Tag Archives: M2

Don’t Be Shocked By the Crunch (and how to play it)

14 Feb

This January new loans granted in China totaled CNY 738bn. “Not bad” I hear you cry! However, in the context of expectations of CNY 1tr, and a 29% contraction year-on-year there’s clearly something of a liquidity squeeze going on.

The sharp drop in lending has taken M2 growth to 12.4% year-on-year…the lowest pace of growth since 2001. In fact, M1 shrunk this January by 6.87%.  Yes yes yes – there’s the impact of pre-New Year spending, but the 12 month RoC shows growth at 3.1%, the lowest since this data started being collected in 1990. In nominal terms M1 has only increased CNY 813bn over the past 12 months. This is around the same amount as the mid 2000 when China’s economy was significantly smaller than it is today.

There might be rebounds in the coming months, but don’t be fooled – monetary conditions are clearly tighter than most people think. This shocking January data is the antitheses of exactly 3 years ago when Chinese monetary data shocked everyone with the strength of growth that the PBOC unleashed in the face of gridlocked capital markets and industrial activity.

This is clearly going to affect mostly those sectors most dependent on credit, such as real estate development. This is going to have wider knock on effects.

While most people are not heavily invested in China, one should readjust their holdings in anticipation of the fall out. Here’s one idea…

This slowdown is going to impact the fertilizer, agrochemical and petrochemicals sectors. While we all obsess over the monthly WASDE reports, and machinate over the upcoming Chinese potash negotiations, I contend that something bigger is at work. A slowdown in China is going to impact corn prices, and with it the prices of the aforementioned sectors will be heading south. I don’t believe recent shutdowns by the likes of Potash Corp are enough to salvage the bottom line in 2H12. I readjusted for this a while ago, but it’s not too late.

(Also note – Indian and Brazilian lead macro indicators are not rosy for chems/agchems either. In addition, note the pressure to Indian fertilizer subsidies, and pressure to Chinese fertilizer exports).

Loads a Money!

12 Jan

Over 2010 the Chinese authorities applied multiple policy tightening decisions. Nonetheless, in December M2 increases 2.19%. Over 2010 China’s M2 increased 19.7%.

This is another indication of a dynamic I’ve discussed a number of times here at the Raven and the Dragon – the battle between a central bank and a booming economy. What do I mean? Early tightening policy is usually overwhelmed by a greater incentive to lend. This leads to greater levels of restriction. This cycles, until a sudden slowdown materializes.

In China the situation is complicated by the pace of foreign reserve growth in recent months. In 2010 reserves increases 18%, but growth in 4Q10 was a massive 43% on an annualized basis.

This illustrates the difficulty China faces in breaking the link between a build-up of reserves and local monetary growth. We know that China is starting to redirect the tanker, and decrease its dependence on export driven growth. Until a certain threshold is reached, this link will not be broken. Reserves are likely to continue to grow in th ecoming quarters.

The graph below highlights the huge growth in M2

PS – Here’s a definition of M2: http://www.investopedia.com/terms/m/m2.asp

Zai Jian

The death of Shanghai real estate vs. low market risk

12 Aug

Volatility in the Chinese stock market hit its lowest level this week since April 2007. Check out the graph below.  Seems investors are seeing less risk in Chinese stocks at this time.

Now, data out today shows that new mortgage loans in Shanghai dropped by an massive 98% in July… Yes 98% – that was not a typo.  In the past I’ve described the merits of an authoritarian input to the market – well here’s an example of the dark side of such authoritarian input.  A large decline was expected as the government continued to enact tightening policies this month, and transaction volumes are known to have declines.  However this is  huge and more than an indication that Chinese real estate is in for a hard landing.  Expect spill over, not least in the volatility chart above!

Oh – and check out China’s M2 – also ground to a halt in July. Not a positive sign!

Volatility in the Chinese stock market hit its lowest level this week since April 2007. Check out the graph below.  Seems investors are seeing less risk in Chinese stocks at this time.

https://ravendragon.files.wordpress.com/2010/08/vol.jpg

Now, data out today shows that new mortgage loans in Shanghai dropped by an massive 98% in July… Yes 98% – that was not a typo.  In the past I’ve described the merits of an authoritarian input to the market – well here’s an example of the dark side of such authoritarian input.  A large decline was expected as the government continued to enact tightening policies this month, and transaction volumes are known to have declines.  However this is more than an indication that Chinese real estate is in for a hard landing.  Expect spill over, not least in the volatility chart above!