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

    Asian Stocks Fall to Two-Week Low as China Services Gauge Drops

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


    China's purchasing managers index for the non-manufacturing sector fell to 54.6 in December, the lowest since August and down from 56 a month earlier, data released today by the National Bureau of Statistics and the China Federation of Logistics and Purchasing showed. A figure above 50 indicates expansion.
    "Money managers took profits off the table,"Chris Weston, chief market strategist at IG Ltd. in Melbourne, said by e-mail. "There will be weakness in global cyclicals today in Asia. It's hard to really pinpoint any bright spots."

    The China data added to signs of a slowdown in the world's second-largest economy. An official gauge for factory output released Jan. 1 fell more than economists projected to a four-month low. A separate report published yesterday by HSBC Holdings Plc and Markit Economics showed its PMI of Chinese manufacturing slipped to 50.5 from 50.8 in November, matching the median estimate in a Bloomberg survey of economists.

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    Xi Says in New Year Address China Will Make Progress on Reform

    Here is the opining of this informative report from Bloomberg:

    Xi Jinping, delivering his first New Year’s address as China’s president, said the country must press ahead with reforms in 2014 to improve livelihoods and make the country “rich and strong.”

    “I firmly believe that new glories will be awaiting the Chinese people,” Xi said in a speech broadcast on state radio yesterday.

    China enters 2014 facing slowing economic growth, rising environmental concerns and higher tensions with Japan over a territorial dispute that has damaged a $366 billion trade relationship. Tackling those challenges will be up to Xi, who as head of the Communist Party, military and state has amassed the greatest individual sway over his nation since former paramount leader Deng Xiaoping.

    “In 2014 we will make new strides along the path of reform,” Xi said.

    A key task will be overseeing the broadest economic reforms since the 1990s which were spelled out at the Communist Party Central Committee’s Third Plenum in November. Shifts include loosening the one-child policy, increasing property rights for farmers and encouraging private investment in more industries.

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    PBOC Adds Funds Amid Worst Cash Crunch Since June: China Credit

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

    "Tightening financial conditions pose a risk to growth at a time when the economy is already weaker," Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Singapore, wrote in a note yesterday. "The market is well aware of potential stresses in the Chinese financial sector and, if there are weak points, tightening financial conditions are more likely to weed these out."

    China's non-financial companies have a record 2.6 trillion yuan of interest and principal repayments to make next year, and the official China Securities Journal said in a Nov. 26 editorial that higher interest costs may cause a "partial debt crisis to explode."

     

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    It is safe go to back in the water

    Thanks to a subscriber for this educative report by Christeen So for CCB International which may be of interest to subscribers. Here is a section:

    Policy tailwinds. We expect China waste and water names to continue to outperform backed by favorable government policies towards environmental protection. We see China’s waste-to-energy (WTE) market continuing to expand in line with the government objective to lift the WTE-to-total treatment ratio from 20% in 2010 to 35% in 2015F. China’s wastewater treatment (WWT) market is likely to experience a gradual slowdown in new capacity additions as the WWT ratio continues to rise over the medium term; however, tariff hikes should mitigate the effect on earnings.

    “Market has yet to factor in potential growth from new markets such as hazardous waste treatment (HWT) and water renovation projects. We believe HWT will become a new important income stream for China’s waste operators given increasing demand for third-party waste treatment and the higher returns it brings (levered IRR: 15-20%) compared with WTE (levered IRR: 10-15%). As China is still behind in its water renovation plans, we expect more investment in this area in the medium term; good news for WWT operators.

    “Volume growth from new project wins, collection points growth, and M&A opportunities. We expect waste/waste water volume growth from project wins in both existing and new geographical areas, a rising number of waste/waste water collection points, and large-scale M&A. Watch for established SOE players with strong political connections, experienced management teams, solid“

    Catalysts and risks. Near-term catalysts include (1) more lucrative waste/water project wins, (2) faster-than-expected penetration into new business segments, (3) additional supportive policies, and (4) large-scale value-accretive M&A. Downside risks to our view include (1) slower-than-expected new capacity expansion, (2) on-grid tariff, waste tipping fee, and water tariff cuts, and (3) rising interest rates.
     

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    Email of the day (1) - On investing in China

    "I was very interested in your views as to China being quite cheap - or at least compared with some well known indices!

    "I would be interested in your views of how to enter this market. Many funds and collectives seem to have high annual and initial costs, frequently above 2 or 3 % pa.

    "I have been a subscriber for 10 years next month- you and Eoin have become distant but fond (and doubtlessly well off) relatives!"

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    Biden to Press China on Air Zone as Hagel Reassures Japan

    Here is the latest on this political tension, reported by Bloomberg:

    Vice President Joe Biden will press Chinese leaders on their intentions in creating a new air-defense zone, as Defense Secretary Chuck Hagel assured Japan of U.S. support and continued military operations in the region.

    Biden will use meetings with leaders in Beijing next week partly to express U.S. concern aboutChina's behavior toward its neighbors and seek an explanation of the air zone it claimed over disputed areas of the East China Sea, according to an administration official who briefed reporters today on condition of anonymity to discuss the vice president's plans.

    China's establishment of an air zone that includes islands claimed by both Japan and China "is a potentially destabilizing unilateral action designed to change the status quo in the region, and raises the risk of misunderstanding and miscalculation," Hagel said in a call today to Japanese Defense Minister Itsunori Onodera, according to an e-mailed statement by Pentagon spokesman Carl Woog.

    The U.S. sent two unarmed B-52 bombers through the disputed zone this week without the advance notice that China has demanded and without incident. South Korea's military sent a plane through the area yesterday on a regular patrol flight, according to NHK, Japan's public broadcasting organization, which cited military sources it didn't name.

    ANA Holdings Inc. (9202) and Japan Airlines Co., Japan's largest carriers, ran flights that landed today through the zone without advance notice, the companies said. Peach Aviation Ltd., a low-fare affiliate of ANA, also flew through the area without coordinating with the Chinese.

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