Archive for November, 2012
Divergence In China Related Equities Recently – How To Read Into It?
Posted by jeffreyyap in China, Economics, Equity Market, Hong Kong, Money, Strategy on November 27, 2012
Domestic Chinese A-shares fell to 4-year low today, however many Chinese equities or China related equities listed overseas are rising in value. This include H-shares in Hong Kong as well as China related shares in US, Japan, Hong Kong and Singapore. How do we read into it? In my recent conversations with onshore and offshore investors, there seems to be a reverse in terms of their outlook this time around. Domestic investors are less convince on the performance of the equity market going forward due to the fact for the pass 4 years China has registered above 30% in accumulated growth and property prices have doubled but we have seen flat performance in its equity markets. Foreign investors on the other hand are beginning to turn bullish on Chinese equities and its currency on the back of cheaper valuation on a global comparison. It is therefore a very smart move by investors to purchase Chinese companies and China related companies listed overseas. By the act itself, investors are buying cheap call option on the performance of Chinese equities and currency in the medium term.
Global Quantitative Easing On Full Speed – What Is It Doing To Our Money? Unorthodox View Here!
Posted by jeffreyyap in Economics, Global, Hong Kong, Money, Strategy, Words of Wisdom on November 24, 2012
Global major economies are implementing quantitative easing in a scale never seen before in human history, is it necessary? Is it because global growth is sub-par compare to the last 5 decades? I believe it’s partly due to global aging population and with aging population sub-par growth would be inevitable unless we have a huge jump in productivity.
The question is what does it do to our money? I had a colleague which came back from an art auction today in Hong Kong and he told me investors were grabbing up art pieces at prices significantly higher than 6 months ago. Furthermore, it was reported in the media recently, average car park prices in prime locations in Central Hong Kong have risen to HKD5,000,000 ($630,000!). Why is this happening when more than half the global economies such as Europe/US/Japan are barely growing? This is because quantitative easing reduces opportunity cost of capital which inversely appreciates anything which has finite supply such as paintings and car parks?
What should one do facing such a tsunami of easing? Don’t go against it is what I would advise (for now!). For those that followed me, this has always been my advice for the last 4 years post Lehman. There are morale hazards that come with quantitative easing and money printing and leveraging up but is more debt bad when the growth is likely to remain low due to global ageing population? If you work your math it is not. Just look at yourself right now, if a bank said to you, “you can have more money, but you only need to make the same repayment” would you say no? You probably would if you know your repayment will rise one day. What I am telling you now is the “repayment or cost of money” probably won’t be rising anytime soon but meanwhile your food, property, clothing, child education, university tuition fees, watches, handbags, cosmetics and even paintings and car parks will continue to rise……
The Final Frontier: Renminbi Hedging And Africa
Posted by jeffreyyap in China, Fixed Income Market, Money, Offshore RMB, Strategy on November 20, 2012
RMB has great opportunities for much bigger role in the trade flow between Africa and Greater China region. Please see my comments in Asia Risk
“Despite this uptick in interest in renminbi, trade and investment in Africa is still dominated by the US dollar: much of the Africa-China trade is resource based and therefore traded in the greenback. And despite the apparent existence of exotic currency crosses such as between the Zambian kwacha and RMB most are structured with the dollar as a go-between currency, according to Jeffrey Yap, managing director of fixed income trading Asia at Mizuho Securities”
For Full article please click
http://www.risk.net/asia-risk/feature/2225814/the-final-frontier-renminbi-hedging-and-africa
Hong Kong’s Latest Economic Indicators – What Does It Tell Us? – Part 2
Posted by jeffreyyap in China, Equity Market, Fixed Income Market, Hong Kong, Money, Offshore RMB, Strategy, Words of Wisdom on November 18, 2012
The current disparities between growth (+1.3%), deposit rates (zero!), inflation (5%) and property prices (20%) in Hong Kong its like watching a race between a hamster, tortoise, horse and cheetah! As mentioned in part 1 of this topic, the reason why there is inflation and upward pressure in monetary value of certain services and assets in Hong Kong is largely due to the demand from external factors. Similar to my analogy of Hong Kong resembling a shopping mall, most of the key products and services are targeted at serving/providing to foreigners (in a good way) The 3 key areas of growth for Hong Kong in this decade comes from the financial, property and luxury consumer sector which is largely targeted at foreigners (foreigner buying up luxury apartments, foreign companies raising IPO, foreign tourist buying up luxury products etc.)
Ok then you must be thinking what is different this time compare to 10 years ago? It is the HKD peg. Chinese Yuan and other Asian currencies have appreciated over 20% against HKD in the past 5 years and this trend is likely to continue with the quantitative easing in the west. The HKMA and Financial Secretary have denied the peg has brought about inflation? Look at 10 years Hong Kong Government Bond Yields 0.46%?! This is largely due to inflow of money and the result of increase in monetary base from defending the peg. 10 yrs yield at 0.46 while inflation is 10x of that??
Why are they in denial?They are just afraid to say it because given how well the peg has served Hong Kong, no one is going to change the peg, be it someone in HKMA, government or even the PBOC and the Chinese Government. One must also know this the HKD peg served as a good indicator for China on liquidity flow so why remove that….But something has to be done if we were to see a fairer race among the people in Hong Kong than the one we currently have. The peg can stay but for the sake of Hong Kong people who is reading, you should take your money out of the bank and move it into RMB, buy some equities or fixed income investments and last YOU mustn’t sell your property. If you don’t own a property in Hong Kong means you are short and the peg will kill you…If one decide not to do anything of such, they better make sure he/she gets a work in this mall or else you would be poorer even though the country continues to prosper….
Hong Kong’s Latest Economic Indicators – What Does It Tell Us? – Part 1
Posted by jeffreyyap in China, Hong Kong, Money, Strategy, Words of Wisdom on November 17, 2012
Hong Kong announced on Friday its Gross Domestic Product grew 1.3% year-on-year in the third quarter, similar to the 1.2% growth seen in the second quarter. The data also unveiled the underlying consumer price inflation stands at 4% in the third quarter. Residential Flat prices from June to September rose by over 6% (in just 3 months!).
These data must look rather bizarre for general public as well as economists and financial professionals. Here is another observation, China Daily reported this “Hong Kong‘s Causeway Bay has dethroned New York‘s Fifth Avenue as the world‘s most expensive retail area, as luxury brands retailers such as Burberry, Salvatore Ferragamo and Gucci compete for limited prime space in the city to court big spenders, particularly mainland tourists.
The average annual rent at Causeway Bay, the prime retail district on Hong Kong Island, surged 34.9 percent to $2,630 per square foot at the end of June from a year ago, beating the $2,500 price tag of Fifth Avenue in New York‘s Manhattan district, which has occupied the top spot for 11 consecutive years, according to estimates by commercial real estate consultant Cushman & Wakefield Inc.”
So why is this happening? This is because the economy has become more dependent on China and Global Spending (just imagine Hong Kong as a large Shopping Mall) hence even though growth been rather weak, inflation continue to rise especially in areas which supply goods and services to this large global shopping mall. In this shopping mall, you have bankers that provide credits, salesperson to serve customers, lawyers to document/advise the process and doctors to cure those that gotten sick while shopping,
This is the state of the Hong Kong’s economy. It is debateable whether it is good or bad but one thing is for such we need a good mall management team (the government!) to guide the people of Hong Kong to equip themselves to work in this mall. No shopping mall survive without makeover and enhancement and quality control. It is time for the government to start working on these or else it would turn into an unloved mall with little patrons just like those malls in Hong Kong which none of us patronise anymore…
PBOC Zhou And Commerce Minister Chen Absence From The China’s Central Committee List – What Would Be The Implications?
Posted by jeffreyyap in China, Fixed Income Market, Money, Offshore RMB, Strategy on November 14, 2012
Interesting day with China political party announcing the new list of 205 members today on China state television after the party’s 18th Congress in Beijing, where a once-a-decade leadership change is taking place. The most relevant changes were PBOC Zhou and Commerce Minister Chen was absence from the central committee list which means Zhou will retire from PBOC and Chen from his post as Minister of Commerce. This is inline with what I have heard from onshore sources months back on the dissatisfaction of the recent policies adopted by the Ministry of Commerce and PBOC especially in preferring a weaker currency while draining liquidity from the system via RRR hikes. CNH and CNY appreciated to a 19th years high for the 5th day in a roll on the back of stronger official fixing today. With the absence of these old guards, we can expect further strengthening of the currency against global majors in the effort of promoting domestic demand and increase per capita income. We look forward to the new leaders to promote consumer and domestic credit growth which means further credit easing and capital market formation is likely. The offshore RMB market would be one major beneficiaries of this as well. Stay tune for further updates…
If you don’t like something, change it. If you can’t change it, change your attitude. Don’t complain
Posted by jeffreyyap in Hong Kong, Words of Wisdom on November 11, 2012
My son and wife gave me a quote today
“If you don’t like something, change it. If you can’t change it, change your attitude. Don’t complain” by Maya Angelou
This quote moved me right away – about the state of the society we live in currently, especially in Hong Kong….
Signs Of Demand Coming Back to China?
Posted by jeffreyyap in China, Hong Kong, Money, Strategy on November 10, 2012
Yesterday as I walked around Central, Hong Kong i got a sense that retail purchases by Chinese shoppers have started to picked up. There were various groups of tourist with bags full of luxury items purchased from shops such as Burberry, Prada, Chanel etc. This was not the case for the past six months. I gathered in recent months from friends and colleagues who have travelled globally for work, holiday and honeymoon! the sense is Chinese shoppers are travelling further away from China to shop. That would mean less shoppers are likely to flock to Hong Kong for their shopping spree. However, given my observation yesterday, I believe the Chinese demand has started to picked up in Mainland China, abroad as well as Hong Kong.
China To Speed Up Interest Rate Liberalization – Why Is It Needed And What Would Be The Impact?
Posted by jeffreyyap in China, Equity Market, Fixed Income Market, Money, Offshore RMB, Strategy on November 8, 2012
China plans to move toward full liberalization of interest rates, but hasn’t outlined a specific timetable for the reform. PBOC’s Zhou echoed the Chinese leader’s wish during the first day of the 18th National Congress of the Communist Party of China (CPC) which would last for a week. In President Hu’s speech, he emphasis on market developments, increasing domestic demand and improving people of China’s wellbeing by targeting a doubling of per capita income by 2020. I have no doubt the doubling of per capita income would be achievable but the quality of the income may vary significantly. I support PBOC Zhou’s push for interest rate liberalization because this step is needed to ensure a proper formation of the second phase of China’s monetary system to ensure capital are allocated efficiently to the hands of people and companies that produces the most economic and social benefits to the people of China. Even though I am not from China (but ethnic Chinese by birth!), I would be ecstatic to see this happening. Could you imagine the multiplier effect on mankind would be with 1.3bil people having the ability to contribute effectively to the world or at least able to improve the quality of their own lives? However, what would be the impact of such liberalization? It would mean further opening up of the banking and capital markets to global institutions, doing business based on market clearing levels and allow capital to flow to the highest risk adjusted return investments. However, Chinese financial institutions would need to innovate fast and moving up the knowledge chain at lightning speed to assist and be part of such liberalization. I witnessed the road to 1997 Asian Financial Crisis and my advise to Chinese leaders today is to ensure great governance over such liberalization. Liberalization is good if not great but only if it is done properly.
Together we stand…Mom! – touching
Posted by jeffreyyap in Hong Kong, Words of Wisdom on November 4, 2012
Today as i drove pass Sheung Wan, Hong Kong on the way back from hectic shopping in Wing On Departmental, I saw something rather normal yet touches my heart deeply. One lady was pushing a cart full of goods up a steep slope (a scene Hong Kong people are very familiar with). One will immediately feel a sense of pity or sadness towards the women having to push a cart up such a steep slope on a Sunday afternoon. Yet, she was full of smile as i drove pass…Why? her daughter was right beside her giving her a hand on pushing the cart and that pair of hands, of one she loves, means more than any wealth in the world. I shall learn from this lovely pair…
China Construction Bank to issue offshore RMB bonds in London – view my interview 6 months ago
Posted by jeffreyyap in China, Fixed Income Market, Offshore RMB on November 4, 2012
Leader Change Cuts Dim Sum Sales to Five-Month Low: China Credit
Posted by jeffreyyap in China, Fixed Income Market, Offshore RMB on November 3, 2012
Leader Change Cuts Dim Sum Sales to Five-Month Low: China Credit
China’s once-a-decade leadership change has cut Dim Sum debt
issuance to a five-month low, as uncertainty about the new
regime’s monetary policy counters the cheapest borrowing
costs since April.
Sales of yuan-denominated bonds in Hong Kong slumped 38
percent from September to 4.14 billion yuan ($664 million), the
least since May, according to data compiled by Bloomberg.
Average yields fell to 4.76 percent last week, down 13 basis
points in October and the lowest in six months, according to
Bank of America Merrill Lynch indexes. Companies globally pay an
average 2.66 percent to sell dollar debt, the indexes show.
As Communist Party cadres meet from Nov. 8 to appoint
China’s next generation of leaders, issuers are pausing to
evaluate the new leadership’s monetary policy after two interest
rate cuts earlier this year. Premier Wen Jiabao said last month
the economy will keep showing “positive changes” after growing
2.2 percent in the third quarter from the previous period, the
most in a year. His likely successor Li Keqiang has yet to
signal his policy bias.
“Issuers will likely wait for everything to settle down
after the leadership transition before looking at debt sales,”
according to Paula Chan, managing director in the fixed-income
team at Manulife Asset Management in Hong Kong. “The market
seems to be pricing in no cuts to interest rates or the reserve-
requirement ratio but that’s to be affirmed.”
Monetary Policy
Top-rated companies paid an average 14 basis points less on
three-year debt in June on the day after the central bank
announced the first interest-rate reduction in more than three
years, according to Chinabond indexes. That was the biggest-
daily slide in six months, the indexes show.
The People’s Bank of China sliced rates to 6 percent in July, and
the central bank will likely hold at that level for the rest of the year,
according to the median of 25 estimates in a Bloomberg News
survey. In September, economists had forecast a 25 basis-point
reduction by Dec. 31.
“If you cut interest rates in China, offshore yields will be very
favorable for investors but it will discourage potential issuers,” said
Frances Cheung, a Hong Kong-based senior strategist for Asia at
Credit Agricole CIB. “For the general economy, cuts onshore would
be a symbolic move. It could boost confidence.”
Dollar Debt
Some issuers have chosen to sell dollar-denominated bonds
rather than Dim Sum notes given the falling cost of funding in
the U.S. currency, according to Jeffrey Yap, the Hong Kong-based
head of Asia fixed-income trading at Mizuho Securities Asia Ltd.
Citic Pacific Ltd. and Franshion Properties China Ltd. led
$2.43 billion of dollar bond sales by Chinese companies in
October, up from $800 million a month earlier, according to
Bloomberg-compiled data. Soho China Ltd. also plans to sell
dollar debt, a person familiar with the matter said yesterday,
asking not to be identified because the details aren’t set. The
yield premium that investors demand to buy Chinese corporate
bonds denominated in dollars rather than Treasuries fell to 376
basis points on Oct. 18, the lowest since January 2011.
“The primary reason we’ve seen relatively less Dim Sum
issuance last month is simply that dollar funding costs are
lower at the moment and companies can typically issue more and
with longer tenors in the dollar market,” according to Bryan
Collins, a Hong Kong-based fixed income portfolio at FIL Ltd.,
known as Fidelity Worldwide Investment.
The size of individual Dim Sum notes averaged 671 million
yuan this year compared with an average $927 million for Chinese
corporates’ dollar debt sales, data compiled by Bloomberg show.
The average maturity of Dim Sum bonds is 2.21 years, compared
with 6.42 years for Asian dollar debt, according to Bank of
America Merrill Lynch indexes.
Yuan Strength
The U.S. Federal Reserve, European Central Bank and Bank of
Japan have all announced bond-buying programs, prompting global
investors to plow more money into higher-yielding assets as more
cash was made available in the financial system. Emerging-market
bond funds attracted more than $1 billion for the week ending
Oct. 24, with two-times more capital flowing into funds in major
global currencies rather than local ones, according to data
provider EPFR Global.
The yuan climbed for a third straight month in October. The
currency rose 0.05 percent to close at 6.2372 per dollar in
Shanghai yesterday, extending its rally in the month to 0.76
percent, according to the China Foreign Exchange Trade System.
“The renminbi is now facing two-way fluctuations,” Credit
Agricole’s Cheung said. “Lately the currency has appreciated
again but I think the expectation is for it to be relatively
stable and if there’s any appreciation that will be very gradual.”
Guangdong Nuclear
The cost of insuring Chinese sovereign bonds against
default using five-year credit-default swaps fell two basis
points to 71 basis points on Oct. 30, according to data provider
CMA, which is owned by McGraw-Hill Cos. and compiles prices
quoted by dealers in the privately negotiated market. Credit-
default swaps pay the buyer face value in exchange for the
underlying securities or the cash equivalent if a government or
company fails to adhere to its debt agreements.
Yields on China’s benchmark 10-year government bond were
little changed at 3.59 percent yesterday. Companies pay an
average 4.81 percent to sell Dim Sum bonds as of Oct. 29, 44
basis points less than at the beginning of the year, according
to Bank of America Merrill Lynch indexes. That compares with an
average yield of 4.44 percent on three-year debt sold by China’s
top-rated corporates, down 45 basis points in 2012, according to
Chinabond indexes.
China Guangdong Nuclear Power Holding Corp. led Dim Sum
sales last month, raising 1.5 billion yuan from three-year notes
that priced to yield 3.75 percent, according to data compiled by
Bloomberg. The power generator was one of four companies that
Chinese regulators approved to issue offshore yuan bonds earlier
this year. China Minmetals Corp., also one of the authorized
issuers, has yet to sell any of the debt.
“Given the leadership change things are slow,” said
Mizuho’s Yap. “But it still makes sense for Chinese issuers to
sell Dim Sum bonds.”
By Rachel Evans
China PMI rose above 50 – signs of sustained recovery to come?
Posted by jeffreyyap in China, Equity Market, Fixed Income Market, Strategy on November 1, 2012
China PMI rose as expected. This did not come as a surprise as indicators such as retail spending, freight volume, overtime etc has been on the rise recently. What is extremely encouraging was the reading was strong despite the general slowness in October with long holidays and leadership transition in the horizon. I am certain further picked up in economic activities and growth in months and quarters are very likely and the recovery seems broad-based too. Some critics who are unfamiliar with the developments in China might point to the lacklustre lending numbers but if one was to add the growth in debt issuance (which are typically long-term financing) the total pick up in financing activities have actually picked up in pace and in strength. I would suggest readers to position for beaten down sectors (credit and equity included) to have a good rally in the next 3 months. In debt, Chinese Property, Auto Sector, Cement, Retail while in equity, Property, Auto, Retail, Construction, Healthcare, Logistics, Brokerage would be my obvious sectors picks.
