China, the devaluation possibility

China, the devaluation possibility

Izabella Kaminska

| Jun 28 13:31 | 7 comments | Share

A couple of points from Deutsche Bank’s GEM Equity strategy team on Friday to file under the “it’s China, not the Fed, that’s driving everything at the moment” meme:

…‘we believe that the improvement in the Chinese economic and corporate data, which has become evident since the end of August, is not sustainable’ and that ‘the Chinese growth story is starting to unravel’. As regular readers will know, our negative structural view derives from an examination of the relationship between the corporate sector and the state, especially at a local level, which we have documented in two longer research reports (China’s corporate sector; a messy transition’, 15 May 2012, and ‘China; no quick fix for the Beijing model’, 30 August 2012). Read more of this post

Beijing Residents Told to Stay In as Smog Exceeds Exposure Limit

Beijing Residents Told to Stay In as Smog Exceeds Exposure Limit

Beijing told its 20 million residents to avoid outdoor activities as a U.S. Embassy pollution monitor showed levels of smog surpassing hazardous levels in the Chinese capital.

Concentrations of PM2.5, fine air particulates that pose the greatest health risk, rose to 520 micrograms per cubic meter at 3 p.m. near Tiananmen Square from an average of 260 in the past 24 hours, according to the Beijing Municipal Environmental Monitoring Center. That reading was more than 20 times higher than the World Health Organization recommendations of no higher than 25 for day-long exposure. Read more of this post

Low-Key Politician Ding Xuedong to Take Helm of China’s $500 Billion Sovereign Wealth Fund

Updated June 28, 2013, 12:32 p.m. ET

Low-Key Politician to Take Helm of China’s $500 Billion Fund

Ding Xuedong Is Set to Be Named Head of China Investment Corp.

LINGLING WEI

BEIJING—A relatively obscure senior politician with little international experience is taking the reins of China’s $500 billion sovereign-wealth fund, an appointment that comes as it tries to adapt to a quickly changing global landscape. Ding Xuedong, 53 years old, is set to be named chairman of China Investment Corp., according to people with direct knowledge of the matter. His appointment would end months of speculation over the position sparked by China’s once-a-decade leadership change. Read more of this post

Henry Paulson Sees Volatility, Pain as Fed Programs Phased Out

Henry Paulson Sees Volatility, Pain as Fed Programs Phased Out

Phasing out the Federal Reserve’s stimulus and monetary accommodation will cause some market volatility and pain, said former U.S. Treasury Secretary Henry Paulson.

The Fed (FED) has been making $85 billion in monthly bond purchases and holding the key interest-rate target near zero to spur job growth and faster U.S. economic expansion. The central bank will probably taper its asset purchases later in 2013 and stop them around mid-2014 as long as the economy performs in line with its projections, Chairman Ben S. Bernanke said June 19. Read more of this post

Bonds Tied to Mortgages Poised for the Biggest Losses Since 1994

Bonds Tied to Mortgages Poised for the Biggest Losses Since 1994

Government-backed U.S. mortgage bonds declined after a two-day rally, extending quarterly losses that are on track to be the worst in almost two decades.

Fannie Mae’s 3 percent, 30-year securities fell about 0.2 cent today to 97.6 cents on the dollar as of 11:19 a.m. in New York, down from about 103 cents on March 28, according to data compiled by Bloomberg. A Bank of America Merrill Lynch index tracking the more than $5 trillion market lost 2 percent this quarter through yesterday, the most since the start of 1994. Read more of this post

Lula Default Scare Echoed in Brazil’s Worst Bond Sell-Off

Lula Default Scare Echoed in Brazil’s Worst Bond Sell-Off

Brazilian government bonds are suffering the biggest quarterly losses since the run-up to former President Luiz Inacio Lula da Silva’s election in 2002 led to speculation that the nation would default.

Dollar-denominated bonds from Brazil, Latin America’s biggest nation, plunged 7.55 percent since the end of March, the biggest slide since a 16 percent drop in the third quarter of 2002 before Lula’s October election that year. The loss this quarter exceeds a decline of 6.15 percent for countries with triple-B ratings, according to Bank of America Corp. Read more of this post

This Time Is Different: Gold’s Plunge Doesn’t Lure Retail Buyers; Unlike after April selloff, Chinese and Indian consumers hold back; Gold Miners Trade Like Junk as Bullion Sinks Below $1,200

June 28, 2013, 6:27 a.m. ET

This Time Is Different: Gold’s Plunge Doesn’t Lure Retail Buyers

Unlike after April selloff, Chinese and Indian consumers hold back

CLEMENTINE WALLOP And BIMAN MUKHERJI

When gold prices tumbled in the spring, the world’s biggest buyers took advantage of the lower prices to snap up coins, bars and jewelry. In the current selloff, consumers in China and India are holding back.

That has worsened gold’s decline. It has now fallen 39% from its peak in 2011, and it dropped below $1,200 an ounce in U.S. trading Thursday for the first time in nearly three years. Read more of this post

China Bad-Loan Alarm Sounded by Record Bank Spread Jump

China Bad-Loan Alarm Sounded by Record Bank Spread Jump

Borrowing costs for Chinese banks have surged the most in at least six years this month as rating companies say a cash crunch threatens to swell bad loans.

The yield spread for one-year AAA bank bonds over similar-maturity sovereign notes jumped 56 basis points so far this month to 163 basis points, the most in ChinaBond records going back to 2007. The similar AA gap widened 59 basis points to 188. Even as China Construction Bank Corp. (939) President Zhang Jianguo said yesterday cash conditions have normalized, the benchmark seven-day repurchase rate was fixed at 6.85 percent, almost twice the 3.84 percent average for this year. Read more of this post

Pot Bellies Transform $2,000 Suits With India Expanding

Pot Bellies Transform $2,000 Suits With India Expanding

A few months ago, Corneliani SpA, an Italian maker of svelte $2,000 suits, noticed it was losing some business in India. Then it realized why: It wasn’t catering to overweight customers, especially those with pot bellies.

So, in April, it began a made-to-measure service that includes options for shoppers seeking “odd”-sized suits, overcoats or trousers, said Prem Dewan, who oversees Indian retail operations. Businessmen, celebrities and politicians have come calling. Read more of this post

REIT Rout Seen Curtailing Deals as Rising Rates Cut Share Sales

REIT Rout Seen Curtailing Deals as Rising Rates Cut Share Sales

Property purchases by U.S. real estate investment trusts are likely to be curtailed after almost $36 billion of deals this year as a tumble in share prices makes a key source of capital costlier.

The Bloomberg REIT Index has dropped 11 percent from an almost six-year high in May as the yield on 10-year Treasury notes surged amid speculation the Federal Reserve would reduce bond purchases, which have kept borrowing costs low. The decline was three times the slump in the Standard & Poor’s 500 Index. Read more of this post

Bill Gross monthly investment outlook (July 2013): The Tipping Point

INVESTMENT OUTLOOK

July 2013

The Tipping Point

William H. Gross

I’ve spun a few yarns in recent years about my days as a naval officer; not, thank goodness, tales told by dead men, but certainly echoes from the depths of Davy Jones’ Locker. A few years ago I wrote about the time that our ship (on my watch) was almost cut in half by an auto-piloted tanker at midnight, but never have I divulged the day that the USS Diachenko came within one degree of heeling over during a typhoon in the South China Sea. “Engage emergency ballast,” the Captain roared at yours truly – the one and only chief engineer. Little did he know that Ensign Gross had slept through his classes at Philadelphia’s damage control school and had no idea what he was talking about. I could hardly find the oil dipstick on my car back in San Diego, let alone conceive of emergency ballast procedures in 50 foot seas. And so…the ship rolled to starboard, the ship rolled to port, the ship heeled at the extreme to 36 degrees (within 1 degree, as I later read in the ship’s manual, of the ultimate tipping point). One hundred sailors at risk, because of one twenty-three-year-old mechanically challenged officer, and a Captain who should have known better than to trust him. Read more of this post

Here’s the Real Crisis in Australia; “Australia is a leveraged time bomb waiting to blow. It is not just a CDO, but a CDO squared.”

Here’s the Real Crisis in Australia

By William Pesek – Jun 27, 2013

Australia (AUNAGDPC) has been called many things: Oz; the land Down Under; the lucky country. But the equivalent of a collateralized-debt obligation?

Canberra can’t be happy to hear its AAA-rated economy likened to one of the reviled investment vehicles that blew up amid the 2008 global crisis. Yet the comparison is being made by some economists, who see the asset underlying Australia — demand from China — beginning to evaporate. No country is more vulnerable to the much-dreaded slowdown in China than resource-rich Australia. The mining boom that fueled nearly all of its recent growth is nearing a cliff of economic risk. “Australia is a leveraged time bomb waiting to blow,” says Albert Edwards, Societe Generale SA’s London-based global strategist. “It is not just a CDO, but a CDO squared. All we have in Australia is, at its simplest, a credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China.” Read more of this post

TFs under scrutiny in market turbulence

Last updated: June 27, 2013 1:42 pm

ETFs under scrutiny in market turbulence

By Tracy Alloway and Arash Massoudi in New York

Like a tremor that rattles the girders of a gleaming skyscraper, a market sell-off can be the moment that exposes flaws in the plumbing of Wall Street’s favourite products.

For exchange traded funds, a $2tn industry that has boomed in recent years, last week’s tumble in asset prices has unearthed possible cracks in the pipework. Commentators are probing beneath the surface to look at how ETFs, which allow “mom and pop” investors instant access to a multitude of assets, hold up when faced with market turbulence. Read more of this post

No Easy Answers for Clean-up of Milk Powder Industry; The government wants domestic companies to consolidate and increase their market share, but this is easier said than done

06.27.2013 19:10

No Easy Answers for Clean-up of Milk Powder Industry

The government wants domestic companies to consolidate and increase their market share, but this is easier said than done

By staff reporters Qu Yunxu and He Chunmei

(Beijing) – Premier Li Keqiang said in late May at a State Council meeting that the government would supervise the quality of infant milk powder using the same standards as those used for drugs.

Then, on June 4, the Ministry of Industry and Information Technology (MIIT) said that from June 1 to August 31 it would launch a safety inspection of milk powder production in an aim to improve quality and boost consumer confidence. Read more of this post

3 factors you never knew could cut Singapore home prices by 40%

3 factors you never knew could cut Singapore home prices by 40%

Staff Reporter, Singapore Published: 47 min 49 sec ago

Mortgage rates must rise to 3.5%.

According to CIMB, assuming 1) mortgage rates rise to normalised levels of 3.5%, 2) a benign housing rental growth, and 3) rental yield spreads over mortgage rates are kept at around 100bp (currently achieved), we estimate that residential property prices could fall by 30-40% from current levels with all else remaining constant. Read more of this post