Archive for October, 2012
3 weeks to new leadership in China, Nov 8 2012 is the day!
PBOC injected 395billion yuan today the highest number on record. 7-day repo rate plunges 123bps to 3.09% the largest drop since Jan 19. I believe many economist that called for RRR cut has been disappointed this year as PBOC and Chinese Government wants to control excess lending in unproductive economy and the move to inject liquidity instead of RRR cut is a sign that the authorities will start to move to boos the economy through other methods. I would expect tax cuts etc to come soon…
Running up to the US election and Chinese leadership change and now Hurricane Sandy, risk assets have pulled back last few days. I believe this week would be the best time to add risk assets to your portolio if you have miss the boat earlier. Global inflation have started to pick up and fund flows have move out of money market funds in search of yields and returns as US and China economic data points to further recovery. Right now many global investors has parked cash in low yielding fixed income instruments such as government bonds. Once global economy picks up slighlty and QE being withdrew from the system money will chase for higher return assets and given low valuation in the equity and credit space, we will see a long and sustain run up in the Risk assets in 2013.
Hong Kong Exchanges and Clearing Limited (HKEx) has welcomed the debut on October 29 of the first RMB-traded equity security on Hong Kong’s Stock Exchange – the world’s first RMB-traded equity security outside Mainland China, and the Exchange’s first dual counter equity security. The RMB-traded shares of Highway Infrastructure Limited are in addition to its previously-existing HKD-traded shares, and all of the shares are under the dual counter model (under the dual counter model, there are RMB and HKD counters of the same class of shares that trade in RMB and HKD respectively, have different stock codes and short names, and are fully transferable).
I believe this is a new beginning and provides investors alternativea new asset class to deploy their offshore RMB to just fixed income and deposits at the moment
The Export-Import Bank of China (China Exim Bank) sold 10 billion yuan worth of 1-year policy bank notes at a yield of 3.35 percent and 12 billion yuan worth of 3-year ones at annual yield of 3.80 percent on Friday. Eximbank of China sold 1yr and 3yrs domestic debt at 35bps and 65bps higher yields than existing offshore yields. The average difference for the last 6 months has been in the region of 40bps for 3yrs debt. Is this a sign that some policy banks will take adavatage of the yield difference to tap the offshore market? You bet. Furthermore Citic Bank sold 2yrs debt at 3.75% on Friday, the highest coupon ever paid by a Chinese Bank in recent times.
The Asiamoney Article
This is inline with my comment in April this year with Bloomberg TV
Equity markets defied the fall last night to rally to new highs this month…What about other indicators?
Credit markets shown the similar decoupling vs Europe and US with Itraxx Asia narrowing 5bps today. DXY up, AUDJPY up, SGDJPY up despite the fall in EUR. Fund flows data tomorrow is likely going to point to further fund flows to Asia from western develop markets. This is the common given money will raise for the highest potential return in an improving global backdrop. I would bet on a stronger CNH/CNY and Chinese Equity markets next 9 months.
With the rising tension between China and Japan/US, not surprising European nations and European firms are likely to be the leading region adopting renminbi for international transactions
Similar to the movement in Hibor/Libor, HKD forward points have risen against USD. 1 year CNH forward points hit the widest ever today at +1615 bips. This would imply short term rates in CNH will rise. Is it all bad? For government debt markets yes as in rising forward points government securities typically will suffer while increase in aggregate balance will likely boost liquid risk asset such as spot currency and equity markets
The recent article on Asiamoney on the pace of adoption by Middle East investors there with Offshore RMB. Will this turn out to be a trend with large USD holders?? You bet its only a matter of time and size…
Remember what 1993 and 2003 did for Asian markets. Yes 3 years of very strong uptrend on the back of deregulation or fiscal or monetary easing by the western economies. This time around Chinese stocks are so unloved and underowned (most of the investors i talk to have been adding into bonds/credits, real estate and PE) last few years. The position away from equities seems very crowded and I would bet for a sharp rise in 2013 similar to the 2 decades ago in Asian markets but this time led by China…