to be the only way to manage associated risks”

Now we know that offshore bonds are subordinated to the local currency ones !

Leaving you with the indicative prices.