China Focus : Conspiracy Theory Coming True To Make Suckers Of You

It is all about the stock market and we said this some months back.

“The MSCI World Index is an important benchmark – it covers approximately 85% of the free float-adjusted market capitalization in each country in the index. In a sense the aim is to look the investible universe. The US makes up 50.12% of the MSCI All Countries World Index as at 31 March 2015. If you were to look at the latest fact sheet from the iShares MSCI ACWI ETF country weights, China is only 2.7%.

What is happening now ?

“The initial weighting of China A Shares in the FTSE Emerging inclusion indexes will be approximately 5%. This is expected to increase to 32% (at March 31, 2015, market values) when China A Shares are fully available to international investors, and hence resulting in Chinese stocks (including B Share, H Share, P Chips and Red Chips) to make up 50% of FTSE Emerging Index,”

MSCI is expected to make an announcement regarding the inclusion of A-shares in its global benchmarks on June 9. FTSE is creating two transition indexes to ease the move of A-shares into traditional benchmarks.

“The two new Emerging Markets indexes include China A Shares at a weighting equivalent to total R/QFII allocations. The A Share weighting will increase as total R/QFII allocations increase and the China A Shares inclusion indexes will merge seamlessly with the standard FTSE Emerging Markets indexes when China A Shares fully meet FTSE’s country classification criteria for emerging markets,” according to the FTSE Russell statement.

FTSE is the dominant provider of A-shares indexes with over 70% A-shares ETFs listed in Hong Kong tracking the a FTSE benchmark.”

Before Thursday’s 6.5% SHCOMP crash, after making a7 year high, we had massive $4.5bn inflows to China funds, largest weekly inflow since Apr08, according to BofA and bonds investors continue to flood in.

Unwilling buyers perhaps, but left without a choice as index re-weightings means portfolio adjustments whether you are buying at the highs or not.

And it is not even official yet but things are surely moving in China’s way with the IMF SDR inclusion almost a certainty by this autumn.

BERLIN, May 29 (Xinhua) — German Finance Minister Wolfgang Schaeuble said on Friday that finance ministers and central bank chiefs from the G7 countries welcomed the inclusion of the Chinese currency renminbi in International Monetary Fund’s Special Drawing Rights (SDR) currency basket. ….. An expectation that IMF would make the decision this fall was “quite optimistic” for Schaeuble.

And thus we have a situation, according to the guys at CS, where GDP is tearing away from equity valuations.

china economy vs stock mkt

If anyone can pull it off, it would be China ! Yes, make the critics eat their words and buy at the highs, for the little retail chap like the banana seller to take profits after being ridiculed for their trading strategies.

And trust the Chinese government to make it easier for that to happen.


(Bloomberg) — China relaxed the debt-to-asset ratio requirement on some issuers of bonds, according to a statement on National Development and Reform Commission website.

China encouraged bond financing for key areas and projects, such as for strategic emerging industries, elderly services, urban parking lot construction, power network upgrades and public-private partnership projects: statement

County-level cos. were also targeted as encouraged: statement

The Chinese Yuan is now the most used in Asia for payments, according to SWIFT. And we have Russia now pushing for a BRICS alternative to SWIFT that will be discussed in BRICS summit in July.

All this happening with a Chinese bottle maker default, the Hanergy scandal and Kaisa back in trouble. And we are seeing Japan, Australia and the US playing war games in the Pacific as China warns off US surveillance planes.

The latest suggestion is that we could potentially see a HKD repeg to CNY ! That would be soothing and a constructive end to our conspiracy theory.

At this rate, we are going to have daily excitement,expect lots of volatility and see a lot more debt issues in Chinese space.

Someone said something pretty meaningful about the China debacle and that the public thinks that it is their once in a lifetime chance to get rich, akin to money dropping from the heavens, that makes the risk of not buying greater than the risk of buying.

The slogan amongst investors is – a millionaire born every minute.

Like I said a month ago, few of them can solve that Primary 5 math logic question.

For those who could solve the question, please read Bernie’s post and give up the idea of becoming a millionaire.

[Although I believe the Chinese government has mastered How to run a government so that citizens benefit and taxpayers don’t go crazy : Deliverology 101, Michael Barber, 2015] – make the foreigners buy at the highs and against their wills !

To me, it is a monkey trading challenge –

And we are right here on the SHCOMP weekly chart.

shcomp weekly

You choose and good luck !

Leaving with the indicative prices of a growing list of bonds.