On Wednesday in China- last night for us, there was a subway accident injuring 271 people. It happened right in Shanghai’s financial district, so the markets in china naturally sold off.
The Shanghai A shares were off .95%, and the B shares off .17%. These indexes just continue bumping along the bottom at about the lows of 2010.
In Shanghai, 13 stations slowed their trains, and Line 10 closed. Special buses were brought in by the government to move people. Rail stocks of all sorts were clobbered in both Hong Kong and China trading.
In other China news:
Senior China officials were out yesterday stating China GDP growth would hit 9% this year. Lu Ahonguyan, deputy director for the State Economic research center, said there was no need to worry about a hard landing for the Chinese economy. Lu said the global slow down will help China contain rising prices and readjust the country’s economic structure.
Allan Liu, manager of the Fidelity Southeast Asia fund, revealed his favorite consumer stock picks for China. He is extremely bullish on Baidu (BIDU), and Sina Corp (SINA)- Bidu is the China equivalent of Google- Sina is a bit more like a functional Yahoo!. He also likes Hyundai Motors and Kia Motors. Fund manager Paul Winborne of JO Hambro Capital Management likes Sun Art Retail, China Mengui Dairy, Golden Eagle, Hengan Inernational, and Baidu.
Not much news out of China today of any substance. China markets followed the US markets up in overnight trading, with the Shangahai A shares rebounding .97%, and the B shares up .69%.
In order for the China markets to resume a Bovine trend vs the current dominating Ursine theme, we’re going to need to see evidence of a “Soft Landing” in their economy. China has been increasing interest rates and increasing bank reserves requirements, making it harder to get financing.
This is supposed to slow the economy, and slow inflation. There have been some early signs inflation is moderating. The market can’t seem to decide if China is going to flip to a recession thanks to the Global Slowdown, or continue struggling with inflation. Once China achieve the “Goldilocks” state- low inflation and slow but steady growth, the Chinese markets will return to their former Bovine status.
Many of the China large caps I follow in this publication are rebounding very nicely today. At this rate, we’ll be back to making money in these stocks in short order.
In overnight news, CNBC reports:
Despite the high dissatisfaction levels with inflation, wages in the cities for white collar workers are rising faster than inflation, and women are still shopping. However, they are becoming more price sensitive. Women are buying things they can wear and use everyday, and avoiding items that only get used occasionally.
Despite the belief that China exports will be slowing, there’s no evidence from the August numbers for Industrial Profits. Chinese industrial profits rose 28.2% in August for the first 8 months of the year. Net income was about $500 billion. At the end of July, the increase was pegged at 28.3- so profit growth slowed for the year by a factor of 1/10th of 1%. Large industrial producers are warning about slow downs, so the market is pricing a major retraction from those numbers.
China stocks were down again in Monday trading. The Shanghai A shares were off 1.66%, and the B shares off 2.52%. We are now approaching the summer lows of 2010, which was the beginning of a nice move to the upside in China stocks.
The sentiment is largely negative on the global outlook in China. The only bright spot I could find in any of the commentary on China is the possibility the Chinese policy makers might be able to stop raising interest and tightening lending requirements.
Morgan Stanley continues to invest in the Asia mega caps as they are finding the dividends attractive, and feel they are getting paid to hold those stocks. MS Asia forecasts the MSCI Taiwan index may rise 32% in the next two years based on earnings and dividends.
On the “Interesting” front, the first “Gold Vending Machine” in the world has been installed in Beijing. Shoppers in the popular Wangfuijing Street can put cash or a bank card in a vending machine to withdraw gold bars or coins.
Today’s BLOG is going to be short and sweet. The market got absolutely hammered yesterday, and there’s blood everywhere.
It’s a “cash at any cost” mentality, and money is pouring into the Dollar and US Treasuries as the “safe havens”. Imagine that- US Treasuries the “safe haven” when S&P just downgraded them last month.
China markets weren’t as roiled, despite some of the news causing the equity rout came from China indicators suggesting a slow down in manufacturing and no corresponding slow down in inflation.
This market is going to be choppy and crazy for a few more days, then I expect October to be the turning point month. The hi beta China stocks got obliterated yesterday, but watch the volatility bring them back.
What an ugly day. China stocks are being absolutely crushed today. The news out of China is a “worst case scenario”.
Today is likely to be capitulation day, and I would expect something better next week. September can be an ugly month, and its living up to its reputation.
In over news night there were two items out of China that have fund managers just blowing out of equities today. There was news China’s manufacturing sector slowed for the third month in a row. The HSBC Purchasing Manager’s index for September- and early forecast, showed a reading of 49.9- anything below 50 suggests contraction.
I don’t believe this was a big surprise to the world as this is a measure of exports, and the global slow down is creating less demand.
However, resilient and growing domestic demand is keeping inflation high. Thursday’s data showed rising input costs, which suggests inflation is still strong.
As I said- the perfect storm. You have manufacturing slowing, but you’re not getting the much needed corresponding drop in inflation. This double whammy has the markets reeling.
In overnight trading:
The Shanghai A shares were down 2.78%, and the B shares down 2.58%, giving back all the previous day’s huge gains.
The IMF cut its forecast for China growth for this year and next. This year was cut to 9.5%, and next year was cut to 9%.
Economists in China are still forecasting waning inflation.
That’s enough for today. I’m going to turn off the computer and leave today. I’ll let this market blow its brains out.
Gold is also getting clobbered today, which suggests no one cares about any asset class today.
Sorry there’s been no BLOG for the last two days. I was out of the office, and couldn’t get to it.
There’s a bunch of news out of China, but the most recent event is the big surge in China market’s on Wednesday’s trading.
The Shanghai A shares were up 2.67% yesterday, and the B shares climbed 2.95%- this is a huge move for an index. Economic indicators were strong, suggesting there’s still growth in China.
The Chinese Conference Board said its leading economic indicator rose .6% in July. Mei Luwu, fund manager at Lion Fund ($7.8 billion in assets) says valuations have reached bottom leaving limited downside, and the worst in inflation has passed.
In other news:
Newly minted US Ambassador to China Gary Locke delivered his first speech, saying China must open up important sectors of its economy to foreign investment. Foreign investors have been locked out of mining, health care, energy, and financial services. He also went into the politically sensitive realm of internet freedom.
And speaking of internet freedom, several of the mega cap China internet stocks were crushed yesterday on an article in the Wall Street concerning China’s look at the VIE structure of US public companies with China businesses. I put out two buy recommendations on the the news. Sign up for your two week free trial to find out which stocks I’m recommending, and what calls I’m selling against those stocks.
GM was out with big news yesterday concerning a joint venture with a Chinese Auto maker to develop electric cars in China. GM plans to export their Volt electric car to China, but this is a completely separate business. This JV will develop the next generation of electric cars to be sold in China.
As if there isn’t enough evidence of the importance of the China market, Boeing announced yesterday it is designing new planes with the Chinese market in mind. Boeing expects to sell 5,000 jets in China over the next 20 years.
That’s it for today. Plenty of good, not so good, and very interesting news out of China in the early part of this week.
Today was the day we were able to lock in our profits on the October Covered Calls on BIDU. We have made substantial returns with this strategy in the last 4 weeks. On Monday we get to do it again with the October calls. If you’re interested, sign up for your free two week trial.
The big news out of China today is the continue influx of foreign investment capital. Despite well known short sellers like Jim Chanos out there claiming China’s is going to fall of a cliff, and the newly minted king of short seller Carson Block (of Muddy Waters Fame) stating the Chinese consumer is overstated, the global investment community continues to pour money into China.
According to the Chinese Commerce Department, $8.4 billion flowed into China in DFI (Direct Foreign Investment) last month. Not only is this a giant number, it’s also up 11% over the previous month.
In 2011 (through end of August) FDI in China has risen 17.7% to $77.63 billion.While this still seems like a positive bet on China, it’s having a negative effect on the overall Chinese economy in the form of fueling inflation.
All this capital pouring into the country is keeping prices high, and inflation is the #1 problem the Chinese economy faces today.
China could put collars on the influx of capital to hold inflation down, but the Chinese would never turn their back on other people’s money. It’s not their way. They will take all the money offered. It’s a one way street. China will have to control its inflation through other means.
Here’s today’s news out of China:
The Chinese markets eaked out a tiny gain in Friday’s trading- The Shanghai A shares were up .09%, the B shares up .08%.
The Wall Street Journal reports the Chinese Ministry of Information is becoming more concerned about how internet use is effecting Chinese society. As a result, the Communists Party’s Politburo visited Baidu this past week to discuss the future of content that will be allowed. The stock is likely to be trading below its true value on perceived issues relative to both censorship and its corporate structure. This is a highly successful public company that has raised billions in foreign capital. In my view, the Chinese government will do nothing to derail the BIDU success- it would only discourage the influx of foreign capital.
The People’s Bank of China reported 49.6% believe consumer prices will continue to rise in the next quarter, up 4.1% from the last survey. 72% prices have risen “too high to accept”. This is the sort of information that might cause the government to continue aggressively tightening, and derails a “soft landing” scenario.
The Chinese government has disclosed it will invest $4.69 billion in infrastructure in Tibet between now at 2015 in 225 infrastructure projects.
From time to time, markets become obsessed. Right now, the only news that’s driving markets up and down is news on what’s happening regarding both the European banks and the state of European Sovereign debt.
The market goes through periods of time when the news flow is laser focused on issues that become magnified beyond their true importance. If Greece defaults on its bonds, does that really effect in any major way most US companies, or companies serving the ever growing consumer in China? I think not. Yet- it effects the market in a dramatic way each and every day – this month.
Fortunately, next month the focus will be earnings, and hopefully the out of Europe will have quieter voice in October- the month that has traditionally been the Bear Killer.
Today, the ECB moved to remove doubts about the ability of European banks to borrow dollars by providing new lines of credit for longer periods of time.
Markets globally were up strong on the news.
There isn’t a big news flow out of China, but here’s some items I picked up on:
The Chinese markets were down slightly in overnight trading- the Shanghai A shares were down .2%, and the B shares down .12%. The news out of Europe should help these stocks perform better in tonight’s trading.
Premier Wen Jiabo is using the European crisis to lobby for trade changes. The European Union has classified China as a “non market” economy- meaning they pursue unfair trade practices. In a speech, Wen “suggested” China would be more amenable to helping with the a European bail out if Europe would re designate China as a “market economy”, thereby allowing China to export to Europe without tariffs. European markets liked the idea, and rebounded on his comments.
A study recently released by KPMG suggests China is losing its edge as the world’s greatest manufacturer. According to the report, the minimum wage in China is now 4 times that of other South East Asia countries. Indonesia and Bangladesh are benefiting from this trend. Rising wages in China is a positive with the inflation picture, and a reason China will accelerate to have its GDP growth more domestically focused.
Baidu owns travel site Qunar.com. It was announced today Baidu plans to spin out Qunar into a separate division for an US IPO next year.
That’s it for today. Let’s hope for smoother sailing ahead.
The Big News out of China overnight was the comments from Premier Wen Jiabao, the head honcho in China.
As chronicled in yesterday’s BLOG- the markets turned around and headed up on Monday on rumors the Chinese would be participating in Italian treasury offerings this week.
At the World Economic Forum in Dalian, China, Wen stated ““Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis inEurope.”
Wen is saying if you want our money, you have to get your house in order first. Thanks Wen- agreed.
Wen also was jawboning on the #1 issue for the Chinese economy- inflation. He states China is confident they can achieve growth and inflation targets by year’s end.
This put a bid under China stocks, and here’s some interesting news items:
In Tuesday’s trading, the Shanghai A shares were up .55%, and the B shares rose .33% reflecting Wen’s comments.
Origin Agritech (SEED) was out with quarterly numbers, and they were horrendous. Earnings came in at $.09, vs $.67 last year. Revenues were $37.4 million vs $68.1 a year ago. CEO Liang resigned the company for “personal reasons”. Yeah- right. What we are seeing now is the company’s real numbers. Undoubtedly, past financial statements were fraudulent, and now you’re seeing the real numbers as these China small caps can’t get away with the fraudulent activity any longer. This has happened with a number of other China companies. The good news- we’re now seeing the real numbers.
Maxim Group - a mid tier US based boutique brokerage firm, is out talking up Harbin Electric (HRBN). Harbin is one China small cap that has ruthlessly been attacked by the China small cap bears, but the stock has resisted all the efforts to knock it down.Harbin is in the process of going private at $24 per share, which requires an SEC approval, shareholder approval, and the money to get it done. Maxim says it expects the SEC approval to come in October. If the capital is there, the deal is likely to get done, and it will make a lot of highly vocal short sellers look pretty stupid. On the plus side for the short sellers, the upside in the stock, with it trading at $24, is only 5 points. It will be very interesting to see how this plays out.
The big news out of China in the last 24 hours was the possibility the Chinese might be bailing out the Italian bond auction today.
The US markets were once again in free fall yesterday, gripped by fears of a 2008 style collapse of the European banking system and a Greek default of their sovereign debt.
This week, the Italy’s version of our Federal Reserve will auction bonds to raise cash. The auctions are being watched by global markets very carefully. Any sign of lack of demand could send the markets into further turmoil.
Yesterday, in a late report, it was disclosed Italy and China had been in talks about the possibility of China stepping in to buy Italian bonds in the auction.The report turned the US markets into positive territory from a day that had been hideous.
The auctions started today, and Italian bonds sold at the lowest levels in history, which means the Italians must pay a higher interest rate to borrow money. Germany seems to be the only country that can auction bonds at a normal sovereign debt interest rate.
Here’s today’s news out of China:
Chinese markets were down slightly once again. The Shanghai A shares fell 1.04%, and the B shares fell 1.22%.
The Chinese markets sold off on fears of a “hard landing” scenario of their economy if growth falls under 6% in the next two years.
Further pushing down the markets were reports circulating suggesting China would not be easing monetary policy anytime soon.
Commodity stocks on the China market all dropped dramatically in yesterday’s trading- copper, cement, and aluminum companies were all down 1% to 2%.
That’s all the excitement for today. The European sovereign debt issues and the fears associated with European Banks is killing the global appetite for equities, and markets are trading poorly everywhere.