Sunday, October 4, 2015

2015-09 Relative Equity Performance

In September, the Chinese consumer goods sector, represented by CHIQ, fell -11.95% over the trailing twelve months.  The materials sector, represented by CHIM, fell -18.95%.  This is the first time in 15 months that this indicator is pointing to a recession.  This would now put this indicator in line with the signals seen from the Consumer Price Index and Purchaser Price Index.  That indicator has been implying a recession has been occurring for close to four years now.

The South China Morning Post reported on the decline in mining and energy stocks at the end of the month:
In Hong Kong, resources stocks were among the biggest decliners. Kazakh copper miner Kazakhmys sank 37.1 per cent to HK$8.80, after copper prices declined further on Monday on Comex in New York. Jiangxi Copper, China's top copper producer, also skidded 4.7 per cent to HK$9.23.

Gold miners pulled back substantially after gold futures posted their largest daily loss in nearly three weeks on Monday on Comex in New York. Lingbao Gold dropped 7.8 per cent to HK$1.30, Zijin Mining Group gave up 4.5 per cent to HK$1.93, and Zhaojin Mining erased 2.6 per cent to HK$4.05.

Mining stocks were "at the heart of" the stock selling, with traders "absolutely concerned about follow-through selling in the commodity complex overnight", said Chris Weston, an analyst for IG Group, on Monday.

In the energy sector, offshore oil producer Cnooc slid 7.7 per cent to HK$7.44 after international crude futures settled sharply lower on Monday. Refining giant China Petroleum & Chemical Corp also sank 7.3 per cent to HK$4.48, and oil and gas producer PetroChina lost 6.5 per cent to HK$5.19.

Sunday, September 27, 2015

2015-08 Interest Rate Trends

In August, both the short-term, interbank rate and private lending rate increased, despite looser monetary policy throughout the summer.

The Shanghai Interbank Offer Rate (Shibor) ended August at 1.80%, which was a 33 basis point increase from July. However, that is still 45 basis points lower than the trailing average for August. That gap has been declining from 156 basis points in June, to 108 basis points in July, and now 45 basis points in August. Despite central bank intervention, the cost of borrowing is increasing for the state-owned banks.

The Wenzhou Comprehensive Index shot up to 19.21% at the end of August, up 113 basis points from July. That rate is still lower than the trailing average for August, which stood at 19.79%. August’s number told us two things. First, the collapse in real estate and equity prices may not have explained the fall in July’s interest rate. Second, even though the Wenzhou Comprehensive Index is declining, volatility is increasing.

Sunday, September 20, 2015

2015-08 Relative Price Trends

Consumer prices in China increased 2.0% in August from a year earlier. Purchaser prices declined -6.6% over the same period. The divergent trends in China’s structure of production that began at the beginning of 2015 accelerated in August. Two additional surprises came out of August’s numbers. First, although the Consumer Price Index is at the highest point it has been at in a year, because of the devaluation against the U.S. dollar in August, consumer prices have dropped for overseas Chinese. Additionally, although the devaluation should have hit producer prices harder than consumer prices, the drop in producer prices was the largest since the Global Financial Crisis. The devaluation itself spooked commodity markets into lower territory.

Sunday, September 13, 2015

2015-08 Stock Market Valuation

In August, the gold price of the Shenzhen Composite fell for a third straight month. Despite tumbling from 0.38 gold ounces at the end of May to 0.25 gold ounces in August, the gold price of the index is still up 62.4% over a 12 month period. August was especially brutal for international investors in Chinese equities. The valuation of the stock market fell, the renminbi depreciated against the dollar, and the dollar price of gold went up. Any central bank activity to halt the first trend will only accelerate the latter two trends.

Sunday, September 6, 2015

2015-08 Relative Equity Performance

In August, CHIQ, an exchange traded fund that follows the consumer goods industry in China, fell -20.19% over the last twelve months. It was the largest drop seen since August, 2012. The materials sector equivalent, CHIM, also fell -15.42% over the same period. It was the largest drop seen since March, 2014.

Monday, August 24, 2015

Public Comments for Future Review, 2015-08-24

"It's totally premature to speak of a crisis in China," [Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board] told a press conference. 
He reiterated an IMF forecast for a 6.8 percent expansion in the Chinese economy this year, below the 7.4 percent growth achieved in 2014.[1]

Sunday, August 23, 2015

2015-07 Interest Rate Trends

In July, the state-sector and private-sector interest rates showed divergent trends, for the benefit of the private sector.

The Shanghai Interbank Offer Rate (Shibor) ended July at 1.47%, which was a 43 basis point increase from May.  However, that is still 108 basis points lower than the trailing average for July.  The cost of financing for state-owned banks is increasing, despite the amount of new money that is being created by the central bank.

By comparison, the Wenzhou Private Finance Index ended July at 18.08%, the lowest rate in the series.  It may be that as private lending is liberalized more financial capital is being allocated to the private sector.  Or, it may be that financial repression by the central bank and the collapse in equities and real estate prices has led an unsustainable amount of funds seeking yield into riskier assets.  Probably both.