By Tim Seymour
On Fast Money tonight in anticipation of the change in power this week, beginning with the China 18th Party Congress.
There's been a lot of talk that the China transition is quite the one brain cell view of, nothing ever changes and this was pre-ordained with little room for deviation. Folks now are saying the recent attack on Premier Wen is indicative of a more radical conservative party, less focused on the west, and more committed to non – democratic rule. Hardliners are feared to be taking control of the Politburo’s Standing Committee.
There is a ton of data out in China on Friday as well, which will give market players a chance to bet on recent solid economic recovery. Into the weekend, people will be looking for more stimulus but expectations are low, especially as the PBOC keeps attacking the reverse report market with enormous liquidity, which may be an alternative to the RRR cuts people want to see. China CPI is a another major positive and gives them much room to maneuver. Expect 1.8% CPI. Loan growth is another area where they are pumping liquidity into the system, which is a positive yet to be seen in the markets.
Either way the market has been rallying in anticipation of the move. This is due to the view that the hard landing is off the table and China has begun to grow on both manufacturing and even consumer consumption. This sets up for disappointment if we are not on firm and legitimate footing, but rather the mirage of greasing the rails for the new government in terms of public support. Recent comments from brokers and guys in the market:
- Chatter that insurance companies are redeeming/selling local index funds, taking away some of the market demand
- Chatter that recent economic data has been "propped up" heading into the 18th NPC this Thursday and that the recent numbers have been worse and will thus come in worse in coming months.
- Investors believe the SHCOMP was supported by the political needs of The Party Congress and the bounce in October was "artificial."
We think this is not the case and that China is in not only a period of real cyclical recovery, but you will see inventory rebuilding after periods of destocking. China was interested in engineering a public focus on the pumped up property market to show it will target speculation, but that there is no real retail level property bubble.