Archive for the ‘China’ Category
I haven’t been writing much about China as of late, so I intend to do so in this post to catch up on some recent developments in China.
Some time back in late March, I wrote a post regarding Singapore’s SWFs’ curious inaction in the global commodities markets as compared to China. Fast forward four months later, it seems that nothing much has changed. Sure, in the same period of time we saw Temasek’s incoming CEO reject his appointment and resign from the board altogether. Singaporeans also learned, during that period that Temasek Holdings divested itself of Barclays and BofA shares at a mind-numbing loss of over S$5 bn. To its credit, Temasek Holdings did procure some energy deals. However, a comparison with China’s reserve funds show that Temasek is severely lagging behind.
Dated 17th July. This time by Forbes. Looks like the state government is not willing or able to do anything:
All bubbles burst, messily, so why don’t policymakers act now?
One reason, Sun said, is that many investment projects launched by the state will take three to five years to complete, requiring additional bank financing in 2010 and 2011.
“Therefore, a sudden and aggressive tightening would not only face substantial resistance from local governments, but may also delay the completion of some of the projects and bring immediate and unnecessary non-performing loan problems to banks,” he wrote.
So monetary conditions are likely to stay loose until 2012 or even later, he said.
One conspicuous source of liquidity is a renewed surge in China’s foreign exchange reserves, which jumped $177.9 billion in the second quarter to $2.13 trillion, the PBOC said on Wednesday.
The rise furnished evidence of a resumption of hot money inflows as foreign investors, lured by great big bubbles in the making, found ways of getting around China’s capital controls.
Note: Cross-posted elsewhere.
Econophysics has never been a branch of economics which gained mainstream credibility although it enjoyed somewhat limited outreach with quantitative finance. But then again no one took the Austrian business cycle theory seriously until recently. Not trying to say econophysics is like Austrian theory of course.
Some bloke predicted the Shanghai Composite Index will peak between Jul 17 to Jul 27. Let’s wait and watch to see what will happen. Pretty much many people expect some form of market correction to occur for China; studies and news articles report month after month that China is awash with excess liquidity the Chinese central bank seem unwilling or unable to do anything about. To make matters worse, China isn’t known for its regulatory oversight of its financial sector.
In the event this disaster actually occurs, whether as predicted or delayed, where does this leave Temasek Holdings, which poured millions into China Construction Bank?
Note: Posting this does not indicate my endorsement of his prediction.
Update: Bloomberg reported on July 15th that China’s stock market recently overtook Japan’s as the 2nd largest in the world after the United States. The Shanghai index gained a record 75% this year alone. What’s particularly worrying is that index stocks currently have a record P/E ratio of 33.2 (!!):
BNP Paribas Securities (Asia) Ltd. last month cut its rating on China to “neutral” from “overweight,” citing valuations. Stocks on the benchmark index are trading at 33.2 times earnings, almost triple the 12.9 multiple on Nov. 4, when the measure dropped to its lowest since the financial crisis. Earnings per share declined 7 percent last year and will probably remain “flat” this year, the brokerage said.
By contrast the highest monthly P/E ratio for the S&P 500 before the American stock market crash late last year was only 27.31 for 1st Oct 2007. Quite disturbing.
Update 2: China doesn’t appear to want to take action to tighten liquidity:
Zhu Baoliang, chief economist in Beijing at the State Information Center, said it’s unlikely China will raise interest rates or require banks to set aside more cash as reserves “in the short term.”
The central bank has kept borrowing costs unchanged this year, after reducing the benchmark one-year deposit rate five times in the last four months of 2008 to 5.31 percent as the government sought to bolster economic growth amid the global recession.
“We haven’t seen a sustainable recovery in China’s economy yet,” Zhu said. “If we cut stimulus efforts, the economy may head towards a second bottom.”
China Daily is reporting that their state’s banks have been loaning out money at a rate which has now exceeded their loan targets for the entire year:
Preliminary calculations showed that new lending was 1.53 trillion yuan, the central bank said on its website yesterday, bringing total lending this year to 7.4 trillion yuan, far exceeding the country’s initial full-year target of disbursing 5 trillion yuan in loans. Total lending so far this year amounted to almost one quarter of last year’s GDP.
This is must be the umpteenth time I’ve written to date on ominous signs in China’s financial landscape startlingly similar to that America faced before its worst recession since the 1930s. For a sample of what was posted on this previously, see here and here and also here. The WSJ reported that China’s top newspaper called for stronger regulation over lending standards:
Bloomberg reports that American savings are on the rise given the recession and worries of the future:
While the trend will put the country’s finances in better balance and reduce its dependence on Chinese investment, it may also restrain economic growth in 2010 and beyond, said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.
“There’s been a fundamental change in people’s behavior,” he said. “It will affect the economy for years.”