China In Focus : Keeping the Folks At Home Happy

Chinese stocks left the world in their dust as they powered away to another record breaking week and sour grapes started questioning the average IQ of the average Chinese investors, somehow managing to provide evidence that education levels are not very high.

Well, the fact is that, as reported in Bloomberg, Shanghai traders are making a trillion yuan stock bet with borrowed cash. And the fact is that the Chinese government is allowing them to do so which means that it is OK !

I note interesting headlines like China Punishes Six Brokerages for Violating Margin-Finance Rules along with Shanghai Bourse May Allow Investors Open More Securities Accounts, which could mean more accounts to spread the margin financing ?

Chinese investors are also mercifully spared from global financial media distractions as Google, Microsoft and Mozilla are now at loggerheads with the Chinese internet authority and friends complain to me about being unable to access much when in Shanghai.

Luckily we know that China is safe from the next crisis, courtesy The Economist which has compiled a financial vulnerability report.

 

 

Yes. Their DEBT IS EXPLODING, as I can see from these diagrams, the inference is definitely on China (take the Green line minus the Blue line). Oxford Economics :  aggregated private debt to GDP for EM Asia now exceeds that of G7 nations.

debt of em asia

But what can we say to this ? Thank you for taking away Google search ! (joking, of course)

Shanghai Composite Weekly Chart

Shanghai Composite Weekly Chart

 

I have mostly missed out on this breathtaking run and I am not the only one because credits are not doing as well from the looks of the S&P China Corporate Bond Index, appearing like the melting cap of a peak.

S&P China Corporate Bond Index

Perhaps it is a distraction to the political undertones with the formal indictment of former security tsar, Zhou YongKang, last Friday. He would be the biggest fish landed, so far. Or perhaps it is the current Operation Sky Net, that aims to arrest up to 150 economic fugitives living in the US and 50 in the UK.

And I lied a little about missing out on the equity bull run because I did follow some of the recommendations of one of our contributors, Zico, a China bull. https://tradehaven.net/market/zicos-recap-for-1q15-a-pause-to-look-at-whats-in-the-bag/

I still like CNY bonds from a yield angle, and the currency has proven to be a lot more stable than the rest of the world we bother to invest in. Besides, the probability is much higher for rate cuts to come than to even consider a hike anytime soon.

The market has also grown resilient to small defaults along the way.

(Bloomberg) — China’s bond market is building an immunity to the risk of smaller company defaults, with investors largely shrugging off repayment concerns even as another privately held firm said it’s unable to meet its debt obligations.

Cloud Live Technology Group Co., which morphed into an Internet company from a high-end restaurant chain in July, said late Thursday it can’t raise the 240.6 million yuan ($39 million) needed to make note and interest payments due April 7.
Restaurant or internet company ? Who knows or cares ?
The only cares the market has are 1. further easing and 2. further relaxation on real estate rulings like the one earlier this week where 2nd home down payment was lowered to 40%.
And that will be sufficient for the moment to keep the folks at home happy.
Leaving with the indicative prices.
CNH BONDSCNH BONDS 2