Who Cares About U.S. Economic Reports - Look to China

This must be at least the 10th time in the past 3 months the market has gapped up overnight based on a Chinese economic report. Tuesday, we touched on car sales [Chinese Car Sales Jump 47% Year over Year on Subsidies], but on Wednesday, the happiness across the globe comes from a positive property report. The problem with all these "gaps" is you have to be invested overnight to take advantage of them.

As we wrote in [May 27, 2009: How is China Spending Their Stimulus? ... and How Many Loans will go Bad?]

1. Housing: China’s stimulus plan allocates 400 billion yuan (10% of the total stimulus) to the construction of low-income housing, upgrading shanty towns and other measures to improve housing conditions.

• Basically completed: 210,000 units of low-income housing.
• Under construction: 650,000 units of low-income housing, 8,500 units on state-owned reclaimed land and 18,000 fixed homes for nomadic peoples.
• Renovations: Work has been sped up on improvements to 100,000 homes in coal-mining shanty towns, 129,000 homes in areas subject to caving in as a result of coal mining and 157,000 shanty town homes on state-owned forest areas.

In America we call this socialism. In China we call this successful stimulus.

For decades when the American market led, the rest of the world would follow. If the US had a strong day, many emerging markets would "gap up" and follow. The great irony is how the shoes have reversed so quickly - each time China jumps overnight; now America gaps up. Sort of like an oligarch dominated, emerging market. Imagine that.

I guess going forward we need to focus more on all the Chinese economic reports... as the US economic reports are so 20th century. Below is some detail on the property report... one stock I am aware of to play this is

E-House Holdings (EJ)

- which ironically is down a tad as I type this. But then again it deserves a rest - what a chart.

Now remember, a flood of money has been pushed through the banks per government directive. If these loans go bad in a few years is no one's concern today it appears. As long as they "stimulate" bulls are happy.

Via

Bloomberg

• China’s property sales and investment accelerated, adding to signs that growth in the world’s third-largest economy is recovering. Sales rose 45.3 percent to 1 trillion yuan ($146 billion) in the first five months of 2009 from a year earlier and real- estate investment growth quickened to 6.8 percent, the National Bureau of Statistics said in a statement on its Web site today. Sales grew 35.4 percent in the first four months.
• “As developers run down inventory rapidly, they will soon start to buy land and increase spending again,” said Frank Gong, chief China economist and strategist at JPMorgan Chase & Co. in Hong Kong. “Property investment, which accounts for 10 percent of China’s GDP and is a trigger for growth in related sectors, will become a strong driving force in China’s recovery.”
• As part of the stimulus plan, the government has pledged to build 5.2 million low-rent homes over the next three years and subsidize housing for 7.5 million poor urban families by 2011. China last month lowered the amount of funds developers have to put up for property projects to spur construction after cutting transaction costs for home buyers last year. (that's a lot of stimulus)
• “Stronger than expected property investment growth means that fixed-asset investment growth in May could surprise on the upside and that investment growth in 2009 may also be stronger than most people expect,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong.
• Urban fixed-asset spending expanded 30.5 percent in the first four months and data through May will be released tomorrow.
• Land sales in Beijing in May exceeded the total amount sold in the first four months of the year, the China Daily newspaper reported today, citing the city’s land reserve center.
• Property sales by value doubled in Beijing, surged 68.5 percent in eastern Zhejiang province and climbed 61.9 percent in Shanghai during the five-month period from a year earlier (bubble?)
• Property prices dropped 0.6 percent last month in 70 Chinese cities from a year earlier, the smallest decline in five months. Prices jumped 0.6 percent month-on-month in May, the bureau said.

We seem to be seeing a major concentration of 'surge' in the big cities, at least in property. What is interesting is one the leading property economists in China thinks we simply have a bubble waiting to burst. But as we saw in the late 90s (tech stocks), and mid decade (housing) bubbles can run much longer than you anticipate. [Apr 15, 2009: FT.com - Chinese Property Prices to Halve in Next 2 Years]

Disclosure: No position

Comments

[The Inflect...:]

U.S. economic reports are so 20th century. thanks for the bruno-esque line to get me laughing early in the morning. good article.

Jun 11 08:29 AM

[Dr. O:]

One of the chief beneficiaries of Chinese recovery is Australia, their commodity rich neighbor. Some good economic reports from the land down under, along with prudent central banking (3% interest rates and no QE). Could do worse than the Aussie (FXA) or an Australian market index ETF (EWA).

Jun 11 08:35 AM

[TraderMark:]

I concur with your Australia theme.
Canada as well, although US is to Canada what China is to Australia. Hence I feel bad for Canada to some degree ;)


On Jun 11 08:35 AM Dr. O wrote:

> One of the chief beneficiaries of Chinese recovery is Australia,
> their commodity rich neighbor. Some good economic reports from the
> land down under, along with prudent central banking (3% interest
> rates and no QE). Could do worse than the Aussie (seekingalpha.com/symbo...)
> or an Australian market index ETF (seekingalpha.com/symbo...).

Jun 11 10:29 AM

[Sober Realist:]

Keep up the good work Tradermark. You make investing entertaining!

Jun 11 10:32 AM

[HaavBline:]

Canada used to have very good relations with China until Steven Harper and the Conserbatives came to power. Much of the good will established by previus Liberal party prime ministers have been wasted.


On Jun 11 10:29 AM TraderMark wrote:

> I concur with your Australia theme.
> Canada as well, although US is to Canada what China is to Australia.
> Hence I feel bad for Canada to some degree ;)

Jun 11 12:28 PM

[RiskReturnO...:]

I prefer TAO as it contains higher quality, HK listed firms that are involved in developing real estate in China and HK, soon they'll start investing in Taiwan. With TAO, you get to ride along the wealthiest HK billionaries like Li Ka Shing.

Jun 11 05:14 PM

[storm999:]

For all you China bulls who think the grass is greener on the other side of the world, here are the top three headlines from China's Economic Observer:
At least 800,000 unofficial bankruptcies and inadequate bankruptcy laws. Local governments can't match stimulus funding and face "debt bombs" and bank loans are being misused for stock market speculation fuelling systemic risk.
Sound familiar?
Check it out:
www.eeo.com.cn/ens/

Jun 12 12:55 AM

[beijingpaddy:]

The China Economic Observer has been in the business of trashing China for a long time. It is good for business. While many of the items they report in this article may be true, there are hundreds of other positive economic indicators they somehow forgot to mention.

Reminds me of an American missionary type I knew who was hanging out in China a few years back. His funding came from evangelical churches in the USA. When his money got low he would make a trip to HK and buy some English language bibles. He then would make it a point to get caught smuggling illegal contraband while re-crossing the border into China . They would confiscate the bibles of course and on a good day he would be forced back to HK. He used the news of the bible confiscation (and his deportation if he had been lucky) to raise money. Worked like a charm, so he said. He did not bother to inform the folks back home that Chinese could go to any church and buy a bible, one they could even read in their own language.

When it comes to China, because most foreigners don't have a clue what it going on, it is easy to mislead them. Like I have said before, they know us better than we know them. It is just another of their competitive advantages.



On Jun 12 12:55 AM storm999 wrote:

> For all you China bulls who think the grass is greener on the other
> side of the world, here are the top three headlines from China's
> Economic Observer:
> At least 800,000 unofficial bankruptcies and inadequate bankruptcy
> laws. Local governments can't match stimulus funding and face "debt
> bombs" and bank loans are being misused for stock market speculation
> fuelling systemic risk.
> Sound familiar?
> Check it out:
> www.eeo.com.cn/ens/

Jun 12 01:42 AM

[Alphameister:]

A reluctant bull on China is better than a Sino-bear! Glad you've come around, and thanks for the helpful reporting on that market. ;)

Jun 12 12:03 PM

[jayminho:]

ohh china.

Jun 12 07:45 PM

[Sober Realist:]

I guess it's no surprise that you should take data released by the command economy of the CCP with a grain of salt:
"Today we learn that the definition of a "sale" is a shipmment from the factory, whether the car has a buyer or not. And the number of registrations, a much better measure of end purchases, is much lower that the supposed sales figures.
From MetalMiner:
There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising."
www.nakedcapitalism.co...

Jun 12 08:02 PM

[mkreisel:]

In 1930s, many people gave up on America and went to the USSR.

A similar phenomenon is happening today with respect to China.

You don't want to be in China when the world gets really rough.

Jun 12 10:03 PM