China Focus : Watch Out

If anyone was watching screens on Friday evening, it was Dialastrategist, who alerted me to the sudden spike in the USDCNH.

cnh gip3

Conspiracy theories abound with this spike coming just shortly before the 2% rate cut in Russia and rumours of a PBoC cut to come. Yet this came oddly after Chinese market close.

More signs of 7% as the “new normal” as the Chinese PMI shrank to a contractionary 49.8, lowest in 28 months.

Meanwhile the Chinese government continues on their clean up rampage as public satisfaction rises to 70% with the progress made. http://www.icrosschina.com/news/2015/0122/8024.shtml

Yet, even as Kaisa receives a much needed face-saving life line from the government, we have a recalcitrant Ali Baba in trouble with the authorities and Minsheng Bank’s president hauled off on another probe.

The international markets are not impressed with FT reporting capital outflows behind the CNY’s fall and WSJ warning again on local government debt.

It does not matter because the yuan is here to stay, now becoming the top 5 most used currencies.

It, however, does feel like China is not about to enter the global Hotel California central bank trade as yet. As much as the rumours keep circling for the rate cut.

I will not throw my eggs into the China equity basket but the bonds still look good, especially when the rate hikes are not going to be in the radar for a while in a currency that no one will dare to attack.  And as for Kaisa ? I will not be too optimistic for that change of control clause at 100 or even, 101.

Leaving with the bond prices.

CNH BONDSCNH BONDS 2