GS Monthly View – China. An Opportunity for the Reformers?
China. An Opportunity for the Reformers? In the past week there have been many important developments involving China, virtually all of which symbolize ? at least to me ? that the reformers are in the clear ascendancy in Beijing. But, all we read in Western media is about the Bo scandal and the Communist Party’s … Continue reading
Bloomberg – Investor Distrust of Chinese Listings Hits IPOs, Prices
Investor Distrust of Chinese Listings Hits IPOs, Prices By Fox Hu Apr 19, 2012 – Bloomberg Profit warnings, auditor disputes and delistings involving Chinese companies trading on foreign exchanges are fueling investor distrust, wiping out valuations and poisoning the market for new listings. The 180 Chinese firms that went public in New York, … Continue reading
How did people make money in China in the past 30 years?
It all started since 1978 the first reform – Deng Xiao Ping opens China. The first movers that made money in China are multinational companies and few private equity firms. Before that, everything is state owned and the whole economy is state planned. The idea of “shareholder” and “privatization” started to build. In 1990, the … Continue reading
The start of the second reform in China
WSJ Chinese Premier Blasts Banks Chinese Premier Wen Jiabao told a national audience on Tuesday that China’s state-controlled banks are a “monopoly” that must be broken up, in a blunt appeal for a shake-up of the creaky financial system of the world’s No. 2 economy. In an evening broadcast on state-run China National Radio, Mr. … Continue reading
Harvard’s Ferguson on China
A good interview of Harvard professor Neil Ferguson on China’s political change and growth prospects. Interestingly, he compares it to South Korea in 1977. Click here for the video
Buy GXC and FXI
Good time to add in today at the dip. “Market declines came after an executive from BHP Billiton, BBL -3.31% Australia’s mining giant, warned that China’s demand for iron ore will flatten as the world’s second-largest economy cools. Earlier this year, China cut its 2012 gross domestic product growth target to 7.5%, an eight-year low.Additionally, … Continue reading
China’s Equity Market 1
China has both size and growth while other emerging countries only have growth. It has one of the fastest growing economies, most compelling macroeconomic dynamics and high inefficiency in the equity market. China’s equity market is has deep breadth, with over 4,000 companies including A Shares (domestic), B Shares (domestic), H Shares/Red Chips (HK), ADRs … Continue reading
GOAL – Global Strategy Paper: No. 3 – AsiaPac Valuation: What works, and when, 3/12/2012 by Tim Moe
Links between valuation and performance: The historical connections between valuation and performance show that: 1) equity returns are better when starting valuations are low, 2) valuations link best with returns over a 6m-2yr window, 3) extreme valuations have the strongest links with ensuing performance, and 4) valuation/return correlations are stronger at macro cycle peaks and … Continue reading
7.5%
I think 7.5% is a good thing and I am bullish on China: 1) They want to set up a target that they always beat, more than 50bps historically. 2) The local/provincial governments all try to beat the target by a lot. So a lower target from the central government will reduce the pressure on … Continue reading
The great wall of capital…
The great wall of capital controls surrounding China is falling apart. Yesterday a hole was knocked to allow Japanese capital into the country, after Japan became the first major developed country allowed to buy renminbi-denominated Chinese onshore bonds.
Already this year South Korea’s central bank has been given permission to buy Chinese securities and the China Development Bank has agreed in principle to lend in renminbi to Brazil, Russia, India and South Africa.
The capital controls are steadily being dismantled, with deep implications both for the world economy and investors.
For China, this means giving up control of its exchange rate and so stopping expansion of its $3.2tn of currency reserves.
Taken alone, that means it will one day have to stop buying Treasury bonds, and potentially start selling – a sort of reverse quantitative easing.
Offsetting that, the rest of the world’s economies should gain as China stops acting as a parasite – in diplomatic speak, global imbalances are reduced.
China’s current account surplus has already halved from its peak and in February it had the biggest trade deficit since at least 1989. Meanwhile Japan last week reported the largest monthly trade and current account deficits since at least 1985. Both were affected by seasonal factors and the weakness of Europe, but are part of a wider trend: the world is, slowly, rebalancing.
This is bad news for bondholders. Quite apart from lower demand from Chinese (or Japanese) reserve building, it means higher inflation.
China, as Ousmène Mandeng at UBS points out, has already stopped exporting disinflation and threatens to export inflation. Even in Germany, which has done far less to rebalance than China, workers are showing signs of wanting a bigger share of growth.
Even if this rebalancing goes smoothly, it will take at least three years. But anyone buying bonds maturing beyond 2015 should be wary.
FT China
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