2018-04-23

A-Share ETF Over the Precipice

China Tech Topping

China tech could be in serious trouble. Related: Do or Die for Tech

USDHKD Moves Further Off Limit

USDHKD eased to 7.8430 at the moment. The dollar stress in the exchange rate may be over, but if so, the stress will migrate to a new target.

SCMP: Higher interest rates after HKMA intervention stoke property and stock worries
For the past three years, even as the HKMA increased its base rate six times in lock step with the US Federal Reserve, local commercial banks have managed to keep lending rates low, thanks to the abundant inflows into the city’s assets.

So much so that some market watchers are worried about the potential impact of higher borrowing costs on the city’s red hot property and equity markets.

The HKMA has used HK$51 billion (US$6.5 billion) of its US$440 billion in foreign reserves over the past week to purchase the local currency, mopping up cash from the banking system, which could finally compel commercial banks to raise rates to be in sync with their US counterparts.

Ethereum and Litecoin Back at Major Resistance

If Bitcoin broke through last week, if it holds look for ETH and LTC to follow through, followed by Monero XMR.

2018-04-22

Funds Cut ZTE Valuations 19 to 36pc

iFeng: 中兴通讯危局第6天!或现转折点逾40家基金下调估值

No Deleveraging in Real Estate

iFeng: 一季度房产开发贷款余额7.7万亿 同比增长25.3%
According to the website of the People's Bank of China, the central bank yesterday issued the "Statistics Report on Loan Investment of Financial Institutions in the First Quarter" (hereinafter referred to as the "Report"). According to the report, the Central Bank statistics show that at the end of the first quarter of 2018, the RMB real estate loan balance was 34.1 trillion yuan, an increase of 20.3% year-on-year, a deceleration of 0.6 percentage points from the end of the previous year, and an increase of 1.9 trillion yuan in the first quarter, accounting for various items of the same period. The proportion of loan increments was 2 percentage points lower than the level of the previous year.

The "Report" pointed out that at the end of the first quarter, the balance of real estate development loans was 7.7 trillion yuan, a year-on-year increase of 25.3%. The balance of affordable housing development loans was 3.8 trillion yuan, an increase of 37.9% year-on-year, and an increase of 447.9 billion yuan in the first quarter, which accounted for 64.7% of real-estate development loans for the same period, 16 percentage points higher than the level of the same period of the previous year. The balance of real estate development loans was 1.4 trillion yuan, an increase of 2.2% year-on-year. The balance of personal housing loans was 22.86 trillion yuan, a year-on-year increase of 20%. The growth rate was 2.2 percentage points lower than the end of the previous year. It increased by 999.4 billion yuan in the first quarter, a deceleration of 175 billion yuan year-on-year.

2018-04-21

Potential China Boycott Highlights Asymmetries in Trade War

In March I wrote: Prepare for Smashed Up KFCs and McDonald's. China's ultimate (as in the last option, not the best option) weapon in a trade war is aggressive nationalism. Mass protests similar to anti-Japanese riots could be unleashed on visible American brands in China. However, a wider boycott of U.S. products will have less of an impact because most manufacturing is done outside the U.S. Apple (AAPL) is not General Motors. While it's profits would fall and its stock price would tumble, the economic blow from an Apple boycott would hit Chinese (and overseas) employment harder than the U.S., where Apple retail jobs dominate.

NYTimes: In a Trade War, China Might Boycott U.S. Goods. That Could Backfire.
Some Chinese state media outlets have hinted darkly that Beijing could weaponize its hundreds of millions of shoppers should Washington go through with its recent tariff threats and start an all-out trade war. On Weibo, China’s version of Twitter, there are sporadic calls to boycott Apple’s iPhones. Beijing has done it before, ably punishing Japanese, South Korean and Philippine products and companies over political disputes.

...If China calls for a boycott of American goods, Chinese workers like David Xu could be in trouble.

Mr. Xu is one of thousands of residents of this port town who cash paychecks from American companies. He works as a technician at a Procter & Gamble manufacturing and distribution center here, one of the company’s biggest in China. Across town, Nike has opened a huge distribution center, its largest in Asia.
That isn’t to say that the idea is off the table.

The Global Times, a nationalist tabloid controlled by the People’s Daily, the Communist Party’s official newspaper, warned that a “people’s war” could be waged against the United States. On Chinese social media, the phrase “China is not scared!” has become a popular hashtag, the People’s Daily illustrating it with an image of Chinese and American boxing gloves.

“The patriotism and collectivism of the Chinese people will likely play a role,” the newspaper said in an editorial last month. “And the slogans to boycott American cars and other big commodities may ring through the Chinese internet and get a response.”
As I wrote before, if I was an American company I'd probably work to reduce my "Americaness" in China even without a trade war because negative social mood and rising nationalism could provide a flash point in the future.
Consumers in China can be a potent force. In 2012, Chinese nationalists wrecked Japanese stores and car dealerships and boycotted Japanese cars because of a territorial dispute, hurting sales for years. In 2016, online vendors stopped selling dried mangoes from the Philippines after a United Nations tribunal ruled in favor of Manila in another territorial dispute.

Last year, the South Korean conglomerate Lotte was forced to shut down more than 80 stores in China after the South Korean government provided land for an American missile defense system that Beijing strongly opposed.

More recently, Chinese nationalists have besieged the social media accounts of Western companies that labeled Taiwan, a self-governing island that Beijing considers a breakaway region, and Tibet as countries.
It is wrong to think of a trade war solely in economic terms, just as it is wrong to think of a war solely in terms of the cost of human lives and materials. In both cases, a pure cost calculation always tells you wars are destructive and should never happen. Yet they happen with regularity throughout human history because the people in charge do a net present value analysis and get a positive value. The issue of going to war is binary, it either happens or it doesn't.

A trade war is stupid from the U.S. perspective because, as even Trump points out, China didn't maliciously attack the U.S. economy. It's own leaders stupidly gave everything away and put the U.S. in a weakened position. The biggest weakness for the U.S. economy is the U.S. dollar's status as sole reserve currency. Solving China trade will only shift the trade deficit to other nations. Targeting China pushes the costs of U.S. policy errors onto China, forces them to increase imports to offset the weaknesses in American economic policy.

Even without incompetent or malevolent elites, American workers face a doubly weak position in a global economy as a high-wage economy that issues the reserve currency. Domestic economic reform, global monetary reform and domestic monetary reform are needed. But those aren't coming. Trade war is coming. The U.S. has an advantage in a trade war because it will lose far less than China and can absorb the pain (political, social) better than China. As nationalism increases on both sides, the NPV calculation will turn more positive as it increasingly relies on the psychological value of "winning."

Socionomics Alert: Beijing Restricts Building Height

The Skyscraper Index is a social mood indicator that shows correlation between economic cycle peaks and the building of the world's tallest skyscrapers.
The first notable example was the Panic of 1907. Two record-breaking skyscrapers, the Singer Building and Metropolitan Life Insurance Company Tower, were launched in New York before the panic and completed in 1908 and 1909, respectively. Met Life remained the world's tallest building until 1913. Another string of supertall towers – 40 Wall Street, Chrysler Building, Empire State Building – was launched shortly before the Wall Street Crash of 1929.

The next record holders, World Trade Center towers and Sears Tower, opened up in 1973, during the 1973–1974 stock market crash and the 1973 oil crisis. The last example available to Lawrence, Petronas Twin Towers, opened up in the wake of the 1997 Asian Financial Crisis and held the world height record for five years. Lawrence linked the phenomenon to overinvestment, speculation and monetary expansion but did not elaborate these underlying issues.[4] The concept was revived in 2005, when Fortune warily observed five media corporations investing in new skyscrapers on Manhattan[3] (none of them, including the tallest New York Times Building, broke any records).
There are several different takes on the Skyscraper Index, and it has corollaries such as new, lavish corporate headquarters sometimes signaling a peak in a company's fortunes.

The social mood argument is simple: when a society is at peak optimism, it reaches for the heavens. This news out of Beijing signals the massive change in social mood and thinking in China.

Mingtiandi: BEIJING RESTRICTS BUILDING HEIGHTS IN PRIME DISTRICT — DERAILS RMB 8.6B IN OFFICE PROJECTS
The Beijing government has retroactively restricted the height of buildings in a prime plot of the city’s core business district to as low as 100 metres, truncating the building heights and potential investment returns of developers who purchased more than RMB 8.6 billion ($1.37 billion) in sites in the area at least seven years ago.

...The affected area in Beijing’s CBD is located north of Jianguomen Outer Street and east of Third Ring Road in the capital’s Guomao commercial zone, and lies just south of the landmark CCTV Tower. The mega-site, which was characterised in a JLL report last year as Beijing’s “superblock,” is made up of 15 plots, which were sold in 2010-2011, anchored by CIC and CITIC’s 528 metre China Zun tower.

...“The completion of these projects will thus be postponed for at least a year as redesigning and government approvals take time.” The projects are now expected to be completed in 2022-23, Cao added.

The office supply in floor area in the affected area will decrease by 10 to 30 percent due to the height restriction, Cao predicts.
Not everyone will lose out. Early builders get around the restrictions and will now have a larger slice of office supply in the area.
The future headquarters of CITIC Group, China Zun, a substantially finished 108-storey building will reach 528 metres — 198 metres higher than the China World Trade Centre Tower III, and some 340 metres above the new guidelines.
The takeaway from a Socionomic perspective is Beijing is no longer reaching for heaven, by trying to cap growth and population, and worrying about oversupply. It is a local regulation and China is still reaching for the heavens with Moon missions, but it is also China's capital city. A shift in mood is underway.