CHINA FOCUS : THE LAST BULL IS THE CENTRAL BANK

And China makes another move to global reserve currency status, widening of the trading range of the CNY, a step in the right direction on market liberalisation despite IMF’s criticism of their “market manipulation” antics. http://www.bloomberg.com/news/articles/2015-07-24/imf-said-to-urge-china-to-exit-measures-to-prop-up-stock-market

But it does not really work when sentiments are poor which resulted in the biggest intraday spike in 3 months for the USDCNH.

cnh 6m

Is this the spike we have been waiting for ? Or can we wait till 6.24 – 6.25 ? (fingers crossed after this morning’s PMI …..)

Well like I said last week, China has done a lot this week to get even with markets because Chinese stock markets are the only markets in the world flashing green in the sea of reds (not counting Jamaica) even as their July PMI hit a 15 month low which was announced this morning.

And the witch hunt continues daily as we hear of companies being investigated for selling (never buying) their shares and various arrests being made for rumour mongering and insider trading.

This should instil some much needed Fear into investors to remember that buying is the only option.

Yet a slowdown is never more certain now as VW cuts car production (Audi came out to revise their sales forecast last week), Eurozone exports have also fallen for 2 months straight into May, so I cannot imagine what June and July would look like. And Australia is hard hit by commodity sentiments from their largest export market.

One of the last Chinese bull, Ray Dalio of Bridgewater, has revise opinion with a “There are now no safe places to invest” comment on China. http://www.businessinsider.sg/bridgewater-says-to-get-out-of-china-2015-7/#.VbM91fkpo20

Not very comforting too are the capital exodus numbers that is now estimated at $800 bio for the past 12 months as outflows intensified in the recent quarters.

 

More doom and gloom folks (who cannot be arrested because they are not Chinese) have come up with this fear mongering chart.

 

And all those stories about the Gold meltdown due to forced selling out of China to the tune of 5 tonnes (20% of daily volume) within  2 minutes on Monday morning. And commodities will not see daylight for sometime at this rate which really bodes poorly for commodity dependent EM countries, including Australia and Canada.

The only apparently healthy (requiring no government support) market left is BONDS because total domestic bond issuance this year is up 20.1% from 2014 which was 45% up from 2013 and the market is poised to break 6 trillion CNY this year = Bubble ? Where is all the demand coming from ?

In contrast CNH issuance has fallen 34% which is good news for scarcity = stable prices.

And bonds shall still be safe because the government will not let rates rise and short selling is already impossible which makes them the only all weather investment product ?

I am not sure and it is not because of the Moody’s report last week that defaults will rise or the rising debt levels. With information hard to obtain, we really cannot hope for much and with all these “guaranteed” companies with “keep well clauses”, it is murky business to me.

So shall stocks be safer than bonds ?

What do you think when the last bull is the central bank ?

Leaving with the indicative prices.

CNH BONDSCNH BONDS 2