Between micromanaging the economy, equities, the yuan, and public opinion, there's no question that China has its hands full these days. But with everyone's attention now focused sqaurely on Beijing's plunge protection team and the PBoC's "controlled" yuan devaluation, the market may be ignoring the biggest risk of all...
As it turns out it is not just in the US that the "smart money" is bailing out as fast as it can: according to Bloomberg, the wealthiest investors in China’s stock market are also scrambling for the exits. To wit: "The number of traders with more than 10 million yuan ($1.6 million) of shares in their accounts shrank by 28 percent in July, even as those with less than 100,000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA Ltd. says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June."
The story behind the deadly chemical explosion that rocked China’s Tianjin port last Wednesday continues to evolve amid fears that the public could be at risk from the hundreds of tonnes of sodium cyanide stored at the facility. Indeed, new samples show that the cyanide level in the water around the site is some 28 times the safety standard. It looks as though determining who actually owns Ruihai will be complicated by the fact that in China, it’s not uncommon for front men to hold shares on behalf of a company’s real owners. In an effort to pacify the country’s censored masses, party mouthpiece The People’s Daily said 10 people, including the head and deputy head of Ruihai had been detained since Thursday. Finally, initial estimates put the cost of the blast at bewteen $1 billion and $1.5 billion.
It is not enough to issue proclamations such as “it is time to get tough” or “It is time to make America great again”. These are the buzz words of a man that is reaching out to tap the rich vein of popular appeal. Perhaps that is what all politicians strive to do, especially when the field of candidates is rather crowded. However, what is clear is that a well-crafted economic strategy is not present, nor are staffers that would have the temerity to disagree with Mr T.
Given the carnage unfolding across EM currencies and the myriad headwinds the world's emerging economies face going forward, it should come as no surprise that sentiment has turned decisively negative. Is it time to be a contrarian? BofAML thinks so.
China Stocks Crash, More Than Half Of Market Halted Limit Down; PBOC Loss Of Control Spooks Global AssetsSubmitted by Tyler Durden on 08/18/2015 08:09 -0400
Just hours after the PBOC announced a modestly "revalued" fixing in the CNY, which curiously led to weaker trading in the onshore Yuan for most of the day before a forceful last minute intervention by the central bank pushed it back down to 6.39 it was the local stock market spinning plate - which had been relatively stable during the entire FX devaluation process - that China lost control over, and after 7 days of margin debt increases the Shanghai Composite plunged by 6.2% in late trade, tumbling 245 points to 3748, just 240 points above its recent trough on July 8, a closing level some 27% off its June peak.
On Monday we laid out the rather dire road ahead for the world’s emerging economies in the face of China’s entry into the global currency wars. The path ahead is riddled with exported deflation and decreased trade competitiveness for a whole host of emerging economies [and] all of this is set against a backdrop of declining global growth and trade, a trend which many had assumed was merely cyclical, but which in fact may prove to be structural and endemic." Well don’t look now, but trade just collapsed for Indonesia as exports and imports plunged 19.2% and 28.4% (more than double to consensus estimate), respectively in July. Meanwhile, the rupiah is sitting near multi-decade lows.
- China stocks slump 6 percent on fears of further yuan depreciation (Reuters)
- U.S. Lacks Ammo for Next Economic Crisis (Hilsenrath)
- Emerging Markets Extend Slide as Commodities Fall; Pound Jumps (BBG)
- China yuan to move both ways, more 'adjustments' unlikely: central bank economist (Reuters)
- Playing Chinese markets is as simple as 'follow the leader' (Reuters)
- PBOC Injection Shows China Worries About Outflows (WSJ)
- Russia Fails to Soothe Oil Concerns as Citi Joins Ruble Bears (BBG)
PBoC Injection Shows China Worries About Outflows- WSJ
Offshore Yuan continues to trade at a discount to onshore against the USD (imply a modest further devaluation is due) but the spread is narrowing and today's practically unch Yuan fix is dragging USDCNH lower (stronger Yuan). Yesterday's afternoon session ramp in stocks managed to extend its gains as margin debt rises for the 7th straight day. The PBOC injects 120 bn Yuan liquidity via 7-day reverse-repo (notably more than the 50bn maturing), as HSBC's Stephen King concludes, the message from last week's surprise devaluation is clear - China no longer wants to play the "global shock absorber" role - instead is more focused on domestic instability... and there is no other nation yet willing (or able) to shoulder the responsibility.
What does China's "surprise" move to devalue the yuan mean for "broken" EM currencies? Nothing good, Morgan Stanley says. In short, the path ahead is riddled with exported deflation and decreased trade competitiveness against a backdrop of declining global growth and trade.
The downturn in China is “our” downturn. All the recent happy talk, due to unsuitable extrapolation and nothing more, has melted away yet again. In short, the same trend dating back almost four years now is quite expectedly unaltered by whatever any central bank does or does not do. “Stimulus” is just noise against all that, at best; at worst it actively contributes to the instability of the decline.
- Oil moves nearer six-year low on Japan data, oversupply (Reuters)
- Commodity Slide Spurs Treasuries as Emerging Markets Extend Drop (BBG)
- Because 7 years is "just right" - BOE Official Says Don’t Wait Too Long on Rates (WSJ)
- How Medicare Rewards Copious Nursing-Home Therapy (WSJ)
- Millennials Are Developing Parents’ Taste for Jaguars, Cadillacs (BBG) ... and even more debt
- Mexican Billionaire’s Firms Swept Up in U.S. Probe of Citigroup (BBG)
It was a relatively quiet weekend out of China, where FX warfare has taken a back seat to evaluating the full damage from the Tianjin explosion which as we reported on Saturday has prompted the evacuation of a 3 km radius around the blast zone, and instead it was Japan that featured prominently in Sunday's headlines after its Q2 GDP tumbled by 1.6% (a number which would have been far worse had Japan used a correct deflator), and is now halfway to its fifth recession in the past 6 year, underscoring Abenomics complete success in desrtoying Japan's economy just to get a few rich people richer. Of course, economic disintegration is great news for stocks, and courtesy of the latest Yen collapse driven by the bad GDP data which has raised the likelihood of even more Japanese QE, the Nikkei closed 100 points, or 0.5% higher.
Asian Currency Crisis Continues As China Holds, Malaysia Folds, & Japan Heads For Quintuple Dip RecessionSubmitted by Tyler Durden on 08/16/2015 21:21 -0400
Asia got off to an inauspicious start this evening with Japan printing a disappointing 1.6% drop in GDP - heading for its fifth recession in 6 years... so much for Abenomics, but, of course, Amari spewed forth some standard propaganda that he expects Japan to recover moderately (and Japanese stocks popped modestly assuming moar QQE). Then Malaysia continued its collapse with the Ringgit down another 1% hitting fresh 17-year lows and stocks dropping further, as the Asian Currency crisis continues. Heading into the China open, offshore Yuan signaled further devaluation but the CNY Fix printed very modestly stronger at 6.3969; and following last week's best gains in 2 months, Chinese stocks are plunging at the open after Chinese farmers extend their streak of margin debt increases. Finally, WTI Crude drifted back to a $41 handle in early futures trading.