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Chinese Yuan Surges & Stocks Jump To 2014 Highs After PBOC Unleashes QE
Quietly, and without the drama associated with The Fed and ECB, China unveiled what looks like QE recently (as we discussed in detail here). Whether this is a stealth creation of a 'fannie-mae' structure to support housing or merely another channel for the PBOC to shovel out hole-filling liquidity is unclear. However, one thing is very clear, demand for CNY is surging (even as the PBOC weakens its fixing) and the Shanghai Composite is surging as hot money chases free money once again...
The Yuan has rallied (lower on the chart) for 8 days straight as PBOC weakened its Fix.
The Chinese stock market has quietly surged to its highest since December - outperforming the Dow now year-to-date...
BofA believes 3 factors are at play here:
1. China: better data on exports & PMI, GDP upgrades (BofAML upgraded 2014 GDP growth forecast to 7.4% from 7.2%), policy U-turn putting floor on growth, hopes for a Chinese QE, success in anti-corruption igniting hopes for reform. And China is of course relatively inexpensive and out of favor: in price-to-book terms, Chinese financials are trading at their cheapest level in more than 9 years relative to global financials
2. US growth: NE Asia has historically been a play on US growth; no coincidence that flows to NE Asian markets are coinciding with stronger US GDP (up 4% in Q2).
3. The end of the carry-trade: this is the more intriguing argument. Almost all investors we meet believe that a rise in stock markets and a decline in bond yields will not continue indefinitely. We believe concern that rates must inevitably “normalize” in coming months as growth picks-up, and concern that a flip in Treasury yields causes stocks to decline is causing investors to consider raising cash and finding uncorrelated investments. Japan, China and Korea rank in the top ten equity markets least positively correlated with SPX and most positively correlated with movements in 30y UST yield (correlation analysis based on weekly log change over the past 10 years). Carry-trades are at risk from rising rates. We think markets with low yields and higher exposure to US economic growth will be better protected if the backdrop flips from Low Rates-Low Growth to High Growth-Higher Rates.
Charts: Bloomberg
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None of that.
I can explain you what it is
Same as Federal Reserve QE, monetizing losing derivatives positions.
In China's case, they are monetazing pyramid schemes involved in China's shadow banking where Wealth Management Products promise 25%-50% annual interest rates for loans.
So, the country has run out of suckers, money is already converted to USD, Toronto or London real estate and has moved out of China via HSBC.
Politburo is simply monetizing their own pyramid schemes by creating CNY by buying these schemes.
They are letting thousands of them collapse, but they are bailing out their own banks involved with pyramid schemes.
It is that simple.
Whew! well, as long as they're doing stuff that has no negative side effects, we can all just be thankful that they're modernizing their financial system and bringing it to global standards...
Qe country rotation
if this is true, its the best and simple explanation i have heard. The shadow banking pyramid schemes does sound familiar though. As does monetizing losing derivatives positions. These people are leveraged so far, a small move in the wrong direction wipes out all their capital pretty quick. If all of this wealth escaping is coming to an end, should be interesting to see what happens to these real estate markets with no more chinese buyers paying cash for them without ever laying eyes on the property. Also, no ammount of money printing is going to unwind the rehypothicated commodity scandals going on. You either have the commodity or you don't. people who actually make things need the cooper, aluminum, etc, not freshly printed money.
It was China's turn in the global rotation. Draghi is warming up in the bullpen.
By the same logic.
Countries need not real eonomy.
They can simply mark up numbers on computers at 1:10000 leverage
Rotating QEs between countries simply kills the real economic output, which is actually occurring
BRICs in time to bail-out Argentina...then Portugal ?
Fiat follies...bread and circus.
Fresh fiat.
it's all about one goal right now: trying not to be the first to start the global collapse
China needs to coupon that $usd QE-loan guarantee thingy? One $ trillion of slush to clean up the rehypothecation of real-estate and commodities debacle!
This should elevate the US markets tonight/tomorrow.
Inverse surge in US equities!
The "Smart Money" moves out ASAP in RE overseas in suitcases, wires, middle men, etc. First they send the kids over [to Vancouver, SF, LA, Sugar Land...where ever] then comes the Loot, then comes the Main Man and shuts the door behind him.
China ain't the only one. The title closing lady down the block says 10-20% of her closing are with very young Nigerian [and other African] college students who are sent here by their very wealthy [usually politician fathers back home] who receive the millions in wire transfers "for school Thingamajigs" while the kids then buy two three houses with the Loot.
No questions asked. USA has to be near the top for Loot Laundering from those countries.
Correction:
USA IS the top loot laundering destination in the world.
The only reason Russians go to UK or Cyprus was because the US have always been more or less anti-Russian, if the anti-Russian sentiment didn't exist in the US, even the Russians would come to US first.
Um ok. Or the yuan is surging because of the announcement 8-14 days ago of BRIC banking bypassing western lending institutions and the dollar.
But whatever Occam's razor isn't always best.
Lol, I'm sure this will end well. God help us if we ever do get growth, velocity is going to turn all that liquidity into one hell of a tsunami.
The inflow of illegal wet backs equate to a new subprime housing bubble, ObamaCare riders & taxpayer revenues.
Watch the blowback erupt.
The BofA point 3 about the carry-trade:
I'm not sure at this point if the hot money flow is simply domestic Chinese hot money looking for a new place to park or outside hot money yet, it may simply be domestic Chinese money pulling out of the real estate and going back to the long-moribund stockmarket and the traditional 'wait for CNY to rise" game, due more to a lack of other outlets and options than any geniue belief in investment opportunity.
Of course, the 'wait for CNY to rise' game was originally being played largely by Japanese money, and the news out of Japan is increasingly gloomy, again, so maybe there's Japanese money 'diversifying' out of Japan in there.
I guess the picture may be clearer in a few more weeks, if this trend continues or picks up speed, if any of that is capital flow is from the outside, or more importantly, from the west, or if it's just domestic(or maybe regional - Japan) capital sloshing around trying to find new places to park.
If outside hot money is indeed flowing back to China, not as a credit tap for the Chinese but as investment chasers from the west, as BofA is suggesting... well, guess that means we've got bigger problems in the west.
Crist what have we become?!
Isn't this the point were my white ZH homies cue up some Johnny Cash?
Cuz this shit is over.
A chance to short HK at the top perhaps?
Strong Yuan is good for US Exports but the Yuan seems to be very very stable vs USD and not changing. I must be missing something but Yuan has even weakened a tad this past week.
So since the Yuan is pegged to the dollar this wiil behave just like Bernanke's and Yellen's QE. Yuan will buy dollars and we will witness dollar strength and those dollars will slosh around like before with the same effects only with Chinese guidance.