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Asian shares have mostly fallen as investors have seemed to grow more fearful about the significance of poor Chinese manufacturing PMI data yesterday.
Investors have sought safe havens such as the yen - the USD-JPY is -0.3% at ¥103 - helping to send the Nikkei -1.9%.
"A correction could occur," says investment strategist Shane Oliver. "We have to expect more volatility. Shares are no longer dirt cheap, meaning the easy gains are behind us."
The once place where the PMI data didn't seem to to have an effect today was China, whose Shanghai Composite rose 0.6%. Stocks were partly boosted by money market rates falling again following a $42B+ injection of cash this week from the central bank ahead of the Lunar New Year. The seven-day repo rate dropped 77 bps to 4.61%.
So says the country's Beige Book - a quarterly survey of Chinese businesses and banks. Banks have money to lend, but "fewer and fewer firms are doing any borrowing ... credit is largely being siphoned off by a privileged elite." As the pointed remark might indicate, this Beige Book is not a creature of Beijing, but instead a private effort.
"Bankers and the government may insist the credit spigot remains open, but it is not open for most and liquidity is not financing genuinely new economic activity.”
Chinese shares led Asian shares higher, with the Shanghai Composite rising 2.2% as stocks built on yesterday's gains following the injection of liquidity into money markets by the People's Bank of China in order to avert a cash crunch. The PBOC is expected to add more funds in operations tomorrow.
"The cyclicals and the blue chips are leading the rebound today, which usually points at policy relief," says analyst Cao Xuefeng. "It's more a relief rally at this point."
In Japan, the Nikkei rose 0.2% after the BOJ again maintained its ultra-loose monetary policy as is.
Having surged 153 bps yesterday, China's seven-day repurchase rate fell 88 bps to 5.44% today after the People's Bank of China injected over 255B yuan ($42B) into the financial system and expanded a loan facility in order to meet demand for cash ahead of the Lunar New Year.
The PBOC's action helped the Shanghai Composite rise 0.9% and the Hang Seng 0.5%.
Meanwhile, the shares of eight small companies jumped on their trading debuts today, prompting the Shenzhen Stock Exchange to warn about "blindly" speculating in IPOs. The stock moves highlight the demand for new listings following the end of a year-long moratorium on IPOs.
Chinese GDP slowed to +7.7% on year in Q4 from +7.8% in Q3 but topped consensus of +7.6%.
On quarter, GDP +1.8% vs +2.2% and +2%.
2013 GDP +7.7%, as in 2012.
Industrial production +9.7% on year in December vs +10% in November and forecasts of +9.8%.
Retail sales +13.6% +13.7% and +13.6%.
Urban fixed-asset investment +19.6% vs +19.9% and +19.8%.
The value of new homes sold jumped 27% in 2013 to 6.8T yuan ($1.1T), the first time the figure has passed $1T (see also).
The slowdown in growth comes as the Chinese government starts to implement a major reform program aimed at rebalancing the economy away from heavy industry and exports more towards economic liberalism and consumption while at the same time trying to cool a sizzling housing sector and reining in soaring debt.
"Urbanization and investment demand are leading to rising sales volumes, while prices continue to gain," says economist Dariusz Kowalczyk. "China's growth remains heavily dependent on the real estate market."
Growth has been "fairly resilient," says SocGen economist Yao Wei. "It is more of the outlook that we worry about, especially with the financial risk in the system."
The Shanghai Composite is -0.7% and the Hang Seng is -0.8%.
Prices for new homes in first-tier Chinese cities climbed over 15% in December, highlighting the failure of local property restrictions to cool the sector.
Valuations jumped 20% on year in the southern business hubs of Guangzhou and Shenzhen, 18% in Shanghai and 16% in Beijing.
Prices increased in 69 of the 70 cities tracked by the government.
Meanwhile, Shanghai has set a growth target of 7.5% for this year vs an expansion of 7.7% in 2013, with the city looking to its new free-trade zone to help boost its economy. Shanghai's goal is the same as last year, although at least nine Chinese provinces have cut their targets.
Many have predicted the demise of the China boom and were early, says Felix Zulauf at the Barron's Roundtable, but now it's more obvious "it's in a terminal stage." He's playing it by shorting the iShares MSCI Hong Kong ETF (EWH). The Hong Kong banking system is heavily exposed to mainland China, so when China goes, there could be a banking crisis in Hong Kong. The HK$ is pegged to the greenback, so the HKMA will defend it by hiking rates, smacking the heavily rate-sensitive economy there.
It's been nearly a decade since Zulauf recommended gold miners, but now's the time the buy the GDX, he says. Gold (GLD) is "washed out ... those who wanted to sell gold have sold it ... Western investors, asset-allocators, ETF players have all sold their gold. The buyers? "Physical gold moved from Western to Eastern hands."
After 30 years of declining yields, Zulauf isn't a secular bull on U.S. Treasurys, but sees mis-pricing in government paper, noting French 10-year notes yield 50 bps less than comparable U.S. ones. The 10-year Treasury yield could easily fall 75-100 bps and he's a buyer of TLT.
Asian shares are mainly lower as disappointing earnings results out the U.S. hurt sentiment.
China's Shanghai Composite closes -0.9% for its third weekly loss. Investors stayed cautious ahead of GDP and other economic next week, while a surge of 43% in the shares of debutant Neway Valve served to highlight concerns that an upcoming wave of offerings will divert money from other stocks. The industrial valve manufacturer is the first company to hold an IPO following the end of a year-long moratorium on new listings.
Elsewhere in Asia, Japan's Nikkei -0.1%, Hong Kong's Hang Seng +0.6% and India's Sensex is -1%.
Chinese aggregate financing fell to 1.23T yuan ($204B) in December from 1.63T yuan a year earlier, but came in above consensus of 1.14T yuan.
Still, that and other data reflect the impact of the efforts by the People's Bank of China to rein in ballooning credit growth even at the expense of slower economic expansion.
New loans dropped to 482.5B yuan in December from 624.6B yuan in November and missed forecasts of 600B yuan.
Foreign-exchange reserves increased to a record $3.82T at the end of December from $3.66T in September.
The broad M2 money supply rose 13.6% on year in December vs +14.2% in November and consensus of +13.98%.
"The slowing M2 growth in December showed central bank's tightening measures have started to bite," says economist Jiang Chao.
However, the central bank is apparently not having it all its own way, and has reportedly become frustrated at the lack of desire of the China Banking Regulatory Commission to strengthen the regulation of banks' relationships with shadow lenders.
Asian and European stocks mostly fall following Wall Street's sharp losses yesterday, while U.S. stock futures are flat-to-higher.
Earnings warnings in the U.S. are among the factors weighing on sentiment.
However, Chinese equities bucked the tape in Asia, rising 0.9% following four days of losses and after the Shanghai Composite traded at 10.1 times reported earnings yesterday, the lowest since at least 2007. The re-opening of the IPO market has been hurting the mood lately..
The Nikkei plummeted 3.2% during the first session of the week amid a strengthening of the yen over the long weekend. Elsewhere in Asia, Hong Kong -0.4%, India -0.5%.
EU Stoxx 50 -0.45%, London -0.4%, Paris -0.5%, Frankfurt -0.6%, Madrid -0.3%, Milan -0.35%.
U.S. stock futures: Dow flat. S&P +0.1%. Nasdaq flat.
China's trade surplus dropped to $25.6B in December from $33.8B in November and missed consensus of $31.15B.
Export growth slowed to 4.3% from 12.7% and vs forecasts of 4.9%, due to a high comparison base a year earlier and a crack-down on speculation disguised as export transactions.
Imports rose 8.3% vs 5.3%, with estimates also 5.3%.
"Exports weakened dramatically, but were close to the consensus," says economist Dariusz Kowalczyk. "The data is positive for China and Asia sentiment as it alleviates concerns that China is slowing too sharply."
Kowalczyk also says that domestic demand is not as soft as had been feared. "The Chinese economy - while decelerating - is unlikely to see a sharp slowdown," he says.
Exports for 2013 rose 7.9% to $2.21T, imports 7.3% to $1.95T and total trade 7.6%. China expects the growth to continue this year. The full-year trade surplus was $259.75B, the third-largest ever.
The Shanghai Composite is -0.7% but the Hang Seng +0.5%.
China's inflation fell to 2.5% on year in December from 3% in November and came in below forecasts of 2.7%.
On month, CPI +0.3% vs -0.1% and +0.4%.
PPI dropped for the 22nd month in a row - the longest streak since the 1990s - declining 1.4% on year, as in November, and vs consensus of -1.3%.
For the year, inflation was 2.6%, well below the government's target of 3.5%; along with the latest fall, that could ease fears about how much the central bank will tighten monetary policy.
"Inflation pressures remain modest, which will allow policymakers to continue focusing on policies to support growth while implementing structural reform measures in 2014," says HSBC economist Xiaoping Ma.
Market Vectors' ChinaAMC A-Share ETF (PEK -2.7%) - after three years in existence - finally began buying A-shares today after bringing on China Asset Management Limited as a partner. Previously, the ETF used derivatives to get exposure to A-shares - causing the fund to trade at premiums and discounts to NAV the way a closed-end fund would.
A spokesman says the quota obtained by the fund's partner is for about $164M of stock. The ETF currently has about $29M in AUM.
The PEK becomes the 2nd ETF to directly hold A-shares following the November launch of Deutsche's China A-shares Fund (ASHR -0.2%). The door continues to creak open.
Local municipalities in China have increased their borrowing from the shadow-banking sector amid concerns about the sustainability of soaring debt in the country.
With total local-government debt rising to 17.9T yuan ($2.95T) in about 2 1/2 years, bank lending dropped to 57% of the figure from 79%, bonds rose to 10% from 7%, trust financing climbed to 8% from zero and other channels made up the remaining 25%.
In reaction to the growth of shadow banking, China's State Council has called for tighter regulation of banks' off-balance-sheet lending and said that trust companies - the largest non-bank participants in "shadow banking" - should return to being asset managers and not partake in "credit-type" business.