CHINA FOCUS : Trade Like Monkeys, Run Like Lemmings

Presenting the SHCOMP weekly Monkey vs Lemmings Chart !

SHCOMP MONKEY LEMMING CHART

DO NOT UNDERESTIMATE THE POWER OF CHINA !

First this on the 1st of July.

World Bank censures China for interfering in financial sector

The state has interfered extensively and directly in allocating resources through administrative and price controls, guarantees, credit guidelines, pervasive ownership of financial institutions, and regulatory policies,” it said.…. “the main root cause” for China’s fragile financial sector, which the bank described as unbalanced, repressed, costly to maintain and potentially unstable.

Then on the 4th of July.

(Bloomberg) — World Bank’s country director for ChinaBert Hofman says decision to withdraw from website a chapter of a report on China’s economy was WB’s own choice, not a result of pressure from Chinese authorities, FT reports.

  • World Bank published assessment on state of Chinese economy this week
    • Chapter said the “poor performance of the financial system” had confirmed previous assessments that the system was “unbalanced, repressed, costly to maintain and potentially unstable”
  • “What came out did not meet our usual standards of discourse with our member governments,” Hofman said; “It was our decision”

It has not been a pleasant for China in another unbelievable week of price action even after that desperate rate cut last weekend that was supposed to herald a rally, if the past is anything to go by.

More desperation in addition to last week’s measures. https://tradehaven.net/market/china-focus-a-7-year-low-is-still-a-6-year-high/

1. Relaxed rules on margin trading TO ALLOW MARGIN TRADERS TO USE REAL ESTATE AS COLLATERAL
2. Vow to punish short-selling manipulation (months after legalising it), blaming foreign investors when it was reported that there was a shortage of short-sellers and it was more the long-sellers’ faults.
3. Insitutional investors stepping in to increase their investments in equities

The result : China’s Stocks Decline in Biggest Three-Week Plunge Since 1992 (losing 10 times Greek GDP this week)

1 month SHCOMP volatility is screaming 55% !

shcomp 1m vol

But I feel the itch ! I have to buy something.

There is a slight problem though.

If  Chinese banks’ non performing loans grew 45.7% on average for Jan-Mar, I wonder what Apr-Jun numbers would look like ?

china npl

I am not sure if any arguments hold as far as China is concerned because they are monkey trading experts (and monkeys beat hedge fund returns) but when they panic, the market turns to lemmings for inspiration which goes to show the depth of their faiths or the extent of their understanding in the underlying companies they are buying.

Well, there is only so much you can make with boring bonds and I feel that we have been sitting pretty for too long, having advocated holding debt for the past month, maybe time for a change ? https://tradehaven.net/market/china-focus-never-underestimate-a-market-that-overestimates-itself/

The currency is still safe, in my view, trading way above PBOC guidance in the fixings and shall soon be in the IMF’s SDR basket.

cnh vs fixings

Other positives include Country Garden raised to Ba1 and Greentown Holdings raised to Ba3 by Moody’s. This is despite more warnings on the nature of the issuers and limited recourse for offshore holders against the companies themselves.  http://www.bloomberg.com/news/articles/2015-06-28/hidden-debt-risks-rise-as-chinese-developers-scrap-bond-promises

“Bloomberg : The bonds may be issued by a Cayman company, and guaranteed and collateralized by shares in non-operating subsidiaries rather than physical assets. Coupon and principal payments carry currency risk, and are subject to capricious Chinese remittance rules. Bondholders are structurally subordinated to the issuer’s onshore creditors and subsidiaries, and rank lower if the bond defaults.”

I would not be surprised on another default or scandal soon, with such stock market volatility, it would be reasonable to expect something but I would not worry too much because trading China is either monkey or lemming business.

Leaving with the indicative prices.

CNH BONDSCNH BONDS 2