China Is The New Japan After All: Here's How To Trade It
In an odd coincidence, just as we were preparing an article showing how China is becoming increasingly more like Japan and how to trade this convergence, we happened to glance at the slide that Jeff Gundlach was talking about at that exact same moment during his afternoon presentation, and lo and behold, the "new bond king" was discussing why, among the reasons why "China may not bounce back", is that China is increasingly becoming a Japanese demographic doppelganger...
... in a slide that was sourced from, of all places, Zero Hedge.
So with that reflexive quandary out of the way, we go to the latest presentation by BofA's Michael Harnett, who among the 6 key investment themes and trades for 2016" lays out the "Black Dragon" as one of the key ones, and one whose core thesis is that "China, like Japan in the early-1990s, has entered a secular period of significantly slower economic growth, compounded greatly by debt deflation; like Japan in the 1990s, Chinese asset prices, currency, banks (Chart 5) and capital flows will periodically cause severe disruptions to global financial markets, even if China does not itself cause a global recession."
In other words, China is Japan, and not just demographically but financially as well.
This is what else Hartnett said:
China has de-pegged its currency from the US dollar: history is replete with illustrations of how major FX regime changes cause cross-asset volatility: Britain’s departure from the gold standard (1931), collapse of Bretton Woods system (1971-3), UK ending ERM membership (1992), Asia crisis (1997-8), the Euro (2000-).
Why
China = Japan: China, like Japan in the early-1990s, has entered a secular period of significantly slower economic growth, compounded greatly by debt deflation; like Japan in the 1990s, Chinese asset prices, currency, banks (Chart 5) and capital flows will periodically cause severe disruptions to global financial markets, even if China does not itself cause a global recession.
Chinese devaluation: a cyclical collapse in export growth, extreme FX devaluations in recent years in Japan, Europe and across Emerging Markets, and capital flight, are all causing an accelerated devaluation of the Chinese yuan; BofAML forecast CNY6.9 and CNH7.0 by 2016 year-end; we see downside risk to these forecasts (n.b. PBoC has spent $200bn in reserves in past two months and yet the extent of private capital outflows means CNY has still fallen).
The great EM devaluation: until there is two-way risk in RMB, there is one-way risk in oil, commodities and EM; once Chinese exports begin to react positively to the cheaper currency, we think a bid is likely to return to Chinese and EM assets; until then, China asset prices are a threat to global asset prices (n.b. Chinese corporate bonds are at multi-year highs despite a credit crunch).
Ok, fine, China is the new Japan. How does one trade it?
Here are Hartnett's 5 proposed trades:
- Long 6-month forward USD/CNH: for exposure to Chinese devaluation.
- Long 3-month USD vs basket of KRW, TWD, MYR: for exposure to Chinese devaluation.
- Long India 10-year bond: BofAML Asia strategists argue that weak commodity prices are positive for India; macro backdrop is still favorable for India bonds, inflation outlook benign, and they expect further monetary easing by the RBI (entry: 7.737%).
- Short M2JP0EXE index: European exporters with EM exposure have sold-off sharply; Japanese exporters have yet to sell-off sharply (Chart 6).
- Buy KOSPI forward volatility (KOSPI2 Jun-16/Jun-17 forward vol agreement): BofAML derivatives team recommends owning volatility via KOSPI; cheapest globally, high downside beta to global markets; favorable technicals in 2016; good hedge against HSCEI/China downside and/or global recession.
Then again, perhaps it is a good thing Hartnett said to short the CNH today and not yesterday; if anyone had shorted the currency yesterday when it was soaring hundreds of pips wider only to hit parity hours later, their trading career would be over right about now.
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And Just like Japan did, Chinese are buying US movie studios, property, farms, etc.
Article: China Is The New Japan After All: Here's How To Trade It
How about this for an article: Which Nation will not be Like Japan After All? Here’s How to Know It
I never get an answer to this question… one more time….
If USA and EU and China are all $14T economies, more or less, and
If growth for USA and EU at 3% is strong, then why should we expect
China to grow at 6% or 7%?
Not all GDP is created equal, where does it come from and where does it go? I would argue that in China the government policies are mostly geared towards creating growth, while in America a lot of it is geared towards creating wealth.
Articles like this are why I read ZH, sadly they are becoming fewer and farther between.
to vastly oversimplify, but demonstrate the argument:
world of the jetsons: 4 citizens... average age, 40. generate $10 gdp each
world of the flintstones: 10 citizens. average age 20. generate $4 gdp each.
on tuesday, the flintstones get the manual to the jetsons technology. who grows more now?
Brilliant, except:
world of the jetsons: 4 citizens... average age, 40. generate $10 gdp each
world of the flintstones: 16 citizens. average age 20. generate $2.50 gdp each.
Not only that, but there are other differences, like the historical precendent of the Chinese government controlling the rate or reproduction to avoid a boomer mess. (If they can do that well over time.)
How about this even then?
Which nation was sucessful in resisting international communism enforced by the 'victor' of WW3
I'm going to take a moment for a small victory lap on this article. My core thesis since I came to ZH has been that the entire developed world is becoming like Japan (mostly because of the insane debt, but also because of the "graying" if not outright decline in most developed nations' populations).
So let's tally this up real quick...
Japan = Japan
Europe = Japan, but with Muzzies flooding in
US = Japan, we just don't want to admit it yet, but it's already happened
And now... China = Japan
This is getting pretty damned close to everything in the industrialized world being Japan.
That is why the industrialized world is what it is while the developing nations had to follow market capitalism jammed at their throats.
You do realize this is a zoo right?
A zoo?
Help me here. I am at a loss.
Demographics of slowing reproduction cause this sort of thing. It is not a inherently a bad thing
Governments force it to be a bad thing by their numbskull policies that can't stand for deflation because lord forbid they ever pay back their loans with a buck worth more than what they borrowed.
My guess is that it is a shift in reproductive strategy from r to K style. https://en.wikipedia.org/wiki/R/K_selection_theory
IQ's while mostly fixed do go up with such a shift and that's why the voters in the USA are trending conservative/libertarian in the USA.
Lastly in a case of China I can't see they have a choice. At north of a billion people how crowded can you expect them to want to get? USA already has more then 320 million and I think that's too crowded. I can not imagine 4x the people. People are rightly deciding on their own that it is time for quality and not quantity. Of course governments and the Ruling Class Oligarchy hate this and thus in the USA are importing voters / subjects that are more easily lead by a nose ring from countries with lower aggregate IQs.
I couldn't resist: https://youtu.be/mgekmOqCFTU
This guy gets it... I was listening to PBS on my car radio earlier, and the clown in charge, was talking about record commercial real-estate prices. No <triple net> for you, and realized we're right back to late 1990's levels. With a fed balance sheet about $ 4.0 T larger.
I can't wait to see the latest Acura, Lexus, Infinity, Chinese spinoffs. :-)
Tha Japanese overpaid for golf courses and office buildings, then sold them for 10 cents on the dollar a decade later.
Chinese money is the marginal support for CA real estate. Get out while you can.
Well hold on, one of the talking heads with lickable legs on CNBC said that's what you do when you're powerful... buy content.
And CNBC is the shit, so STFU.
I think Im turning Cantonese I really think so....
Is this a big joke article because most whites can't tell the difference anyway?
Japanese are hot and hairy. Chinese have bad teeth and are really fucking loud. ~Whitemans guide to the orient
differance is productivity ..japanese were far more productive than the chinese.
the chinese build dormatories for workers.. in mass!
no other nation has ever done that. Chinese have 500 million peasents to call upon to work and build things. 500 million!! they work for crumbs and here's the kicker.. they are happy to do it!
china is a whole other beast and can't be compared to Japan.
Because Japan is an Empire. China is in its way to become one……..Post collapse. You know, 500 million peasants.
So you're saying it's different this time? I'll put $20 real fiat money on that action.
All asians look the same to me
I have the same issue. All white cauc-asian look the same to me.
well actually koreans created the pizza and spagetti and jesus was korean
and the muslims stole the name koran from korea
the banking system is based on korean theories
the word "bank" is the european version of bangkoon
chinese traditional writing was created by a korean
buddha was born in korea, travelled the world and died in korea
samsung created apple and samsung invented iphone. then it sold iphone to apple
japanese and british commitied gonocide on 100 million korean housewifes
chinese criminal
jap criminal
kongyo kongyonida
Japan still has one thing China does not- the continuing ecological/ financial disaster at the Fukushima Daiichi nuclear power plants, aka- the disaster that keeps on giving. It appears that Japanese PM Abe continues to hold his breath, hoping that Fukushima will magically disappear. Not only will this disaster cost Japan $ hundreds of billions and take decades to clean up, it also has potential long range liability issues for TEPCO and US based GE, which was involved in the design and construction of these reactors. Obviously, this could bankrupt GE.
China's got its own expensive ecological disasters: the massive widespread pollution of its water and air. That should cost more to correct than the localized Fukushima cleanup by an order of magnitude (imagine having to shut down all the factories near Beijing just to get air quality back to somewhat safe levels, and so on).
https://www.youtube.com/watch?v=t_UdqZdFr-w
Yep KANZAI that you little fuckers.
China is the final challenge for the Judeo-American Empire.
China will never be the new Japan. Because Chinese gov. is not a puppet of CIA like that of Japan.
China doesn't have to sacrafice its economy and people to save USD like Japan.
The Chinese might not be in this position if they hadn't practiced Gendercide for the last 30+ years.
In 2012, there were over 18 million more boys than girls under the age of 15 in China.
In 2012, the national government estimated that China has 40 million more males than females.
By 2020, the Chinese government estimates that there will be at least 30 million men of marriageable age that may be unable to find a spouse.
In 2005, more than 1.1 million excess births of boys occurred.
After the wife accepts tubal ligation upon bearing her only child, the lucky couple get an “One-Child Parent Glory Certificate” suitable for framing and hannging with pride on the wall next to the portrait of Mao.
It 's become a real sausage fest in China, and it will only get more festive in the coming years.
Didn't the Chinese just change this policy recently to allow for two children per couple? I believe they did. Very recent (1-2 months?)
Seems to me they're throttling their demographics using this policy, which is somewhat unique. (I'm by no means well read on this kind of thing, but the only other practice I'm aware of like this was Spartans throwing imperfect babies off a cliff at birth.)
And, Like the West since 2008... the big daddy, that has to chill its hyperconsumer model based on MIC big stick.
There is one big difference btw China and Japan. China is big enough to go full retard imperialist and launch wars of conquest. Japan is not. Whereas Japan just stewed in its own juice, China could march armies across Eurasia and send huge fleets around the world.