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China Data

    Chinese data showed that it ended 2009 with record monthly imports of crude oil and soybeans and a strong appetite for iron ore and copper. Chinese exports soared 17.7% vs a forecast for a 4% rise. China also zapped emerging markets with an announcement that it would raise reserve requirements for banks a half percent to 16% by Jan. 18. Fears that other developing countries would follow suit hit stock markets.

     With exquisite bad timing, IFM Investment Ltd, a residential real estate brokerage from Beijing, will come to market via an IPO this week as NYSE.CTC.

     From Michael Kurtz at Macquarie Securities, some warnings for 2010 partly based on these numbers. He does not expect tightening by central banks soon (not until H2 or even 2011) and worries about trade battles:

     “We expect broadly supportive Asian equity market conditions to persist in 2010, and believe that getting the ‘currency call' and the ‘inflation call' right will be key to superior investment returns. Recent market focus on 2010 as a year of ‘tightening’ is overdone, given that policymakers in key capitals continue to express concern about the fragility of recoveries and seem willing to accept inflation to promote growth and employment. The now-prevalent sense that US dollar downside will be contained by a stark improvement in US data may prove [too] hopeful. Rather, persistent dollar softness should sustain the relative attractions of non-US assets, and keep global commodity, energy, and basic material prices supported into H2 2010. Inflation, for its part, may not become a policy problem until later in 2010 – and for much of the year could have market-supportive effects, e.g. by lowering real interest rates and boosting pricing power.

     “The likelihood of sluggish US and European demand [recovery and] the combination of 10% US unemployment with 10% Chinese GDP growth – particularly as key US midterm congressional elections loom – is setting the stage for new protectionist flare-ups that will present additional headwinds for Asia's export-sector stocks. Meanwhile, outstanding risks illustrated by recent market flash-points in Dubai and Greece point to ongoing fragility that will incline global central banks toward easier money as an insurance policy. The latter also suggests that where policy tightening does come first in many cases, it will be on the fiscal rather than monetary front.

     “The persistence of reflationary policies globally and a shallow US demand recovery should ensure that for Asian stocks, H1 2010 will be more like H2 2009 than different. In our view, monetary ‘exit strategies’ may only have a greater impact after mid-year, when inflation starts to take on a more troublesome tone – by which point markets will have to discount 2011 growth drags from the scaling-back of government spending.”