It is really surprising to observe on which investors allowed themselves to focus!
This morning, China published more than decent growth economic statistics, with GDP up 10.7% YoY in Q4 2009, vs expected 10.5% growth, and 15.5% growth in retail sales and industrial production slightly below projections, but still +11%,.
There was an suptick in price indices, with a 3% hike in the Purchasing Price Index (vs an expected +0.5%), a 1.7% hike in PPI a 1.9% lift in CPI (vs +1.4%).
All the above tallies with the consensus on the Chinese economy where sooner or later officials will have to take their foot off the accelerator, especially, given the 30.5% surge in fixed assets investments in 2009!
However, since the devil loves to snuggle among the details:
It is the timing of the Chinese exit plan that worries observers.
If they move too early, business activity may fall sharply, given already flagrant overcapacity in number of manufacturing sectors and an increasingly dangerous real estate bubble.
If they move too late, inflation may take off, fuelled by explosive growth in lending and in money supply.
As such, the debate this morning focused on the "quality" of statements by Chinese officials, i.e. whether or not they were sticking with their accommodating tax and monetary policies.
As opposed to speculating about future policy adjustments, which are totally unpredictable in such an economic (and political) environment, I have copy/pasted some of the current din on the topic:
Bloomberg News 10:14:28.480 GMT: China Statement’s Missing Words Fuel Policy-Shift Speculation
- Seven missing words in a statement issued today by China’s statistics bureau fueled speculation that the government will officially change its fiscal and monetary policy stance.
The agency’s fourth-quarter economic growth announcement omitted a reference to maintaining a “moderately loose monetary policy” and a “proactive fiscal policy” in its outlook section. While Ma Jiantang, who heads the bureau, later cited the “moderately loose” pledge in a question-and-answer session with journalists, the written statement mirrored the same omission by Premier Wen Jiabao in a Jan. 19 report.
And thus, this incredible conclusion:
“China is clearly moving to adjust both its policy stance and the language used to describe that stance.”
In the meantime, the SNB chief declared at his press conference:
· Q4 GROWTH RATE INFLATED BY Q4 2008 LOW BASE FIGURE
· GOVT WILL MAINTAIN EXPANSIONARY FISCAL POLICY
· GOVT WILL CONTINUE MODERATELY LOOSE MONETARY POLICY
· RISING ASSET PRICES CREATE PROBS FOR ECON. CONTROL
· WARNS ON OVERLY-RAPID ASSET PRICE RISE, ESP PROPERTY
· WARNS THAT OVERCAPACITY REMAINS A CHALLENGE
· BALANCING GROWTH AND CURBING INFLATION IS CHALLENGE
Given the utter lack of clarity on the topic, we have no choice but to watch the macro scenario (‘Minsky ladder’) unfold relentlessly.
Just a word on the Greek situation: Will Thermopylae hold, as the battle of 300 bps (vis-à-vis the spread with German government debt) continues to rages?
No need to change much in our investment biases, in favour of fixed interest rates on government debt (mainly, 3-10 eurozone government) and reticence toward risky assets.
Disclosure: Long 20 years OAT 0% Coupons, EDF Corp 5 Years 4.5%.