China Focus : A First Time For Everything

I am struck that this is the first time that markets are confronted with the actual prospect of China slowing and their surprise rate cut last weekend is also seen as result of their ballooning debt problem.

china rate cut

We had scares in the past and scandals and such but never have we encountered a sustained slowdown or rather realistic expectations of a sustained “new normal” slowdown before.

That was the main theme that was echoed during the annual National People’s Congress, parliamentary meeting held earlier this week where the 2015 GDP target has been definitively slashed to 7% (from 7.5%) and warnings of downward pressure as their economy adjusts to a “new normal”.



The picture is dismal if we view how their USD GDP growth has more than halved since its peak in 2011.

Source : The Economist

Source : The Economist

And that will affect commodity consumption, of course.

china commodity consumption

On the bright side, we can expect China to continue to drive outward direct investments into the frontier markets to make up for the anemic onshore growth and Hong Kong and Macau would be the worst hit, if you ask me.

Hong Kong’s retail sales slumped in January despite the lunar new year festivities, recording the biggest drop since the 2003 SARS epidemic and Macau casino revenues have fallen by a record 48%.  All signs in place when Patek Phillipe and Panerai started cutting prices last month purportedly because of Euro weakness.

It does not help that Alibaba is under scrutiny for fake orders resulting in their share price plunge to the lowest since their IPO and now Siemens is also investigating some fictitious Chinese contracts.

There is always a first time for everything and mindsets are gradually adjusting to the new China which has not looked so bad in 25 years even as they continue to cement their global status as a political and economic powerhouse.

USDCNH broke a new 2 year high earlier this week after the rate cut but managed to settle lower although we should continue to expect the currency to weaken against the USD(and only the USD) in the days ahead.

If we take SGDCNH as an example, we are at 5 year lows.


Thus for the spate of CNH issuances out of the foreign banks that we have seen in the past week, starting with CBA’s 1 bio sub debt, I think there are some nice buying opportunities there.

Leaving with the indicative prices.