China – Still joining the bull party

Hang Seng (13.031)  Shanghai B (144,00)  USD/CNY (6,8340)

The economic numbers from China are mixed. Domestic car sales went up but import and export dropped further in February. What is more mixed are the different economists views on the economic data.  It seems that each economist uses the arguments that fits to the personal view, and these are in all directions. It also shows how devoted the market is.

We will need more data to get a clear idea about the next move in domestic equities. The global positive sentiment should spill over on the Chinese stock market during the week keeping the bulls happy.

Some interesting information always come out. Friday, People’s Bank of China and also China’s Premier Wen Jiabao gave some comments. They show a very interesting concern about the future value of China’s US bond holding, both in respect of the real value, the US fiscal discipline but also concerning the Dollar. Again they gave the warning about deflation (it must on top of their minds so often it’s said), but the official China apparently also has an opinion about gold – they think it raise towards the all time high again.

The credit market in China is under clear observance after the significant numbers in January and February. I argue, that a major part has been allocated to relative safe lending like the big government supported public projects and the smaller companies have difficulties getting funding. Several well known loan guarantee companies are in difficulties. The companies have been involved in different financing of the small and medium sized companies (SME). The finance companies are de facto providing SME’s with working capital but the source is drying out. At the same time is the grey lending market under pressure as mentioned in prior comments (after all the grey market counts for around 25% of the total Chinese credit market).

It has two effects, run on official bank lending but also squeezing the liquidity for the SME’s that can’t access bank lending. The official credit growth is not as big as expected but is more moved around in the Chinese box system.

As usual, I remain skeptical about the current positive sentiment and keep the targets.

Targets: Hang Seng 11.000     Shanghai B 110

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