Chillin' out till it needs to be funded
China’s FTSE Indices show a large up trend three years back till end 2007 across the A50 or the All Shares or the Blue Chip 100 Index and even sectoral indices like the FTSE Xinhua Insurance Index. Then equally similar is the big down facing slide ball curve since end 2007 which precluded the global crisis and right after the potential lockdown at Lehman and AIG the indices started moving up together
The blue chips have significantly underperformed the A50 or the other indices that have significantly downplayed the volatility of the All Share index a direct function of the shallow depth of the pool in China. Even at 2 times (Blue Chip 100 index FCHI) or 3 times ( FTSE XINHUA All Shares Index) its 2005 values the so called chugging economy in China has maintained depressed Stock market values maintaining a continuing quest and nearing their bottom everyday even as GDP recoveries outshine other national currencies, economies and cloud recoveries in metals and minerals globally. With Chinese defaults exacerbating the collapse in Commodities like Copper and Oil, Gold has been the only safe haven with China selling US Treasuries across its CNY 7 T or $1 T in Sovereign investments and also buying US lifestyle brand equities in Apple, Coke and Visa while waiting for the tide to turn in global currency markets and pending its decision to let Yuan appreciate to a new corrected orbit.
We have been intrigued students of human nature and Oriental values noting for the six months how credit was almost exclusively the preserve of Chinese real estate industry and each clampdown in regulation with higher down payments, estoppel on second mortgages and denial of options for third mortgages bringing ever so slight changes in the real estate statistics (assuming they are available and digging for them would be the most horrendous Google stats of 2009 / 2010) Most Foreign banks have changed their partnership strategies in China going with municipal authorities and setting up CRE funds that salute the clinical efficiency of the Chinese in land acquisition and execution of such RE projects However, it is amply clear that even as everyone fears the worst and fully built up cities are lying vacant in china after registering the relevant GDP uptick, China is not ready to bow out in the middle of its recovery while others in Europe have much more significant debt problems.
Meanwhile Capital scarcity at the chinese banks has not stopped them from maintaining quick disbursal rates and credit values albeit forcing them to look for capital in $100s of billions, $30 billion going to ABC alone and another $10-12 for the smaller China Construction Bank There is a lurking suspicion around equity markets that any one of these large IPOs could cause market confidence to plunge once again. Or it could be a real estate pricing collapse itself
Most economists haven’t had clear direction in stating that China is heading one way or the other. The asymmetric shallow markets still controlled by a single minded public investor are unlikely to get to a violent stage without managed intervention from the People’s Council and the CBRC. And there is so much development within China and expansion of global trade once deficits are a welcome part of the people’s economy that to us from afar it looks unlikely. It does look in fact as if it is time that public policy might change to a more recognizable global prescription of growth as more private enterprises come out of the closet to support the dull and monolithic ‘blue chips’ On the real estate front a price correction would however be welcome. As of now nothing more is on the anvil and more global trade is being denominated in Chinese Yuan (with Brazil) while the Beijing Olympics and the fiscal stimulus provided the capital Beijing and at least Southern China with surface and rail infrastucture. Inflation and continuing RE growth have to be managed at a much more stricter level