A suggestion for the ever earlier starting 2016 bet mix… this trend just keeping going:
© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
(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.
A suggestion for the ever earlier starting 2016 bet mix… this trend just keeping going:
“Hold on, did we mean to create all of these quasi central banks?”
“Errr, I suppose? We certainly decided to lay out that moral hazard blanket, remember? And we must have kn…”
“Yeah. Yeah. You’re right. We planned this. Must have done”
- China’s policy makers, probably never.
And from Michael Pettis’s latest note, with our emphasis:
Almost all credit was being treated, it seemed, as if it were sovereign credit. This mattered for a lot of obvious reasons, but Rodney Jones, who runs Wigram Capital and helped organize the seminars, made what I thought was a very interesting point. At the extreme, he pointed out, much of the short-term paper issued in China was, in the eyes of investors, a lot like PBoC bills. They were liquid, short-term money substitutes with little to no credit risk. Did it make sense, he wondered, to think of China as an economy with potentially thousands of mini-central banks, all issuing nearmoney instruments, and if so, how might we model the monetary and economic impact?
So maybe China doesn’t need to hire a battery of statisticians to ironically count its unemployed?
You know, as a ward against a sudden spike sneaking up on the Chinese government, a government that prizes stability and its own continued rule above much else?
We’d suggested previously that China’s powers-that-be might have just as useless an insight into the true nature of China’s employment as the rest of us. Or at least, that was the fear. It wasn’t that anybody thought there was an immediate problem in the Chinese labour market — it was the not knowing, and the potential for a surprise, that got people ruffled.
That and China’s preternaturally still unemployment rate, of course, which (say those who just want to lash out at the world) has the dubious distinction of being considered the least informative among all key Chinese stats. Read more
Compare, contrast and then draw your own conclusions about India’s newly born Gold Deposit scheme, its plan to lure gold out of temples, vaults and jewellery boxes with the promise of (hopefully but not apparently yet) lovely enough interest rates.
First… from Reuters last last week on its rather stuttering start:
A gold deposit scheme launched amid fanfare by Indian Prime Minister Narendra Modi two weeks ago has so far attracted only 400 grammes, an industry official said on Thursday, out of a national hoard estimated at 20,000 tonnes…
The year that was, in bullet points, from Michael Hartnett and team at BofAML:
1. 2015 ends with the market cap of Amazon & Google exceeding that of every single Chinese company in the MSCI China index…
2. …the US stock market a mere 107 trading days away from becoming the 2nd longest bull market of all-time, with equity leadership driven by “growth” (longest duration of outperformance ever) & “quality” (at all-time relative high)…
3. …and $6trn of negatively-yielding government bonds, $17trn of bonds yielding <1%, and the Fed expected to raise the Fed funds rates for the 1st time since 2006.
Which came first the commodity fall or the local currency collapse? And, more importantly, how far through the commodity supply/ demand adjustment are we?
The suggestion here from SocGen’s Kit Juckes and friends is that the causality runs from commods to currencies and that there is still a lot of pain to come:
My colleague Michael Haigh has done a lot of work on the overall state of supply and demand in commodity markets, and he makes one very striking observation: For all the fall in the prices of many industrial and agricultural commodity prices in USD terms, the prices in the currency of the biggest producers have not necessarily fallen much. Sugar prices have fallen by over 8% this year in USD terms, but the Brazilian real has fallen by 29%. Copper prices have collapsed, down over 20%, but the Chilean peso is down 15% and trying hard to keep up. Gold is down 9%, but the South African rand has fallen by twice as much and in rand terms, the gold price is near its highs. The fall in iron ore prices (over 30%) is twice the fall by the Australian dollar, but you get the picture (Charts 1 and 2).
The scene, as we went to pixel, outside the Reserve Bank of India in Mumbai — from where Rajan stares across the city — on the day 17,000 of its staff decided to up sticks in protest about interference from India’s government in its workings and, one suspects more pressingly, pensions:
Observe the… absolutely nothing unusual happening. Read more
You’ll certainly be… something.
According to BofAML’s monthly asking questions of global fund managers extravaganza anyway. Its conclusion is the new “pain trade” is “short dollar”:
Stabilise the A-shares? Benefit the people?
We dunno but we DO have another estimate of how much RMB the Chinese government spent propping up its stock market in Q3 AND the good news is the CCP is back in the black. Or the red, depending on where you are. Either way: up on its investment (from the most limited of perspectives).
From BoFAML’s David Cui, with our emphasis.
Largely based on top-10 shareholder information disclosed by A-share companies, we estimate that the government likely spent at least Rmb1.5tr in Q3 to support the market (Table 1). Given the potential damage to the PBoC’s and RMB’s reputation, economic growth and long-term financial system stability, we think it unlikely that the government has the resolve to keep buying if heavy selling pressure in the A-share market resumes at certain point.
We should know by now that trying to anticipate results on margin flows is truly a mug’s game. However, we’re still playing.
Credit Suisse on Monday running with a very similar theme, even if they don’t quite say so explicitly:
The resumption of IPOs [which were suspended in July amidst a crashing market] has come a bit earlier than market’s expectations, and has got some investors worried about the market being caught in a cross-correction as the stock supply would increase. However, we believe the upcoming IPOs will be positive for a market rebound because it will introduce more funds from individual investors to the market. These individual investors believe the upcoming IPOs will bring them ‘risk-free’ returns as usual—they will move their money from the money market and WMPs (wealth management products) to the equity market to chase better opportunities.
Err… Read more
Observe their glorious return.
Of course, margin debt in China is still massively off the peaks we saw earlier in the year when it was at world beating nutty highs, particularly vs free float, which came crashing predictably down to earth. But this latest tick back up is all the more notable considering that crash, no? Here’s the five-year view of the Shanghai Comp as a reminder. Read more
We’ve been harping on about the risk of a bubble building in China’s corporate bond market for a while now. The point being that the waves of cash which slosh around inside China’s borders looking for an investment to call home have flowed/ crashed into the corp bond market with increasing speed over the past few months — helped, rather obviously, by easing measures being taken to arrest China’s slowdown.
That corp debt ramp-up might start to slow now that the stock market, and margin debt, is staging a comeback but the question of whether a bubble might be about to pop still remains.
The short answer appears to be “no” if you assume that defaults are still a no-no in China. Read more
While reading up on Indian FDI we stumbled across this little fact from Capital Econ’s Shilan Shah as he attempted to downplay seemingly impressive India-Africa FDI stats…
With our emphasis
Prime Minister Modi stated that “India has emerged as a major investor from the developing world in Africa… surpassing even China”. In a strict sense this is true. According to UNCTAD, India’s total stock of FDI in Africa stood at US$50bn in 2014, compared to China’s stock of US$26bn.
But digging a little deeper, this claim quickly unravels. Nearly 95% of Indian FDI to Africa flows into just one economy – Mauritius. Admittedly, Mauritius does have a significant Indian diaspora and once had a large textiles industry. But in reality, the nature of the FDI inflows has more to do with the favourable tax terms that investors receive through the two countries’ Double Taxation Avoidance Agreement.
Elsewhere on Friday,
- Manju Das, the woman who was sacrificed to nab Raj Rajaratnam.
- Dimon: “No government will ever support a virtual currency that goes around borders and doesn’t have the same controls. It’s not going to happen.”
- How stressed are major Chinese banks?
- Amazon Books… What is the opposite of disruption?
Compare and contrast time. Which is an apt way to start a post about lax copyright laws in China.
First from the FT’s Charles Clover today:
China has placed innovation firmly at the centre of its new five-year plan, with President Xi Jinping putting the country on course to catch up with the west in everything from aircraft engines to “quantum teleportation”…
But for many the Star Trek-like ambitions go boldly — nowhere. China’s innovation bulls believe the country is already on the path, spending huge amounts on R&D and leapfrogging technologies in telecoms and tech with agility. Detractors meantime demur that innovation simply means copying…
Elsewhere on Thursday,
- I’m not spoofing you about judicial overkill.
- Inside and Outside money at the end of the yield curve.
- China and the reality of control.
- Speaking of Hive Minds.
Or, a catch-up on China’s debt-deflation risk with UBS’s Wang Tao, with our emphasis:
The risk of the debt-deflation trap. Elevated leverage levels, falling prices, weaker real activity and heightened real interest rates all mean that China’s debt servicing burden is rising sharply (Figure 12). As sales revenue and cash flows shrink alongside declining prices, the corporate sector (and local governments) will increasingly lack sufficient cash flow to service their debt. As a result, they will have to increase their reliance on new credit to pay the interest on their existing debt and finance ongoing operations. This means that leverage will continue to rise even as corporate demand for investment and credit stays weak, aggravating China’s already high debt burden (Figure 13). The resulting debt overhang will further weigh on the real economy as enterprises slim down investment and production plans in an attempt to cope with financial pressures, creating a negative feedback loop. In this scenario, banks’ asset quality will continue to deteriorate, pushing up the system NPL ratio (currently at 1.5%). As a result, more credit risk events, e.g., postponing or defaulting on debt repayment, are likely to emerge in the next few years.
Sometimes you just have to print out the 300 odd page report* on robotic revolution that lands in your inbox.
Still though, we’re in good company… Read more
Zambia’s President Edgar Lungu prayed to God to “heal” his country’s ailing currency on Sunday [the 17th of October], with bars shut and football matches cancelled on a national day of prayer to end a record slump.
Lungu ordered the prayer session last month after the kwacha fell 45 percent against the dollar since the start of the year due to a sharp drop in the price of copper, the country’s main export.
What a difference a year makes, charted by JPM’s Niko Panigirtzoglou and team (with our emphasis):
Elsewhere on Monday,
- What if China is growing at 10 per cent?
- Cowen: When you say “natural rate of interest”, what exactly do you mean? Now with more DeLong response. And then with Krugman who “will say that this kind of gratuitous complexification is somewhat characteristic.”
- “There are traders who are smart, though not many…”
- Halloween is when the Falcones shine.
- “Ackman himself has more or less stepped in to be Valeant’s investor relations department.”
This isn’t an estimate about Chinese NPL levels. We and others have gone through that before a few times and, so far, the best guess is basically that they are much higher than the official figures would have you believe.*
And as Pettis notes in his most recent report, “There simply is no way of knowing the extent of unreported losses because there are too many moving parts, not the least of which is the potential viciousness of what George Soros referred to as “reflexivity””. The big point of that being that Chinese entities are most probably not nearly as wealthy as they think they are, a fact they will (also very probably) have to reckon with soon — as failed hopes for future productivity growth run up against NPL-stunted realities.
Or to put it another way, rising bad debt today reduces growth in future economic activity. And, er, slower growth in the future increases bad debt today which is both awkward and probably why estimates of bad debt always seem to rise very sharply over time.
So, this is not about levels. It’s more about doing what Pettis does best — looking at balance sheet structures, incentives in the system and historical examples to give some sort of guide to where China’s banking system and its NPLs are headed. Read more
This much, apparently:
That move, per Citi, shows the yuan’s biggest move up against the US dollar “since 2005 in onshore trading.” Read more
Elsewhere on Friday,
- Enron revisited: Highlights from Bear Stearns research.
- Apparently Donald Trump is America’s greatest stock investor.
- On the trail of China’s real NPL level.