Every now and then it is nice to go out and so I was taken to Shanghai Dolly last week by an over enthusiastic friend who was quite sold on the popular band that jams there which has quite a cult following, judging by the number of “reserved” tables piled high with bottles of alcohol missing absent owners who will undoubtedly turn up at the later and more fashionable hour commonly associated with party life in Singapore.

Fake was resonating in my mind as I sipped at my single malt that is possibly unrelated to the fake weed story I had just read, produced in China who can also claim their own fake Goldman Sachs, fake Buckstar Coffee and fake Tesla.

There is nothing fake, though, about the Chinese impact on global growth as their currency antics claims another casualty in Hermes, which has staunchly played down the Chinese economic slowdown effect, preferring to attribute future earnings volatility to currency fluctuations.

Of course there is nothing wrong with all that except that we know FOR SURE that China does and will have an impact on the world and no matter what the resilience story is being played out there that US will be shunted, it is impossible for the largest and second largest economies of the world, the US and the Eurozone, to be unaffected by the going-ons of the third largest economy of the world, China.

As far as I am concerned, it is media blackout for what is happening in China and those economic data probably counts for nought.

  1. 15,000 arrested for internet crimes so far;
  2. Latest arrests include a reporter of a state approved magazine, Caixin, for spreading wrongful information regarding the stock market;
  3. Managing Director of their largest stock brokerage firm, CITIC Securities, has been arrested as well.

The rate cut this week and futures trading restrictions are said to be coming too late, according to Citibank.

What is worrying for the medium term is the latest wave of sinophobia rising amongst the Republicans in the US ahead of President Xi’s official state visit to the US next month. Presidential candidates Donald Trump, Marco Rubio, Scott Walker, Chris Christie and Lindsey Graham are just the few that have started the anti-Chinese rhetoric.

Not a very culturally or politically sensitive stance but I would not be forcing people to choose because the answer is that China may have more friends than we think.

Chinese markets are a daily party, and I am just bullish that something has got to show for all this work they have done to shore up prices because sentiments are truly bad indeed if Alibaba shares have fallen below their hyped IPO price for the first time and the A-H shares differential remains at its high 99%. My main trail of thought stems from the Chinese yuan devaluation which is not so much a devaluation but a liberalisation of the exchange rate.

This takes me back to the conspiracy theory 4 months ago on the HKD peg that I wrote about in May.

The reason to balk at CNY joining the SDR basket has always been the PEG ! (That is incidentally why the AAA rated Singapore Dollar is grouped under EM currency indices as well, because of its non-internationalised status.)
Removing the peg would shift China out of the EM basket that global fund managers adhere to which accounts for the 2.7% allocation mentioned above.
Once the HKD peg goes, the world will sit up, start watching China and plan for their next move.

I was wrong. The CNY moved first which means the HKD is sitting in a lonely and vulnerable place and we know that most short sellers of Chinese stocks in HK do not hedge their currency exposures because the HKD is pegged.

USDHKD at 7.75 and USDCNH  at 6.4628 (PBOC fix 6.3986). Hmmm and this does not include the 99% H-shares discount. Both the 2823 and 2828 HK ETFs are down 35 and 40% from their highs. 2823 HK would be the favourite China short trade given that the A50 futures are listed on the SGX.




2828 HK weekly chart – Hang Seng Investment Index Funds Series – H-Share Index ETF is an exchange-traded fund established in Hong Kong. The Fund’s objective is to provide investment returns that match the performance of the Hang Seng China Enterprises Index (H-Share Index). The Fund invests in constituent stocks of the H-Share Index.


2823 HK weekly chart – iShares Asia Trust – iShares FTSE A50 China Index ETF is an exchange-traded fund established in Hong Kong. The Fund’s objective is to track the performance of the FTSE China A50 Index.


I cannot say much for the bonds which are severely performing despite the rate cut and we are lucky that issuance is falling as issuers go back to the onshore market. I was so wrong in assuming the extent of market liquidity (and market development) and had underestimated the number of investors hanging in there for the fx gains, as it would appear now. The exodus, however, will never come at this rate simply because there is no exit or bids. Thus we all sit on the same side, resigned longs and hoping for the Shanghai Dolly party to resume soon because even if stuff is faked, the dolls are quite real.

Leaving with the indicative prices.