Look! More attention!
So, what exactly do you see when you look at this?
(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.)
David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012.
In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.
He has spent time in France, learning French, and India, learning how to cross roads, and enjoys nothing less than writing about himself in the third person.
His hobbies include reaching things on top shelves, running long distances at slow speeds, growing beards and trying to live up to a rash claim he made as a twelve-year old that “he had read all of the books”.
If you wish to know more about David please do pick up the phone and call him for a chat in the first person. Be warned though: he tends to talk at pace and in an Irish accent.
Elsewhere on Monday,
- Mark Dow on why EM won’t crash — it is different this time.
- Secular stagnation: a monetary-financial problem or a fundamental-technological problem?
- Tracking inflation in Russia: The value of a bribe has been cut in half.
- PetroChina and nutty volatility in Chinese markets.
Pragmatic sentences about the Chinese slowdown are often in short supply, so…
In our view, the worst thing about China’s slowdown is not the risk of some kind of cataclysmic economic meltdown or financial crisis but that – in sector after sector – the investable ways to “play” China shrink to the local names on the right side.
Elsewhere on Friday,
- Destination unknown: Increasing the minimum wage and the lure of machines.
- The Economist plays “what if?”
- Bill Gross: I’m not what you would call a “prayerful” type of guy.
- Quants and black box trading: Why they all “blow-up”.
Speaking before the investigation [into Avic Heibao, a listed manufacturing subsidiary of Mr Lin's company Avic, by the securities regulator on suspicion of illegal and irregular share transactions] was revealed, Mr Lin cast his company’s actions as part of a heroic struggle against foreign aggression.
“This stock disaster was a premeditated plot, a well-prepared case of malicious short selling and part of a powerful, tumultuous economic war launched against China,” Mr Lin said in an interview with state media. “The war launched against [the Chinese stock market] is an attack on the five-starred red [Chinese national] flag.”
In an editorial he penned for a state-run nationalist newspaper, Mr Lin also blamed US plots for the problems in the Japanese economy in the early 1990s and for the 1997 Asian financial crisis.
… and more down to distortions in China’s own markets. Now, particularly, those distortions introduced by China’s powers-that-be while trying to put a floor under the slide and target a level of 4,500 for the index, using a raft of measures. Read more
Elsewhere on Thursday,
- Balding: “the Chinese stock market absolutely does not exist in a vacuum.”
- Yanis on those treason charges.
- The web we have to save.
- “One high roller requests a refrigerator full of bananas that he squeezes and throws as he gambles.”
Elsewhere on Wednesday,
- The sad case of Bondcube, and why markets like having middlemen to tell them what the price is.
- Goldman in Ventureland.
- Worryingly for them, the only Uber of anything is probably… Uber.
- Hussman: “this is one of the most important moments in a generation to examine all of your risk exposures”.
Chinese equity markets are nuts. And the search for a narrative to explain this week’s moves is becoming ever nuttier. As Deutsche said: “It ceased to be a free market a long time ago so analysing it is tough”. Read more
As I was handing over the reins of the finance ministry to my friend Euclid Tsakalotos on July 6, I presented a full account of the ministry’s projects, priorities and achievements during my five months in office. The new payments system outlined here was part of that presentation. No member of the press took any notice.
But when a subsequent telephone discussion with a large number of international investors, organised by my friend Norman Lamont and David Marsh of the official monetary and financial institutions forum, was leaked despite the Chatham House rule that we agreed with listeners, the press had a field day. Committed to unlimited openness and full transparency, I granted OMFIF permission to release the tapes.
While I understand the press’s excitement emanating from elements of that exchange, such as having to consider unorthodox means of gaining access to my own ministry’s systems, there is only one matter of significance from a public interest perspective.
Elsewhere on Tuesday,
- Yanis: his “demeanor had sometimes given his tenure the air of a five-month-long TED talk.”
- “Let women fall in love with managing wealth, let men borrow to invest in stocks,” says the recorded message at an online lending company in Shanghai. “For stock loans, press two.” Or, at least that was the idea.
Chinese equity markets have continued puking. Yes, they’re still up on a longer timeframe, but were off a sudden 8.5 per cent on Monday, the worst fall since 2007. The Shanghai Comp now looks like this:
As the FT said, the Shenzhen Composite sank 7 per cent, and the ChiNext start-up board dropped 7.4 per cent. Significantly, more than 1,700 stocks fell by the maximum daily amount of 10 per cent, while only 78 rose. Large caps like PetroChina, the country’s largest company by index weighting, lost 9.6 per cent. Xinhua has thus declared the “The return of debacle!”.
So a reminder of the constraints that China’s powers-that-be are labouring under seems more than appropriate. The point is that, as quoted below, “what just happened in the A-share market will likely have profound impact on China’s economy and financial system one way or another”. Read more
It was the worst fall since 2007 and the second worst fall since 2000, chart courtesy of the FT’s Peter Wells:
Or as China’s Xinhua is putting it — “The return of debacle!”: Read more
We hate to concentrate on the dives alone, but this is getting serious. We’re off 8 per cent at pixel and on track for the biggest one day fall since 2007 — there was an 8.23 per cent drop on April 6, 2007 according to Fast — click through for the live Google finance price:
The Shenzhen Comp is off 7 per cent, CSI300 is also off by the same amount and Asian equities are generally looking unwell. We’ll update this post as we go, particularly as this could rally into the close.
Elsewhere on Friday,
- Dan Davies’ (ambiguous) defence of the 2010 Greek bailout, part two.
- Interfluidity on how to to fix the euro… via funny money for all.
- Krugman on Obstfeld.
- Trump’s brazen genius – “If cutting a sweet deal is what Mr Trump was aiming to do all along, we might have to admit that he is more than the attention-seeking buffoon he appears to be.”
That’s Citi, protesting. We’ll leave it to you to decide if it’s too much:
Sentiment indexes are in despair and investors want to get more bearish still — It is rather strange that an asset class which is already in despair according to our sentiment indicators, and where valuations range from 1 stdev-below-mean to mean in terms of P/BV, and yet fails to generate much investor interest. On the contrary, as sentiment has worsened and valuations have fallen, investors have become more dismissive of the asset class. This is no truer than when it comes to the China. A market, which is either in a bubble or collapsing, and sometimes doing both the same day according to the bears….
The Chinese market corrects and the bears come out of hibernation all at once. Having been temporarily silenced by the rising market, all one needs to do is open a reputable newspaper or look at Bloomberg and you’ll get your fill of China doom and gloom. And while the momentum is down, why not extend the pessimism to all EM, which after all is just one big China trade anyhow? China and the EM asset class is doomed and for all the pulp and paper in the world there aren’t sufficient hankies in the world to mop up this mess, it would seem.
As above, we got a 7 per cent print for Q2 GDP growth in China last week. Here’s the breakdown from CreditSights — do note the weakness generally vs the contribution from the financial sector. As CreditSights say “The finance sector’s contribution grew by over 20% in 1H15 this is no thanks to the banks and more likely due to profit growth at securities firms and possibly asset management companies. In contrast, the industrial sector, which contributes over a third to GDP, is growing at under 2% YoY.”
Of course, it’s real (ish) activity but it most probably isn’t going to be repeated at that level and without it GDP would have been down closer to 6 per cent, according to UBS.
Which is all interesting stuff, but it’s not why we’re here. Read more
Yeah, almost, if you’re feeling contrarian, according to BofAML Hartnett et al’s rules:
Elsewhere on Wednesday,
- Part one of Dan Davies’ defence of Greece’s 2010 bailout.
- Greece, Germany and… the global surplus bogeyman recycling mechanism.
- The euro: more about politics and international security than economics.
- The internet: “we’re running into physical and economic barriers that aren’t worth crossing” and why we all need to pick a side.
Classic bullish/ bearish signal with obvious buy/ sell implications.
As Bernstein say:
The rebound over the last week means we have entered a period where everyone was right. China bulls can argue that the Shanghai Composite is still up 94% over the last twelve months. China bears can argue that the Chinese regulators have effectively taken the market out of consideration by virtue of the ham-fisted approach to reversing the sell-off. However, “I told you so” doesn’t constitute an investment recommendation.
Elsewhere on Tuesday,
- Tsipras: The man who cost Greece billions.
- Dan Davies: But really, what would the German export sector look like outside of the euro?
- So… volatile commodity prices aren’t a very good guide to policy?
- Price stickiness is not a mystery, and it is not psychology.
- “Beijing is enacting a Simpsonian financial policy to contain the stock market fall.” Read more
According to our estimated EM capital flow shown in Figure 3, EM economies saw in Q2 the weakest capital flow since the Lehman crisis, driven by China.
That’s from JP Morgan’s Flows & Liquidity team. As is this on China potentially wiping out all of its previous capital inflows back to 2011 (again, with our emphasis): Read more
Elsewhere on Monday,
- Pettis: Interpreting information in China’s stock markets.
- Stowaways and crimes aboard a scofflaw ship.
- Gavyn Davies: Are we entering another of those exceptional periods during which the Fed surprises the markets by tightening more than expected?
- Alice in Schäuble-Land: Where rules mean what Wolfgang says they mean.
The broad narrative of a coming capital account liberalisation in China has always bugged us. The main reason being that we couldn’t see how China, in its current state, was going to start letting money flow (easily) out as well as in.
But before we get into that we should note, somewhat counterintuitively, that China’s capital account is already fairly liberalised. Read more