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Thursday, 9 June 2016

Investors Not Buying China's Market Story


U.S. investors skeptical about China’s move to widen markets

 U.S. asset managers and hedge funds are wary about pouring more money into China until the government addresses its stock market crash last year and wild swings in the yuan, they said on Tuesday, as China unveiled measures to attract U.S. buyers of its assets.

China will give the United States a 250 billion yuan ($38-billion U.S.) investment quota for the first time to buy Chinese stocks, bonds and other assets, officials said, deepening financial ties and interdependence between the world’s two largest economies.
China’s regulators have been pushing to expand foreign investors’ access to domestic financial markets to make its markets broader and attract more capital inflows. But foreign interest has waned after a near meltdown in Chinese stock markets last year and heavy-handed official intervention to shore them up.
“I would imagine that investors would look for certain financial reforms in order to dive in,” said Gregory Peters, a senior investment officer at Prudential Fixed Income with more than $621-billion of assets.

Much of the pain in retail is due to the upheaval in the apparel industry.
According to data from the U.S. government, nearly 13,000 jobs have been lost at clothing and clothing accessories stores in the past three months. Fast fashion upstarts are making life more difficult for some of the older mall-based stalwarts.

Australia has amassed a huge pile of debt—over 120% of GDP—and most of it is mortgage debt on overvalued real estate. Now that Australia’s economy, which was driven by commodity exports to China, has tanked, a lot of this debt is being turned into interest-only loans, because Australians no longer have the money to repay any of the principal. But what if they can’t make the interest payments either? The obvious solution is to refinance their mortgages as interest-only at zero percent; problem solved! Of course, as conditions deteriorate further, the Australians will become unable to afford taxes and utilities. Negative interest rates to the rescue! Refinance them again at a negative rate of interest, and now the banks will pay them to live in their overpriced houses.

A tech boom spurred by companies like Twitter Inc., Uber Technologies Inc. and Airbnb Inc. has transformed San Francisco into one of the hottest economies in the U.S. The unemployment rate was 3.1 percent in April, the lowest since 2000, and home values are at a median of $1.1 million, the largest among the 50 biggest U.S. cities. Mayor Edwin Lee on May 31 released a record $9.6 billion budget proposal.

China central bank chief economist forecasts 6.8% growth in 2016 

The chief economist for China’s central bank forecasts that the economy will grow 6.8 per cent in 2016, well ahead of independent estimates from the International Monetary Fund and most private economists.  After a bout of currency depreciation and weak data earlier in the year, sentiment towards China has improved in recent weeks as the latest data suggest government stimulus efforts have helped prevent a sharp fall-off in investment. In its semi-annual economic forecast published late on Wednesday, the People’s Bank of China’s research bureau forecast that growth will fall comfortably within the government’s target range of 6.5 per cent to 7 per cent and close to last year’s 6.9 per cent.
The IMF and Asian Development Bank both forecast 6.5 per cent growth for this year. Growth projections by private economists average 6.7 per cent for the second quarter, according to a Reuters poll, following 6.8 per cent growth in the first three months.   “The strength of fiscal policy has been increased, and real estate and infrastructure investment have accelerated, but private investment remains weak,” the research bureau, led by China economist Ma Jun, said in its report. The bureau’s forecasts do not represent the PBoC’s official view. Mr Ma was formerly chief China economist at Deutsche Bank. The new forecasts come as inflation data on Thursday showed wholesale price deflation pressures easing in May, a positive sign for China’s struggling manufacturing sector. The producer price index, which measures prices at the factory gate, fell 2.8 per cent in May from a year earlier, an improvement on April’s 3.3 per cent contraction.

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