Tags: stock market | invest | China | bear

Once Again, Worried Investor Eyes Focus on China

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Monday, 08 Feb 2016 07:57 AM Current | Bio | Archive


This week, the world markets will have to do it without the participation of the markets in mainland China, which is of course important, and Taiwan who will remain closed for the whole week.

Markets in Hong Kong, South Korea, Malaysia, the Philippines, Vietnam and Singapore will remain closed for today.

For the Chinese today is “Chinese New Year’s Day of the Red Fire Monkey Year,” which is the 4713th Chinese Year and for those who believe in Chinese horoscopes they could expect more financial events over the year while these events should happen very quickly, which means for all what is finance-related it will be better being prepared for eventual surprises.

Anyway, the latest news out of China is once again not good.

We just got the latest monthly figures on the Chinese Foreign Exchange (FX) reserves that once again have fallen by about $100 billion, but, and that is really alarming, their FX reserves have now fallen from 29 percent of their M2 money supply in 2008 to 15 percent today.

Their FX reserves have fallen by $420 billion over the last six months alone and now stand at $3.23 trillion, which is their lowest level since May 2012.

Something will have to give and many expect a sizable re-adjustment to the downside of the Chinese currency (CNY). If that were to happen, we could expect lots of trouble for, by example, all these Chinese companies that have very large amounts of debt issued in U.S. dollars.

Besides that and on the energy front, Platts, which is a well-known provider of energy and metals information and a source of benchmark price assessments in the physical energy markets, in its just-released Platts China Oil Analytics report informs China's “implied” oil demand contracted by 0.8 percent in December 2015 from a year earlier to 11.35 million barrels per day (b/d) while for the whole of 2015, implied oil demand expanded by 5.8 percent to an average 11.11 million b/d.

Platts expects China's implied oil demand growth to moderate to 2.4 percent in 2016, which is in line with an expected decline in GDP growth.

I’d like to add this in itself wouldn’t be such a big deal if the global economy wasn’t so dependent on China's growth, but that is expected to slow down further, which could put the world at risk of economic stagnation. 

As a long-term investor I would try to keep that scenario in mind because if we would have a close to hard landing in China it will be all about "trying to keep what you have!"

And then in Europe, and notwithstanding it’s not headline news but important enough (I think) for long-term investors to get knowledge of, on Sunday in Germany, the German Federal Financial Supervisory Authority (BaFin) informed it was shutting down the Maple Bank in Frankfurt, which is part of Canada's Maple Financial Group, because of “impending financial over-indebtedness” and stated it barred the bank from taking payments not related to redemption of debt, but added that the lender with 5 billion euros ($5.58 billion) in assets posed no threat to the financial stability of Germany.

The yield on the German 2-year sovereign has dropped to a record negative of -0.506 percent.

Also, Germany just sold 1.655 billion euro 6-month sovereigns with also a record negative average yield of  -0.4348 percent.

Maple Bank is best known in Germany for having assisted car-maker Porsche in its attempt to take over German auto manufacturer Volkswagen in 2008.

I don’t know if we should look at this event in Germany as one of those proverbial “canary in the coalmine” events...

One thing I’m absolutely sure of is: “The false illusions markets have given many of a new Goldilocks era could be on the horizon are definitively over.”

In this context, it could be interesting for taking notice of the latest Moody's Liquidity Stress Index that jumped to 7.9 percent in January from 6.8 percent in December 2015, hereby reaching the index's highest level since December 2009 and marking the largest one-month gain since March 2009, as weakness persists in energy and spread modestly beyond commodity-based sectors.

John Puchalla, a Moody's Senior Vice President commented: “Operating weakness and maturities coming due in early 2017 are straining the liquidity of companies of some low-rated companies. As borrowing rates rise and credit markets tighten, companies closer to the margin will find it challenging to cost-effectively refinance their upcoming debt maturities.”

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
One thing I’m absolutely sure of is, “The false illusions markets have given many of a new Goldilocks era could be on the horizon are definitively over.”
stock market, invest, China, bear
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2016-57-08
Monday, 08 Feb 2016 07:57 AM
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