Prime Minister Modi traveled to China this week and became the first foreign leader President Xi has ever hosted in his hometown of Xi’an.

modi xi

This all comes at a time when both countries are suffering a loss of investor confidence (e.g. Sensex and Nifty in negative territory year to date) and are both facing US displeasure at their uncooperative political stance as India goes ahead with their Iranian port investment and of course, China’s “artificial islands” project in disputed waters of the South China Sea.

Throw Russia into the equation with their economic and military ties, their efforts to reach to Brazil with $50 bio worth of infrastructure investments and South Africa and Pakistan, I think we will have over 3 billion people in the world who are happy with or think favourably of China.

Funny thing about all this is that we keep reading about the African migrants, Rohingyas and Bangladeshis flooding the shores of Europe and South East Asia. No one really thinks of running to China but it is probably for logistical reasons, I suppose.

Back to INCH which is the main message of PM Modi, standing for the India-China relationship that he hopes would ascend into MILES (Millenium of Exceptional Synergy).

It will be a positive future in due course, especially when we have China moving fast into the Indian e-commerce space.

The inevitability remains in the NOW – the present, which is not looking too good still as nothing much has changed in the past week given that the PBOC has downplayed the potential of QE, economic data still lacklustre and debt still suspiciously high. And my stand remains as it was last week – “Remaining bullish on the currency for peg windfalls and SDR status. Bearish on the economy and real estate for the debt burdens. As for the bonds ? Hang on for carry.”

I particularly like this FT piece on the case of hot money outflow from China where there is insinuation that some creative accounting was thrown into the Balance of Payments calculations under the category of “Errors and Omissions” that has become too glaring to not notice.

china outflow

Yet, in the face of market turbulence in the world and uncertain forex markets, Chinese debt has seen inflows for 3 weeks running given their relative stability and decent yields (until the next property default scare ??).

The stock market re-correction occurred for the week, as expected. But I would not hold my hopes up for new records soon despite the record highs in the S&P as historical correlations show that SHCOMP does not follow anyone even if the HSI is highly sensitive to the rest of the world.

I would just expect things to “inch” along for the time being, fx, bonds and all.

Leaving with the indicative bond prices.