China In Focus : Power Play

The big controversy in the political world is the new Asian Infrastructure Investment Bank (AIIB) and America’s panic when their closest ally, the UK, signed up with China, along with Germany, France and Italy. Australia will formally announce their decision on Monday,¬† which is expected to be a given. Switzerland applied yesterday with Luxembourg and South Korea next. http://www.theglobeandmail.com//report-on-business/major-us-allies-to-join-china-backed-world-bank-rival-reports/article23491965/?cmpid=rss1&click=sf_globe

Notice the US, Canada and Japan absent ?

It is a significant shift in the global balance of power. And we have Japan and China to start their first security talks in 4 years as another sign in addition to a trilateral talk in Seoul among their foreign ministers.

Anyone interested in the 2015 Chinese economic, social development plan can read the link here. http://en.people.cn/n/2015/0317/c90785-8864521.html

And they keep talking and talking ..

Today
*CHINA ECONOMY TO SEE BOTTOM THIS YR, NEXT YR: GOVT RESEARCHER
*PBOC RESEARCH HEAD SAYS YUAN DEPRECIATION REFLECTS ECONOMICS
*PBOC’S YI SAYS SPILLOVER FROM EUROPE BOND BUYING NEEDS WATCHING
*CHINA MAY EASE FX EXCHANGE LIMITS FOR INDIVIDUALS: PBOC’S YI
*CHINA-BACKED INFRASTRUCTURE BANK NOT REPLACING OTHERS, ZHU SAYS

All I know is that my friend and sometimes contributor, Zico, is whooping for joy as his favourite Chinese stocks, Tencent and CTrip, have risen more than a fair bit this week and now we have Sogou (“Search Dog”) planning a US IPO.

The CNH has strengthened some 1.3% on the week against the USD whereas the CNY has only made a 0.09% gain. A sign that we have some confidence returning.

Bond issuance has been brisk with investors eager to lock in higher interest rates on the short end squeeze that markets are seeing as the cross currency swaps against the USD break new 5 year highs in the 1-3 year tenors. But the magnitude of the weekly move in the USDCNH does suggest we will drift into a quiet month end.

USDCNH weekly chart

USDCNH weekly chart

 

As for the SHCOMP and its relentless surge towards its pre-Lehman highs, I would go for a toss up at best and sell early in the week.

shcomp weeklySHCOMP INDEX WEEKLY CHART

As I said last week that they are preparing for something big, it is a long term power play at work and there is little to expect except that they will try their utmost maintain calm i.e. good for bonds.

Leaving with the indicative prices.

CNH BONDSCNH BONDS 2