kelaido

Is China Experiencing Dollar Outflows?

if stocks are not going higher, if real estate is the next shoe to fall, and if rmb is depreciating, why would hot money stays in China?

Seasonality is in favor of pushing stock prices higher. Positive technical divergences in SSEC is supporting a rally, but this will be a bear market counter-trend rally.

Should China Raise Wages?

Judging from the talkshows, hope of 'China economy de-coupling from the world' is gradually shifting from 'no impact' to 'no significant impact', to 'Oh My God!'.

Most on ground level I spoke to still believe the impact of credit crisis on China will not be severe ('China does not have banking problem'), how econ growth will stay healthy ('domestic demand is growing', '7.5% is still good'), how govt spending on infrastructure shielded China from the 1997/1998 Asian Financial Crisis ('secondary and tertiary cities still need massive infra investments'. Ttrue, but that crisis pales compared to this one). This high hope may account for the negative reaction to the surprised 1% rate cut. It is beginning to sink in that maybe it IS getting worse, quickly. China is not that de-coupled anyway. Those who still believe in fairy tales should have watched how the CEO of a huge mining company proclaimed on CNBC some 6 mths ago how China and India would keep commodity prices sky high FOREVER.

It makes so much sense for China to shift its investment away from more production capacities, but to consumption? Overnight or even next 12 months? In my book, no hope. How long did Japan go through that transition? The shift maybe the only worthy idea to counter the current drastic slowdown, but can it be achieved expediently? And what happens after the crisis is filed away in history books? Who will clean up the inflation mess now that the consumers are converted habitual spenders on credit? My bet is measures to quickly induce domestic consumption will lead not to actual increase in consumption, but to increase in savings, and possibly more speculative increases in real estate prices. Old habits die hard.
It may sound preposterous but if the aim is to rejuvenate labour intensive industries against a glabal demand slowdown, just buy off their excess capacities and give the products to everyone in the country. Requiring the recipients to pre-register their wishlist will create another layer of bureaucracy and more jobs. Insisting on home delivery will create even more transportation and service jobs. A state govt in Australia is reported today to be giving away laptops to each and every high school student. China can give away laptops, shoes, clothings, whatever with slack capacities.

We are where we are because of artifically cheap credit, for far too long. Throwing more credit at it will buy us some time but will also make the next crisis even worse. The next to hit is likely hyper-inflation, so while the govts are trying their damnest to shorten this global slide in this current context, they are actually paving a solid path for another in a different context to follow, immediately after.

Should China raise the wages? I dare not say how much is too much nor how little is too little, but I dare say it is too late.

China: Will Rising Unemployment Cause Policy Missteps?

Isnt there an easier way around all this? Prince Alwaleed stepped in to buy a small stake in Citibank in 1990. That not only saved Citibank, its stock price, but also probably saved the stock market. Stock market must stabilize before the economy can turnaround, before the US consumers increase consumption, which in turn induces more Chinese consumers to increase consumption. Inflation will be a problem but that is secondary. China can buy the whole of Citibank for US$25 billion and some change. Just 5% of her fiscal stimulus package, and pocket change in her USD reserve..

Left on their own, Chinese consumers will not signifcantly or artificially spend more. Chinese like to save in the best of time, what more during periods of uncertainty? To spend more, recklessly will simply put China on the same path as the US towards credit disaster. If the Chinese govt want more local consumption to spur employment, they can just very simply buy all the slack capacity in the export industries and give the manufactured products to the citizens. No different from the US govt giving $600 to each voter (Greencard holders dont qualify), but quicker path to the end result.
Whichever path, buckle up!

China: Bring On the New Financial Order

Micheal, You looked and sounded great on CNBC Asia on Monday!

New Rules for Chinese Stock Market Investors

Short selling and margin trading will certainly increase volatility. Volatility is good for trading as long as it is predictable. VIX is a good measure of volatility and its peaks often coincide with market bottoms in the US. Other indictors China needs to introduce for good trading are: new/full moon, Superbowl Indicator, January Indicator, FonzieJumpsTheShark Indicator and MPettisUSVisit Indicator.

How Susceptible is China to the Global Crisis?

Your visit to the US last year ushered a significant high in SP500. Your visit to the US this year may very well have ushered in a significant low. Your itinerary alone is the best tool to time market entry and exit.

Did you try Melatonin (not Melamine) on way back?

China: CPI Surprisingly Low, Trade Surplus High

Micheal,
Try Melatonin on your way back. Take one onboard according to your intended sleeping time in Beijing, say 11am EST (11pm Beijing time). Take another one around bedtime in Beijing and that should do it. For many years, I suffered very bad jetlag travelling between the US and Asia, until a colleague introduced me to melatonin. Hope it works for you too.

China: Market Breaks Below 2300

The technicals have been positively diverging from $SSEC index since April. The divergences have become even more evident since early July. The technical conditions are set for a rebounce. Dead above will be several down trendlines to contend with. Seeing a string of up days (more than 3), will encourage more investors from the sidelines. Otherwise, inertia will continue to exert downward pressure on $SSEC

China's Looming Hangover?

The chart is relevant. It shows you dont make your investment decisions in China based on Consumer Sentiment.

China: Real Estate Loan Growth May Be Slowing

An American professor teaching in China; a Brazilian niece; a Vietnamese god-son....... Now that is truly diversified.

Your timing to exit your B-shares is enviable. I am curious on your preference for B-shares instead of the ADRs listed in the US. The yield differentials between petroChina A-share and its ADR is substantial. I understand ADRs are based on H-shares, but is there much advantage to focus on B-shares?

China: Olympic Fever and the Market

My contention is not if China 'needs' to acquire an asset abroad, or how much China can leverage that reserve. The question is if China will be 'allowed' to acquire assets abroad. Theoretically China's buying power might be much higher than $2 trillion but what China is allowed to acquire is very limited.

China: Olympic Fever and the Market

Not only is the reserve 'useless' domestically, $2 trillion has not much use outside of China as well. The $2 trillion reserve will continue to depreciate through inflation, devaluation and most significantly, dilution (through the FED's printing presses). China is not even allowed to buy Maytag, hardly a top quality asset, with its reserves. A direct consequence of buying iron ore to make steel to build bridges is a price increase of 96% just this year alone, on top of an equally massive increase last year. As long as China runs a trade surplus and US$ maintains its 'reserve currency' status, China has to continue recycling the US$ back to the US, with nothing major or worthwhile to spend on that would not trigger massive increase in prices internationally or price inflation domestically. Just imagine the price impact of China trying to build a strategic oil reserve as in the US, using its US$ reserve. The consequent demand destruction arising from the price explosion will render the objective of utilising its US$ reserve a pyrrhic success.

$2 trillion is a meaningless milestone in their balance sheet.

Irrespective of the reserve holding, China can choose to stimulate its domestic consumption to spur growth, or slipping into the dreaded 'recession'. The handcuffs here is inflation. Yes China can copy the US which gave away $160 billion to its citizens to buy more LCD TVs. But why stop at $160b? The UK Telegraph reported yesterday that broad money supply in the US declined by $50 billion in July, the sharpest contraction in modern history. You can only throw so much credit at the consumers to spend, much like too much antibiotics too often will kill you.

The gain in SSEC yesterday is indeed impressive, with highest volume traded since July 10. It is a bit early to call yesterday a major turn, but holding above 2500 for rest of week will be key. The low of 2284 on Aug 19 established visibly positive divergences on SSEC's technical charts. The market is primed for a meaningful rally. Near term, this is more likely than not a bear market rally carrying the trademarks of being fast and furious. To alter the landscape, SSEC must overcome its next formidable resistance at 2950. If the latest low of 2184 is broken again, it is very easy to see more downside coming, govt intervention or not. Nasdaq gave back 90% of its gains after the Tech Bubble burst. A 90% retracement can easily send $SSEC down to 1400. Bear that in mind.

China: Real Estate Loan Growth May Be Slowing

Micheal,
Who did you want to win the soccer semi-final last night? Your insight into what are defensive in China will be appreciated. US blue chips like Pfizer, Con Ed, and AT&T are paying dividends with yields of 6.4%, 5.7%, and 5.1% respectively.
Even PetroChina ADR is paying 3.5% versus 2.5% for its mainland based equiv A-shares. Huaneng Power (HNP) at 5.8%. Buying China B-shares or ADRs listed in the US will make more sense under a regime of appreciating RMB.
SSEC is doing a 'fast and furious' today. Very bullish holding above 2500. Market is grossly oversold. A meanigful bounce is not unreasonable. For months, China was deemed to have decoupled from the slowdown in the western economies. Now, market is saying the Chinese economy is indeed slowing down, decoupled or on its own. The Aussie, a strong proxy to the Chinese economy has defied gravity for many months. It too has collapsed 12% in 3 weeks, a very big move for any currency. Like SSEC, AUD is trying to base here. Once more layers of doubt are removed later to reveal more concrete evidence of global slowdown, equity, commodities, and commodity-based currencies like AUD will have more to fall. So too will SSEC. Short term, they deserve a meaningful bounce. Zhong Guo Jia You!

China: Real Estate Loan Growth May Be Slowing

China is now paying for the exuberance last year in pushing an overbought market higher and higher. Now it is payback time with market trending lower and lower in an oversold market. SSEC has give back 75% of its total gains from 2005 to 2007.
Nasdaq took a little over 5 years to run from 710 to 5132, retraced 90% of that gain in slightly over 2 years. In all likelihood, SSEC has more downside to go.

The Anniversary of Nixon's Price Controls

If we plot the total credit against time since gold standard was abolished, we will see a chart of 'Mother of All Bubbles'. All bubbles during our generation have ended badly, but credit bubble has taken so long and risen so high that it is taken for granted into perpetuity . China is new to the game of credit inflation relative to the western econmies. In a 'short' 20 yrs, China has transitioned from mainly cash, to increasingly credit with impressive credit growth exceeding economic growth. It will be different if China is self-sufficient in resources to stimulate internal growth, but China is a big importer of hard commodities and is now verging on even becoming a net importer of food. The risk with the current economic slowdown is aggravated by all major economies slowing in syn. This time may really turn really ugly. Recent oil and commodity prices have declared war on monetary growth. To declare victory on inflation during this respite of fuel and commodity price corrections will simply invite price increases with a vengeance not far down the road.