The GeoTeam's  Instablog

Excerpt from the company's monthly Insight Report:

The main Chinese markets headed in different directions in June. Taiwan was the first into a summer correction, falling 8.5% on worries about demand for technology products and some impatience at the pace of signing the cross-straits memorandum of understanding for the financial industry. After early strength, Hong Kong snaked sideways, gaining just 0.9%. With ugly interims ahead, it is better to travel hopefully than arrive. Only the A-shares maintained their majestic progress, with the Shanghai 180 rising by 15.6%, based on huge credit growth; new loans worth 5.8 trillion yuan were made in the first half, more than in the whole of 2008 and already ahead of the government’s budget for the whole of 2009. With no one keen to build new factories at present, it is little wonder that money continues to flow into asset markets. It’s a confidence trick on a huge scale, but it seems to be working.

Retail sales continue to grow steadily (passenger car sales, for instance, grew by 37% year on year in May, up from 33% in April). One of the portfolio companies, the upmarket retailer Ports Design, reported particularly strong sales of store vouchers, used widely, apparently, to ‘reward’ government officials — an indication that the government is now, even more than before, the fount of most good things. Retail cash is clearly flowing into the asset markets (41 new mutual funds raised US$14 billion between January and May). The property market is heating up, but buyers remain sensitive on price. The government is using the period of deflation (CPI -1.4% in May) to raise prices: gasoline and diesel prices were increased by 10% and jet fuel by 25%; Shanghai recently raised water by 25%, with the promise of a further 21.7% rise in November 2010. We expect electricity prices to be next. We also expect inflation to return towards the year-end.

In Hong Kong, the clamouring for new issues has reached a pitch not seen for more than a year.

Source: SEC form 8k (July, 20 2009)