David Fuller and Eoin Treacy's Comment of the Day
Category - China

    Kyle Bass Speaks with CNBC's David Faber

    This article from CNBC may be of interest to subscribers. Here is a section:

    BASS: You know, the Chinese are in the worst financial situation they’ve been in, in the last 17 years because they operated domestic economy where they control the printing press, they control the press narrative, they control the price level and they control their people as we’ve seen them detain over a million of them in Jingjang for their religious preference. So they can change a lot of things domestically, but their -- the arbiter of the Chinese plan is their cross rate or their exchange rate with the rest of the world. China Inc.’s working capital account is now going South because they’re running what we believe to be a structural and more permanent deficit on the current account. And so, i.e., their working capital, their dollar balance whether it’s dollars, euros, yen or pounds, it’s mostly dollars. And their dollar balances is headed south. And so, the U.S. is in a very particularly interesting negotiating position today. We are in the strongest negotiating position we’ve ever had against China. They’ve kind of leveled the playing field a little bit more with their, let’s say, subversion of WTO rules, their intellectual property theft and basically everything they’ve done to take advantage of the U.S. over the past 15, 17 years.

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    Asian Stocks Bulls Have 4 Percent China Market Rally to Thank

    This article by Nguyen Kieu Giang for Bloomberg may be of interest to subscribers. Here is a section:

    Quite a bit happened in the 67 hours since the market closed Friday and reopened in China to help support stocks:

    CSRC spokesman Chang Depeng said China supports overseas-listed companies to participate in M&A of A-share listed companies.

    President Xi Jinping vowed “unwavering” support for non-state firms, while the country’s stock exchanges committed to help manage share-pledge risks.

    China also released its widely expected plan to cut personal income taxes after data showed the nation’s economy grew at the slowest pace since 2009.

    PBOC adviser Ma Jun expects policy measures will support the market, and the nation’s central bank strengthened the yuan fixing by most since Sept. 21.
     
    There was also a bullish Goldman report that sent securities firms in both Hong Kong and the mainland surging.

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    China's New Strategy for Curbing World's Worst Stock Slide

    This article from Bloomberg news may be of interest to subscribers. Here is a section:

    Economic policy makers including Vice Premier Liu He, who also weighed in on Friday, are now left walking a tightrope. To fortify the nation’s negotiating position on trade with the Trump administration, they need to stem the $3 trillion stock rout and support growth at home -- all without giving up on their goal of containing soaring debt levels.

    "China is under pressure on multiple fronts," said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. "Logically, all this pushes China to make a deal, yet I don’t think there is a deal to be had."

    While the Shanghai Composite opened lower on Friday morning after the officials’ statements, it rallied in the afternoon and closed with a 2.6 percent gain. Some investors speculated that China’s “National Team” of state-backed funds stepped in to add some oomph to policy makers’ verbal intervention.

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    China May Have $5.8 Trillion Hidden Debt With 'Titanic' Risk

    This article by Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

    The focus on funding to sustain growth at the local level echoes a broader shift in the central government, which last year was focused on reducing leverage in the financial system. That phase is essentially over, thanks in part to an escalating trade war with the U.S., according to Citigroup Inc. analysts.

    “The markets are right, in our view, to feel more concerned about the sustainability of China’s debt and the increased financial risks,” said Liu Li-Gang, chief China economist at Citigroup in Hong Kong. He also saw “renewed pressure” on the yuan.

    Even with the central government’s shift toward stimulus, however, S&P sees Beijing determined to “bring discipline to the financing practices of local governments and their LGFVs.” That ultimately may mean local authorities aren’t fully able to keep LGFVs afloat, however, and the bottom line is “the default risk of LGFVs is increasing.”

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    Trump Opens New Front in His Battle With China: International Shipping

    This article by Glenn Thrush for the New York Times represents a further deterioration in the US/China international relationship. Here is a section:

    The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

    The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

    While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

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    Tumbling Car and House Sales Pose Fresh Challenge to Chinese Markets

    This article by Joanne Chiu for the Wall Street Journal may be of interest to subscribers. Here is a section:

    China Galaxy International analyst Tony Li said the U.S.-China trade dispute and a stock-market selloff were weighing on consumer sentiment. “Consumers have turned more cautious and are less willing to spend much on luxury items,” he said.

    The holiday slowdown was bigger than expected, and investors should closely watch for any further weakening this year, he added.

    Meanwhile, Goldman Sachs said escalating trade tensions, slowing growth and policy uncertainty have weighed on Chinese stocks. In a pessimistic case, if annual growth slows to 6% and the yuan falls a further 5% against the dollar, shares could decline 10% more, the bank said.

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    China Shares Sink Most Since 2016 as 1,000 Stocks Fall by Limit

    This article by Kana Nishizawa for Bloomberg may be of interest to subscribers. Here is a section:

    Hong Kong didn’t fare much better, with the Hang Seng Index dropping 3.5 percent, the biggest in eight months. Tencent Holdings Ltd., the most valuable stock listed in Asia, slid 6.8 percent to extend a record losing streak to a 10th day.

    Chinese shares have been the ground zero for the trade war with the U.S. The Shanghai Composite has lost 24 percent in the past 12 months, one of the worst performers among 94 global gauges tracked by Bloomberg, with the majority of the decline happening this year. A slowing economy and weakening currency is only adding to the gloom.

    "Panic? The general mood among fund managers is more like ‘playing dead,’" said He Qi, portfolio manager at Huatai Pinebridge Fund Management.

    Telecom and technology shares led declines on the mainland, with ZTE Corp. and 360 Security Technology Inc. tumbling more than 9 percent. Tech shares also dropped the most in Hong Kong, following the sector’s rout in New York.

    Volume on the Hang Seng Index and China’s large-cap CSI 300 Index was about 70 percent more than their 30-day intraday average, according to data compiled by Bloomberg. Foreign investors dumped 3.6 billion yuan ($520 million) onshore shares through Hong Kong-China stock links. "It’s been a rough day," said William Wong, head of institutional sales trading at Shenwan Hongyuan Securities HK Ltd.  

    Institutional investors have been reducing their portfolio, while we see hedge funds shorting in Hong Kong." A crackdown at Chinese borders on undeclared goods also hurt luxury goods companies, with Prada SpA tumbling 10 percent, the most since September 2017. Jiangxi Ganfeng Lithium Co. dropped as much as 33 percent on its trading debut.

    "Negative sentiment is outweighing any positive catalysts, and investors would take any rebound as a chance to sell," said Louis Tse, Hong Kong-based managing director at VC Asset Management Ltd., adding that Shanghai shares may fall further after breaking the key support level. "If we’re talking about seeing an end of the tunnel -- I don’t think so."

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    The Markets Are a Jungle. Good Thing Felix Zulauf is Your Guide

    Thanks to a subscriber for this interview of Felix Zulauf which appeared in Barron’s. Here is a section:

    Email of the day on China's domestic semiconductor industry

    Picking up on today’s big picture commentary, as well several recent comments about China’s mission to create a semiconductor sector, I attempted to identify the largest Chinese based semiconductor manufacturers and assess whether they might benefit from such an initiative. I noted that SMIC (Semiconductor Manufacturing International Corporation) based in Shanghai is listed in HK ((981:HK) and the US (SMI:US).   Do you feel that Chinese semiconductor manufacturers, such as SMIC, might stand to benefit from further state investment in the local sector to enable more independent control over their supply chain of semiconductors? The SMIC Chart at this stage would certainly not support this hypothesis as it has underperformed the SOX Index, but seems to be quite oversold.  Your insight into this topical issue would be much appreciated.

    By the way, for whatever reason, code 981:HK is shown in the Chart Library as China Green Holdings Limited (actual stock code 904:HK) and not SMIC! 

    Thank you for the excellent service - I look forward to starting virtually every day here in Sydney with your valuable and insightful video commentaries. 

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