Hong Kong

A month ago we warned "Beijing, you have a big problem," and showed 10 charts to expose the reality hiding behind a stock market rally up over 100% in the last year. Tonight we get confirmation that all is not well - China GDP fell to 7.0% (its lowest in 6 years) with QoQ GDP missing expectations at +1.3% (vs 1.4%). Then retail sales rose 10.2% YoY - the slowest pace in 9 years (missing expectations of 10.9%). Fixed Asset Investment rose 13.5% - the lowest since Dec 2000 (missing expectations). And finally Industrial Production massively disappointed, rising only 5.6% YoY (weakest since Dec 2008). Finally, as a gentle reminder to the PBOC-front-runners, a month ago Beijing said there was no such thing as China QE (and no, the weather is not to blame.. but the smog?).

The panic buying by China’s newly-minted, day trader hordes took a breather on Tuesday which we think presents as good an opportunity as any to assess what factors might intervene to derail the self-feeding margin madness that has Shanghai and Hong Kong partying like it’s 1999 on the Nasdaq.

As Wall Street struggles to explain last night’s trade data out of China which seemed to vividly illustrate the notion that the combination of the yuan’s dollar peg and generally weak demand can and will take a devastating toll on the country’s exports, and as iron ore does its best dead cat bounce impression on the “psychologically” important news that Australia’s fourth largest miner is suspending operations, Citi is out with a rather dismal take on the outlook for iron ore prices.

While today's macro calendar is empty with no central bank speakers or economic news (just the monthly budget (deficit) statement this afternoon), it’s a fairly busy calendar for us to look forward to this week as earnings season kicks up a gear in the US as mentioned while Greece headlines and the G20 finance ministers meeting on Thursday mark the non-data related highlights.

Everyone was shocked by yesterday's Chinese March trade update which showed that while imports slid largely as expected, it was the 15% drop in exports, the largest in over a year, that prompted many to wonder just how big the global trade slump really is, masked by what has now become pervasive, global QE. This was the worst performance, exports and imports combined, since late 2009.  Below is a selection of responses by Wall Street analysts trying to justify how - with global equities, if only in local currency terms, at all time highs - China can be doing so badly.

If there was any doubt that global trade is stalling, it was promptly wiped out following the latest abysmal Chinese trade data which saw exports tumble by 15% - the most in over a year - on expectations of a 8% rebound, with the trade surplus coming in at CNY18.2 billion, far below the lowest estimate. While unnecessary, with the Chinese GDP growth rate this Wednesday already expect to print at a record low, this was further evidence of weak demand both at home and abroad. Weakness was seen in most key markets, and the strength of China's currency was partly to blame, which again brings up China's CNY devaluation and ultimately QE, which as we wrote some time ago, is the ultimate endgame in the global reflation trade which, at least for now until the CBs begin active money paradropping to everyone not just the 0.01%, is only leading to inflation in stocks and deflation in everything else.v

China (and Hong Kong) stock markets opened gap higher and kept going (China Merchants Bank up over 20%) as The China Securities Depositary and Clearing Co. (CSDC) announced that investors will no longer be restricted to only one stock account in China's A-share market and each can have up to 20 accounts from Monday. Which makes perfect sense because what every elementary-school-educated housewife speculator needs is 19 more places to speculate in.

A look ahead into next week's macro forces.

China’s world-beating, margin debt-fueled, equity mania has now made its way to Hong Kong much to the delight of local housewives and security guards who have recently decided to become day traders. Deutsche Bank sees big upside for shares of "Don't worry, don't panic" HKEx amid the madness.

Amid a historic margin-fueled equity buying frenzy in mainland China that has tech stocks trading at 200X and drove more than 4 million new "investors" into the market in March alone, HSBC's Head Of China Equity Strategy sits down with FT to explain, on video, why it's different this time and why there may be more upside to come for Hong Kong's day-trading housewives.

Overnight market news was once again driven by the Asian superbubble, where as expected, the Hang Seng (+1.22%) soared once more and is now up 9.5% for the week, following news the Hong Kong Exchanges and Clearing Ltd (HKEx) expects it will "substantially increase" quotas for the stock connect program between Hong Kong and Shanghai, HKEx Chief Executive Charles Li said on Friday. The exchange could boost the current quotas, which cap how much mainland investors can buy Hong Kong stocks and vice versa under the trading link, by more than 20 or 30 percent, Li said at a media briefing in Hong Kong. Li did not give a precise date for when the quotas would be raised, but one thing is clear: everyone in China, and Hong Kong, must be all in stocks if the Chinese housing bubble can not be reflated. The Shanghai Comp closed higher by almost 2.0% following better than expected Chinese inflation data, while HK stocks continued their recent rally to closer higher by 9.5% for the week.

Wiping out creditors by inflation is the easy part. Re-establishing money to restart the world economy is the harder one.

As everyone settles down in anticipation of another session of parabolic Hong Kong euphoria driven by desperate housewife traders, or a manic plunge straight down, none other than the CEO of the Hong Kong Exchange, Charles Li, found some time to pen a blog post to give "a little advice to investors", providing vivid aphorisms "Investment is like swimming: if you do not enter the water, you will never learn to swim" and to caution speculators that the opportunity is "not to quickly make a  fortune, but ... to provide long-term wealth preservation and appreciation" and that there is also such a thing as risk as everyone scrambles to chase the latest bubble breakout. His blog post's punchline: "Do not worry!  Do not panic!" We doubt anyone will panic, at least not until the selling begins.