Yuan auction falls short, China stocks due for correction

On the road today updating from my handheld again and feeling incredibly cool and sophisticated, all while reinforcing the popular belief that we are indeed way too dependent on technology these days.

Here are two short excerpts from different Bloomberg articles which shed some light on the true health and capacity of the Chinese economy. What should you take away if you decide to click through to Bloomberg and read the entire articles? Basically that China is a economic powerhouse and still has room to grow. Likewise, it is not a cure all to the woes of the global economy.

This is important to realize because the government in China will do all it can to produce good economic news, sometimes misleading the international investment community. But hey! Most countries do too. ChinaSouthAmerica, as it always does encourages readers to form own opinions and always try to read in between the lines.

1) China Debt Auction Falls Short as Central Bank Tightens Policy

China failed to complete a 28 billion yuan ($4.1 billion) government bond sale for the first time, as the central bank withdrew cash from the financial system to reduce inflation pressures.

The Ministry of Finance sold 27.5 billion yuan of one-year notes at a yield of 1.06 percent, compared with 0.89 percent at the last auction of similar-maturity debt in May, according to Chinabond, the nation's biggest debt-clearing house. Later, the People's Bank of China it said will resume the sale of one-year bills tomorrow after an eight-month suspension.

"The failure to sell all government bonds in an auction is quite rare," said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. "Investors are worried the central bank will fine-tune its monetary policy and drain capital from the financial market."

To access the complete article visit:
http://www.bloomberg.com/apps/news?pid=20601080&sid=aW2cTXW6tFTk

2) China Stocks Set for 'Sizable Correction', RSI Shows

Chinese stocks may be headed for a "sizable correction" after a so-called momentum indicator for the Shanghai Composite Index advanced to the highest in at least five months.

The 14-day relative strength index, or RSI, for the Shanghai Composite climbed to 83 this week, above the 70 threshold that signals to technical analysts an asset or market is poised to fall. The indicator compares the magnitude of recent gains to losses. The last time the Shanghai gauge's RSI breached the 80 level, in February, the stock measure sank as much as 13 percent in following two weeks.

"The RSI shows that the market is in a pretty overbought situation," said Barole Shiu, a Hong Kong-based technical analyst at UOB-Kay Hian Ltd. "If history repeats itself, there's a very strong chance we'll see a sizable correction."

To access the complete article visit:
http://www.bloomberg.com/apps/news?pid=20601087&sid=asyE100RvlA8

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Benito
International Trade Consultant
Mir Global Marketing LLC
http://www.mirglobalmarketing.com
http://www.chinasouthamerica.com

Hong Kong in focus -- Signs of recovery

As the work came to a close the major news agencies (websites) of Asia was busy reporting about U.S unemployment reaching the highest levels since 1974. Check out the following articles from major news sites of Singapore, Australia and China to read more.

US axed 598,000 jobs -- The Strait Times (Singapore)
US job losses biggest since 1974 -- The Australian
US unemployment rates rises to highest level 16 years -- Xinhua (China)

However there was good news to go around at the end of the week for Hong Kong. For starters home sales in the luxury property market in Hong Kong are rising.

Big deal you might say? Well, in major cities of the world that have the ability to attract global talent like Hong Kong does (NY, London, Paris, Tokyo, etc), prices in the luxury property market are a pretty good gauge of both a over-heating economy and also for an economy “getting back on its feet.” If people are starting to buy again, it means the perception is prices have bottomed to a level where demand and confidence is returning.

“Sales of Hong Kong luxury homes rose to their highest in six months in January, indicating that prices may have stabilized as buyers seek bargains, according to data by Centaline Property Agency Ltd.” Yes a good sign indeed. Click here to read a more comprehensive story on this development from Bloomberg.

Hong Kong stocks also finished the week off higher, rising the most in over a week on speculation the U.S will announce a stimulus plan and help to alleviate the financial crisis.

“The Hang Seng Index added 476.14, or 3.6 percent, to close at 13,655.04, its biggest jump since Jan. 29, and bringing its advance this week to 2.8 percent. The gauge has dropped 5.1 percent this year, extending 2008’s slump of 48 percent, the biggest annual drop since 1974. It’s valued at 11 times estimated earnings, down from 18.7 times at the beginning of last year.” Reported by Bloomberg in this article.

Here's a view of how the Hang Seng (Hong Kong's major stock index) has preformed this past week. Not too bad right?


If anything has been learned from this financial crisis it is that news can turn ugly as quickly as it turns good. More updates to come after we see how the markets play out next week.

Chinese Economy in Focus -- China may cut rates again to ensure "gentle slowdown" doesn't turn ugly

On the ground, things don't seem so bad in China. As I report from Suzhou, China I see construction booming on both a residential level on in terms of infrastructure. However as Bloomberg LP paints in a article you can view here, things aren't so pretty on a macro level.

Actually they may depend on what you think "pretty" is. Economic growth will slow this year. 3rd Quarter growth in 2008 when released is expected to come in at around 9%, down from 2007's astounding 11.9%. Considering the state of the global economy many argue 9% is still quite healthy. However for a country seeking to fast track its economic development and solidify its position in the global economy the slowing growth rate is not welcome news.

The government is acting quick to stem the problem, having already reduced interest rates three times in the past two months. Will it be enough? Probably not...

For one, the reckless speculation from abroad and domestically on Chinese equities has fully exploded in investors faces this year (including my own). The CSI 300 is down a whopping 69% in 2008 so far, and has not seen the rallies other Asian markets like Hong Kong, Korea and Japan have seen when the west introduced their respective bailouts, lowered interest rates and set up new lending facilities.

Chinese Media, Xinhua reports export orders dropped in the 3rd quarter to their lowest level since 2005. Home sales have plunged 59% in Beijing and 39% in Shanghai so far in 2008.

All this looks bleak, but a casual observer may add that between 2005 and 2008, both Beijing and Shanghai have continued to grow rapidly. Few can deny the changes which have manifested in each city in the past 3 years, not to mention the rapid change which occurred between 2000-2005.

My observations are simple. China was indeed growing too fast for its own good, this financial crisis is simply bringing it back down to reality. China will continue to grow but due to the nature of its export oriented economy it must do so within the context of the world economy. All the while it does have the capacity to cushion its own slowdown with its domestic economy and macro policies which will help spur growth in the domestic market.

Check out this Bloomberg article to get a full picture.

News Line: Asian Financials -- China's Shanghai Benchmark soars 9.5%, Hong Kong's Hang Seng up 6.5%, Japan's Nikki up 3.5%

HONG KONG (AP) -- Asian stock markets soared Friday after a punishing week as news of a possible U.S. government plan to rescue banks from toxic mortgage debt brought hope of a letup in the world's worst financial crisis in decades.

Hong Kong's Hang Seng Index jumped 7 percent at the open and was up 6.5 percent at the midday break at 18,779.03. Japan's Nikkei 225 average was up 3.8 percent at 11,920.86.

In China, the Shanghai benchmark surged a stunning 9.5 percent after the government eliminated a tax on share purchases and said it was buying shares in state-owned banks. Stock measures in Taiwan, South Korea and Australia were also sharply higher.

Click here to access the full article by Jeremiah Marquez, AP Business Writer @ yahoo.com/finance