Monthly Archives: November 2011

Europe Snubs China Bailout Offer – What Will Happen with Chinese Stocks

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This is particularly funny to me. It has long been rumored China was willing to provide as much as $3.2 Trillion in foreign exchange reserves to bail out the Eurozone. I would have expected the Chinese to focus their demands on austerity programs. However, what they are really after is:

  • Greater status at the World Trade Organization
  • Removal of an arms embargo placed after Tiananman Square
  • Greater influence in the IMF- International Monetary Fund

When it came right down to it- led by Germany, the European delegation simply left rather than negotiate, stating its not worth it to allow a Communist Country to have too much influence of EU Members. The Chinese have a lot at stake in Europe, so they don’t have any great leverage in the process. The EU is China’s largest export market, and a full 25% of China’s foreign exchange reserves are in European denominated investments. If Europe goes down, China will lose very big as well. While all this was going on, stocks in China continued their rebound, suggesting the Chinese markets are really starting to buy into the “Soft Landing” scenario. In Monday trading, the Shanghai A shares were up 1.92%, and the B shares 2.02%- 2% moves to the upside are nothing to sneeze at.

The Calm Before the Numbers

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The China markets continued extending out sideways in yesterday’s trading as several high impact economic numbers are due out later this week, and the world watches the fascinating machinations on the political landscape in Europe.

Both the China indexes- The Shanghai A and B shares were flat in yesterday’s trading- each down far less than 1%.

The IPI stats are due out soon- measuring the amount of output from the manufacturing, mining, electric and gas industries. The prior reading was an increase of 13.8%. The IPI number will go a long ways towards indicating the level of slow down in the Chinese economy’s manufacturing and export sector.

October’s CPI should also be out later this week- the measure off the all important inflation number.

In an ideal world, we’d like to see a very moderate drop in the IPI number, coupled with a continuing drop in the CPI number showing inflation has peaked and is coming down. Goldman Sachs is out ahead of all of this information, recommending investing in China stocks now.

While exports from China to the developed nations are shrinking, demand from Japan has soared in the earth quake reconstruction era, and exports to Africa and Latin America are growing as well.

McKinsey company also reports optimism amongst Chinese consumers is growing, and most Chinese believe their income will grow in 2011 as compared to 2010.

That’s it for today. Back tomorrow.

 

 

And, Finally a Flat Day

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Not much exciting news flow out of China today. One Chinese official referenced the European labor system as filled with “Sloths”- and antiquated. It appears the Chinese are flexing their muscles on the participating in any sort of European bail out, and it would appear if they put in any money, it will have conditions related to getting people off the “dole” and into the work force. There’s of course some truth to this in Europe.

The Chinese markets gave back a little, but not much. Both indexes- the Shaghai As and Bs were down less than 1% and the chart simply looks flat for the last 3 days.

In the meantime, there are some very good rallies going on in China Small cap stocks, and there’s three I believe will trade very well with their earnings reports. Join the newsletter if you want to know which ones.

One company is one of the largest fabricators of auto parts in China. GM’s sale’s were up 10% in October- GM has sold nearly 2 million vehicles in China already this year- Mini vans are leading the way.

Goldman Sachs was out over the weekend recommending investing in China stocks, citing the oversold nature of their indexes.

Analysts are now forecasting 5.5% for the October CPI- the measure of inflation. Down from 6.7% in July and dropping each month.

Could be China stocks are finally making a comeback.

 

 

Winning Streak Continues

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The winning streak continues in the China markets in the black 9 of the last 10 previous trading days. Is the Bear getting old, and a baby Bull being born.

One could easily make the argument the bear is now about 9 months old, which is the typical life span of a bear.

The latest news out of Greece keeps the markets on hold. Imagine if you were in big financial trouble, and someone offered you to simply cut your debt in half, and then give you another $140 million in rescue money.

After all the wrangling that got you to this point, you want to think about and then get everyone involved to vote on it? That’s Greece. The cradle of Western civilization has lost its mind, and has gone off the deep end.

Nevertheless, the news out of China continues to suggest inflation abating with a soft landing on the economic front as internal consumer spending makes up for the slack from slow exports.

The Shanghai A shares eked out a .16% gain overnight, and the B’s .43%.

News out of China- CNBC reports the going private Harbin Electric report might have some problems. The stock has been halted and the company is supposed to have gone private at $24 per share. CNBC reports the money isn’t there yet. But be nothing, but if it turns out there’s problems, wow.

In more direct news, Corn production in China rose 6.7% this year- a good sign. Increases supply equals lower prices and less food inflation.

In other news, Flurry Analytics reports growth of mobile apps in China are “astronomical” – averaging close to 800%- far above the 200% from the other top global mobile adapters.

This it for today. No really big news to cover.

 

 

 

Going, Going, Gone- Harbin

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We will never know if the detractors who claimed Harbin Electric was a fraudulent company were right because the stock has halted for the trading and it would appear the company has successfully gone private at $24 per share.

Trading up in sympathy with the Harbin move is FSIN- Fushi Copperweld- that company is looking to go private as well. China Fire and Security- CSFG- another one that is supposed to leave the public markets.

If a few more of these can follow suit, we might just have a rally in the China small cap sector as short sellers are now officially being discredited. Citron Research, which is wearing a healthy dosage of egg on its face over this stock, has been proven absolutely wrong.

I am now quite certain the September/October violent sell off signalled the bottom for the China small cap sector- the more interesting question is when will the stocks start to rise to some reasonable valuation. We will see.

In the interim, the Shanghai markets continued working a bit higher in last night’s trading. The Shanghai A shares were up 1.39%, and the B’s up .86%. These markets have now moved higher 8 of the last 9 trading days.

In other China related news, China has now moved into the first spot for investment in Green Theme technology. Germany ranks #2, and the US is #3.

Last year, China invested $41.2 billion, and the US only $34 billion. The twenty richest nations on Earth were up an average of 33% over the prior year.

That’s it for today. Way to go Harbin. Might be setting the stage for some energy in the sector.

 

And, Back Down Again

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And, the markets are back down again, giving back all the gains from last week that actually pushed US markets into the black momentarily for 2011.

It was Europe again. The EFSF and the EU seem to be willing to do what’s right for European Sovereign debt, but not surprisingly there appears to be a lack of political will to do the right thing- something the violent protestors in Europe are going to hate.

In the meantime, the big news out of China today is the PMI numbers, which were rather poor. PMI- Purchasing Manager’s Index, is a leading indicator of industrial activity- mainly manufacturing.

China’s official purchasing managers’ index dropped to 50.4 in October from 51.2 in September. Analysts had been expecting a slight increase. Blame centered on weak demand out of European and  the U.S.

A private-sector PMI though set a different direction, rising in October to 51.0 from 49.9 in September. This separate index indicates internal growth, and it was the best since June, and at 51 indicates expansion.

This didn’t do much to roil the China internal markets as its seen as a positive for inflation. The Shanghai A shares are holding onto the big gains over the past 7 trading days. However, looked at over the year, the Shanghai A shares have dropped from a high of 3150 in May to 2425 at the low – currently 2568 representing more than a 100 point gain in the last 7 trading days.

It would appear the market is starting to buy into the “Soft Landing” scenario for China equities, which bodes well for China equities. This Bear Market has lasted about as long as Bear Markets last.