China – More wants to be long but the reality is nasty.

Hang Seng (15.046)  Shanghai B (114)  USD/CNY (6,8440)

Several times I have mentioned that Far East, and maybe even China as the very first, will be the region/country to rebound. Due to higher savings among many households in Far East, stronger balance sheets at many financial institutions in the region compared to the world, flexible labour market, low wages and very important a strong political will to get growth back on track as soon as possible.

In addition, the Chinese Communist Party tries to create a new domestic demand culture, and they are really putting effort into this.

Investors smell the corporate profit from this and the appetite for Chinese mainland stocks and Hong Kong based companies has been growing the last 2 – 3 months.

I can only repeat that I agree in being positioned in this area, when the timing is right.

When we reached the targets at 11.000 in Hang Seng and 90 in Shanghai B I suggested a rebound and then a move down towards these levels again. Now we certainly have the rebound, and you can blame me for not recommend to participate in the rebound. My fundamental view is longer and that makes tactical rebound positions more difficult.

The reason why I still think we will have the down move again is reality.

The Chinese export drop announced last week has almost become famous (-2,2% against expected +15%), but the details include even worse information. The export shows that global demand is cooling faster than anyone thought possible, but it might not be a surprise. The very unpleasant information, in respect to the above described investor hope, comes from the import figure.

Import was down with 17,9%, where lower commodity prices only explains half of the drop. We are talking about a real contraction in import volume that suggests a fast shrinking domestic demand in China.

The above described investor bet on being long or more long China is mainly based on the domestic demand story (of course supported by the very large fiscal stimulus package). Long term its right but it certainly looks like it will get worse before it gets better.

By the way do some bright people say, that in RMB terms the export was down 10,1% ………

Another number from China this week that could be interesting, the Real Estate Climate for November (no forecast but last time it was 99,68).

I keep the targets.

Targets: Hang Seng 11.000     Shanghai B 90

Bookmark It