China In Focus : Never Saw It Coming

Guess who said that ?

Alan Greenspan, of course.

So can we blame ourselves if we never saw the Chinese stock markets “melt-up” ? After months of lamenting on our holdings and wondering why the Chinese markets never caught on to the S&P’s meteoric rise.

Greenspan says no because it is animal spirits and traditional economic textbooks can call bubble for as long as they want and nothing happens till the bust comes.

China is in a fix because this rally in the markets is rewarding the tycoons a lot more than the average man. Stocks are surging to 7 year highs despite their huge miss in trade numbers.

The Paradox
“Mainland investors have opened a record 10.8 million new stock accounts this year, more than the total number for all of 2012 and 2013 combined, data from China Securities Depository and Clearing Co. show. The flood of money from these rookie stock pickers has helped feed market momentum after policy makers stepped up efforts to bolster an economy expanding at the slowest pace since the global financial crisis six years ago.” http://www.bloomberg.com/news/articles/2015-04-17/china-s-smart-money-is-riding-the-stock-boom-as-amateurs-rush-in

CHINA GROWTH

Alan Greenspan
“Such herd behavior also drives speculative booms and busts. When a herd commits to a bull market, the market becomes highly vulnerable to what I dub the Jessel Paradox, after the vaudeville comedian George Jessel. In one of his routines, Jessel told the story of a skeptical investor who reluctantly decides to invest in stocks. He starts by buying 100 shares of a rarely traded, fly-by-night company. Surprise, surprise — the price moves from $10 per share to $11 per share. Encouraged that he has become a wise investor, he buys more. Finally, when his own purchases have managed to bid the price up to $30 per share, he decides to cash in. He calls his broker to sell out his position. The broker hesitates and then responds, “To whom?””

Ambitions Lah !

AIIB first, then we have the IMF reserve currency status coming even as CNY use is dropping.

CNY USE DROPPING

Who cares if the IMF thinks that India will outstrip China ?

China will soon own their own Silk Route in Asia ! http://econ.st/1Q0fcap

And the best is that China is no longer the largest holder of US treasuries as of Jan this year as Japan takes over. Still, US$ 1.2237 trillion sits in their coffers.

I think it is a tough call to make that the Mothership will be easing rates anytime soon but we can be sure they will continue on their path to reform, just like the message announced after market close on Friday at a record high.

“Chinese stock-index futures tumbled after regulators clamped down on the use of shadow financing for equity purchases and increased the supply of shares available for short sellers.” http://www.bloomberg.com/news/articles/2015-04-17/china-futures-tumble-on-trust-curbs-expansion-of-short-selling

We never saw that coming !!!

As for the bonds, beware the high yields.

S&P : More Chinese Developers Could Default in 2015
http://www.bloomberg.com/news/articles/2015-04-16/kaisa-keeps-bondholders-guessing-as-landmark-china-default-looms

I see defaults as a get out of jail card and for countries like China and Vietnam, they just shoot the CEO (or something like that), recalling the story of how some Vietnamese bank traders got jailed for some loss making trades years back and their foreign bank counterparts got away scot-free.

Once somebody defaults, the temptation exists for the rest.

I remain comfortable with the currency and the investment grade bonds denominated in Chinese yuan. It won’t be a windfall but safe havens will not hurt especially in times when we cannot see it coming.

Leaving with the indicative prices.

CNH BONDSCNH BONDS 2