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.