CHINA FOCUS : Too Big To Ignore

A new 7 year high in the Shanghai Composite for 5 weeks running since mid May despite a record US$9 bio outflow from EM stock funds this week driving the A-shares H-shares  premium to its widest since 2009.  http://money.cnn.com/2015/06/12/investing/china-funds-outflows/index.html?sr=twmoney0612chinainvest0730story

It is happening even as MSCI held off from adding China into their benchmark indices this week because it is inevitable that China will be included in the future simply for the reason that China is Too Big To Ignore.

And once China is in, note the potential losers in the EM Index.

CHINA NOT READY FOR MSCI

The impact on the global indices would be massive as well given that China has the second largest market cap in the world after the US.

Remember our Conspiracy Theory Comes True To Make Suckers Of You ?

“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 !”

And this comes at a good time because it is reported that China stock investors are now having trouble getting credit which is a good way to stop them from buying at the highs. http://on.mktw.net/1JDHCWs

We have a big week ahead.

The IMF will visit China on 15-16 June to discuss the SDR inclusion followed by the vote in the Hong Kong legislature for the electoral overhaul package for the 2017 chief executive election on June 17, though the possibility of its passage is extremely low which means Mothership China may not be too pleased with her wayward child especially if the Umbrella Occupy “troublemakers” return.

So much for conspiracy theories, note that the currency has been holding consistently weaker than the official fixing rate.

CNYMUSD is the official fixing by the PBOC

CNYMUSD is the official fixing by the PBOC

 

I am not sure how it ties in with this report of capital flight from China with onshore investors buying USD and that previously, “Throughout 2013 and early 2014, as the yuan steadily rose against the dollar, clever traders falsified trade orders to borrow from in dollars from Hong Kong banks. They then switched the dollars to yuan, often re-lending out the amount via shadow banking products, at a much higher interest rate than the original Hong Kong loan. By the time the loan came due, they’d have turned a tidy profit. The trade is self-reinforcing; the more people swap dollars for yuan, the faster the yuan appreciates.” http://qz.com/422350/the-disturbing-signals-behind-chinas-steep-drop-off-in-borrowing-from-foreign-banks/

We know that the CNY is now considered fairly valued and as each day goes by, sentiments are turning more positive from the external fund managers as China approves more QFII investors with the Brunei Investment Agency joining the ranks of the other 285 this month. The view from the world outside is that China will sort themselves out for a rebound in economic growth in the second half of this year, which is coming up soon. Thus I will be watching for currency strength ahead because the fixing surely cannot weaken ?

Meanwhile the Economic Surprise Index has not looked this bad in a long time which is still good for bonds.

cesicny

I believe when you have vested interest in something that is too big to ignore, you have to hope for the best and to believe that it will be alright. Meanwhile get ready for a stock market correction the minute the vote fails to pass or, if they are smart, maybe they can entice the kids to join in a mother of all rallies and forget about sitting in the sun and rain.

Leaving with the indicative prices.

CNH BONDSCNH BONDS 2