The opinions on China are plenty and often emotional, but very few people really understand China due to lack of proper economic data, spin and re-spin, and an organizational structure which is a best opaque.
Surprise drain of liquidity overnight
This morning PBoC surprised by doing a reverse REPO (taking liquidity from the market):
The real problem: Credit expansion is overheating
The strong credit in January clearly concern PBoC and more importantly there is a general rule of thumb which states that if a country expands its private credit by more than 30% over less than 10 years it leads to major banking crisis and recession: (Source: Felix Zulauf)
There is no doubt to me that China has decided that a small crisis now is far better than a major crisis in one or two years a choice no one ever would take a in world of elections.
Zulauf makes excellent case for how the world had major benefits from the chronic current account deficits in the US over the last multi decades, this meant there was room for emerging nations to create a strong export sector to close the gap opened up. Now the US is improving its current account mainly through access to domestic energy. The US is no longer the world customer.
The massive export revenue revalued the currencies, the overvaluation was then "fought against" through FX intervention, this intervention was boosted liquidity and created bubbles in housing and credit. Now the credit needs to reigned in - in Fragile Eight, and China....... we are merely playing a game of mean reversion but one which will cost world growth and deflation risk.
Finally,
To me what goes on in China is more important than what FOMC decides. China is 36% of world growth in 2012 – it's slowing down and their domestic agenda is full of issues which all need to find a new equilibrium price, by accepting a small dose of crisis the risk of course is a big crisis, but at least China is trying to deflate the credit cycle.
How to trade this view?
I find the best way to "understand" the Chinese market is to look at charts and here my models are screaming: RISK ALERT!
This model is good a picking "turning points" and relative value (in terms of mean-reversion) - It was the same model which signaled BUY DAX @ 9280 a week and a half ago...
This is A-shares so best way to play it on Saxo Trader is to short FXI ETF:
I will sell on the US open for this ETF (Click on FXI ETF link for full disclaimer and information)
FXI is in US Dollar terms an excellent tracker:
Safe travels,
Steen
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Investment Officer
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
Phone: +45 39 77 40 00 | Direct: +45 39 77 62 23 | Mobile: +45 51 54 50 00
Research: http://www.tradingfloor.com/traders/steen-jakobsen
Please visit our website at www.saxobank.com
This email may contain confidential and/or privileged information.
If you are not the intended recipient (or have received this email
by mistake), please notify the sender immediately and destroy this
email. Any unauthorised copying, disclosure or distribution of the
material in this email is strictly prohibited.
Email transmission security and error-free status cannot be guaranteed
as information could be intercepted, corrupted, destroyed, delayed,
incomplete, or contain viruses. The sender therefore does not accept
liability for any errors or omissions in the contents of this message
which may arise as a result of email transmission.
Ingen kommentarer:
Send en kommentar