Back in January we wrote with some amusement that China would be Portugal's knight in shining armor following a "Reuters report that Portugal is in the process of making a private placement of bonds, without announcing details on size or the buyer... The WSJ has just confirmed that China was indeed the buyer, and the amount purchased was €1.1 billion." Since then Portugese bonds have tumbled and China has taken at least a good 10% loss. Five months later, it is time to kick the can once more down the road, courtesy of the Chinese yet again, who not surprisingly don't want to experience a partial wipe out on their foolish investments across their soon to be European protectorate should Greece file tomorrow. The FT reports: "Asian investors including the Chinese government are expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month, according to senior fund officials. Klaus Regling, chief executive of the European Financial Stability Facility, told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate." And whoever said that stupidity follows an arithmetic progression was wrong. It's exponential: "He argued the intense interest from Asia and other international investors showed renewed confidence in the future of the euro as a currency." Uh, no. That was the bullshit excuse in January. Now it is merely an attempt to not get destroyed in the upcoming massive pan-continental "rights offering" which will see existing "investors" take haircuts of up to 50%. But since when does Europe even pretend to tell the truth.
From the FT:
“[Asia] is a region that has money to invest in the rest of the world,” Mr Regling said. “They don’t want to go only into one currency. They don’t want to go only into one asset class . . . They look at us and come to the conclusion it’s a good way to diversify.”
Chinese officials have expressed interest in investing in European assets as a way to diversify holdings in their sovereign wealth and other investment funds, which have historically concentrated on dollar-based assets. While Beijing has acknowledged it remains a significant holder in Portuguese and Greek sovereign bonds, Chinese officials have been reluctant to disclose where in Europe it will make investments.
Christophe Frankel, EFSF chief financial officer, confirmed that China had participated in its January auction, which raised cash for Ireland’s bail-out, but declined to disclose how much Beijing had invested.
China’s involvement in the triple A rated bonds issued by the bail-out fund could be an indication Beijing is focusing on ultra-safe assets rather than more risky sovereign bonds for countries such as Ireland, Portugal and Greece
In the meantime, absent this latest cash infusion, Lisbon would be broke within a month:
The move, coming soon after the bail-out was approved by EU finance ministers last week, reflects Lisbon’s urgent need for cash, with nearly €10bn in debts coming due by the middle of next month.
Naturally, the euro which can no longer discount a future further than 1 day or at most a week ahead, is surging. If history is any indication, the move is to be faded, as now it is China's turn to experience the half life effect of repeated and flawed "interventions" which have already forced the SNB and the BOJ to cease and desist from pretending they have more money than the capital markets (or, in China's case, prevent the inevitable). If anything, this last ditch pre-rights offering smacks of nothing short of desperation on the side of Europe's bloated, privileged and endlessly lying kleptocrats. That said, all the shorts which recently flipped out of the USD into the EUR will likely keep the covering momentum going for a while before the same weak marginal hands that got evaporated on the recent move up in the USD experience the same fate on the other side of the Atlantic.