Archive for the ‘China’ Category
China’s stocks may slump for a second year as the central bank raises interest rates to tame inflation, according to Zhang Kun, the strategist at Guotai Junan Securities Co. who correctly predicted last year’s drop.
According to Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said. “Inflation is the biggest risk. The government will keep tightening.”
Guotai Junan is alone among China’s major brokerages in predicting declines for 2011. China International Capital Corp., the only other major Chinese brokerage to correctly forecast the index’s drop in 2010, also expects an advance this year.
The Shanghai Composite fell 14 percent in 2010 to 2808.08, making it the worst performer among benchmark indexes in the world’s 10 biggest markets. Premier Wen Jiabao’s government ordered banks to set aside more reserves six times and boosted rates twice since October to tame inflation and curb asset bubbles after record gains in lending and property prices.
The central bank will keep increasing borrowing costs to cap inflation at around 4 percent this year after it reached a 28-month high of 5.1 percent in November, Zhang said. Last March, he said the Shanghai gauge, which had already dropped 9.2 percent, would fall a further 17 percent to 2,500 in the first half as the government boosted measures to cool economic growth. The index slid 27 percent in the first six months of 2010.
China’s shift toward a stronger exchange rate may alter the shape of the world economy’s expansion more than its speed, economists said. The currency move is likely to affect the composition of global gross domestic product rather than the growth rate
Chinese consumers might buy more as the rising yuan boosts their purchasing power, while their counterparts in the U.S. cut back on their spending as the cost of goods imported into America rises. The shift will add 0.1 percentage point to global growth this year and next, leaving the rate at about 4 percent, according to the median of 17 forecasts in a Bloomberg News survey of economists.
May has been a volatile month. Europe’s sovereign debt risks and tensions in Korean Peninsular weighs down heavily on the financial markets while economic data has shown that the recovery is underway.
Speculation and intense debate on 2 issues, whether Greece will be forced to default and whether Euro will lose some of its weaker member countries has died down a little. However, things are still not certain a month after attacks lead to a trillion dollar bailout package. Euro skeptics say the forced spending cuts and tax increases will scuttle a recovery before it takes hold. The fiscal austerity measures will be a big drag on growth. Spain lost its AAA credit grade at Fitch Ratings, dropping one step to AA+ to a “stable” outlook.
China’s wealthiest are gaining against their U.S. counterparts.
The total net worth of China’s 40 Richest, all of whom are now billionaires, doubled in the past year as bust turned to boom. A quick comparison of our new Forbes China Rich List with that of the Forbes 400 list of richest Americans, published in September, appears to tell a expected story. China’s 400 Richest are worth a record $314 billion, just one-fourth the total net worth of their American counterparts. China’s richest person, BYD’s Wang Chuanfu, has a net worth of $5.8 billion, far below the $50 billion fortune of U.S.’s richest citizen, Microsoft’s Bill Gates. In the U.S., Wang would only rank no. 40.
But the more interesting story is the fact that Chinese tycoons are making huge gains, at a time when many of the world’s richest haven’t been as lucky. As a result, there is a record 79 billionaires, up from 24 a year earlier, more than Germany, Russia or India had published in our worldwide billionaire rankings. The U.S. has 391 billionaires, down from 489 a year ago. The total net worth of the China 400 jumped 81%, or $141 billion, at a time when American’s wealthiest lost $300 billion, or 20% of their cumulative total, dropping to $1.27 trillion.
China Trade Rebound Aids Global Economic Recovery
China’s exports surged in December 2009 to make it the 2nd largest exporter in the world. Imports rose to a record in a stronger-than-forecast trade rebound that may lessen the case for governments to sustain stimulus programs this year.
Exports climbed 17.7 percent from a year earlier, the first increase in 14 months, and imports jumped 55.9 percent. Year-on-year comparisons are affected by the tumble that began in late 2008, when the global credit crisis deepened. Shipments to the U.S. and the European Union grew 15.9 percent and 10.2 percent respectively from a year earlier. Imports from Australia and Malaysia more than doubled.
Soaring imports are more evidence that China’s economy may face an increasing danger of overheating. Chinese government, while warning that recovery is not yet solid, pledged to “guide” speculative flows, bank loans and property lending. China is expected to raise interest rates and let its currency appreciate in the coming months as policy-makers resort to more aggressive measures.
Countries like Taiwan also experienced surge in exports while Australia and New Zealand markets and currencies gained on bets their economies will benefit from the increase in shipments to China. Among other points, the International Monetary Fund has said it will probably raise its estimate for 2010 world growth from 3.1 percent.
Analysts bullish over earnings season
In Singapore, as earnings report for Q4 and the full year 2009 goes into full swing next week, analysts are expecting good results for all sectors given the cost cutting measures and rebound in economy in 2009. Except for the volatile biomedical sector, which is not represented in the local stock market, all sectors grew in Q4 last year.
Yesterday, the Australian and New Zealand dollars traded near the highest level in 10 months after Reserve Bank of Australia Governor Glenn Stevens said he will have to raise interest rates at some stage as the economy recovers. This is to guard against inflation.
Elsewhere, global fund managers are betting China will let the yuan strengthen for the first time in more than a year to keep inflation at bay following a flood of foreign capital and record lending. New loans in China almost tripled to $1.1 trillion this year, contributing to a 60% surge in property sales. A US$585 billion stimulus plan helped July’s retail sales rise 15.2% from 2008. Reserves swelled to US$2.1 trillion on June 30 after a record quarterly jump as overseas investments led China to sell yuan to hold it down. The Shanghai Composite Index, Asia’s second-best performer this year with a gain of 72%, is in “bubble territory”.
The predicted appreciation in Yuan pale alongside six-month rallies of 18% and 14% for the Indonesian rupiah and the Korean won.
All these bodes well for Asian currencies and fund inflows. Asian stocks rose after the U.S. Federal Reserve said the recession is easing and pledged to keep interest rates low.
U.S. Federal Reserve statement on Wednesday provided 3 points which boosts the market. Firstly, Fed pledged to keep interest rates low, boosting share prices on a short-term basis. Secondly, Fed said the U.S. economy is “leveling out”, meaning it is time now to wait for positive signs. Thirdly, the Fed will stop buying U.S. treasuries directly from the U.S. government by October. This is seen as a huge sense of confidence by the Fed and also made countries holding huge U.S. dollar reserve happy.
Short-term volatility will still be present. This week, Shanghai Composite Index fell, completing the worst week since February, on concern this year’s rally has overvalued the prospects for earnings growth.
As medium to long term investors, you should concentrate on the second and third point stated above. These 2 points points to a positive outlook over 3 years period, especially in Asia.