Tags: investors | market | economy | oil price

China, Oil Will Remain a Deadly Duo for Savvy Investors

China, Oil Will Remain a Deadly Duo for Savvy Investors

Wednesday, 13 January 2016 08:44 AM Current | Bio | Archive

China and oil prices remain areas investors better watch closely.

Most market participants got somewhat more positive on where the Chinese economy could be headed for after the Chinese export numbers only declined 1.4 percent (better than expected) on a year-on-year (y/y) basis and imports only declined only 7.6 percent y/y (better than expected), which resulted in a trade surplus of $60 billion.

I think there could be some invoice-manipulation going on, which is by the way not new, in the import — as well as export — accounts between the mainland and Hong Kong, which are facts that long-term investors better not overlook.

To me it’s rather rare that China’s exports to Hong Kong came in at the second highest level on record while the mainland’s imports from Hon Kong doubled in 3 months, all at a moment when China’s overall exports as well as imports are continuously printing bad numbers.

Anyway, the Chinese markets didn’t buy the good news of the “better” import-and-export numbers and once again ended all firmly in the red.

Whatever it is, it certainly doesn’t give me the slightest reason for becoming less pessimistic about China. All investors must remember: “Where China goes, there will go the world.”

When we look at China’s debt measured against GDP (the "official" GDP numbers because if we should take the privately calculated GDP numbers it would be much worse), we see debt has increased fourfold since 2007 and stood at the end of Q2 2015 at 290 percent of the official GDP with $132 trillion owed by non-financial corporates (and which is overall worse than Australia, the U.S., Germany or Canada, which are all not the best students of the class.)

This situation, which continuous to worsen, is a Chinese time-bomb of “out-of-imagination” proportions.

Maybe it’s only anecdotal, but there are market participants who continue to point to the similarities in the up-and-down moves of the Nasdaq over the period 1999-2001 and the Shanghai over the period 2014-2015. Looking at the charts gives one “food for thought.”

This Just In: “Chinese government sources just informed the Secretary General of the Cabinet will be replaced in order to try and improve economic management and financial market regulation.”

Turning to oil, it is helpful to look at the price of the Brent crude oil 5-year forward contract, which is far less observed than the oil “spot” price. But, and this is important, this price is used by companies for internal valuations, just hit $50.90 per barrel, which probably will provoke extra “write-downs” at many companies.

UAE Energy Minister Suhail bin Mohammed al-Mazroui said in Abu Dhabi: “I’m not convinced OPEC alone can change or can solely unilaterally change this strategy just because we have seen a low in the market.”

Anyway, the Western Canada Crude Oil spot price hit a low $16.32 per barrel yesterday, which is really bad news for all Canadian oil-related companies. That incident also has caused collateral damage with the Canadian dollar dipping below the 70 U.S. cents per Canadian dollar, which is very low; but that could still go lower when we look at it in an historical context when we saw the Canadian dollar in the range of the mid-60 U.S. cents in the 2000-2004 period and that could become a buying opportunity.

There is some talk about the possibility of a turnaround in oil prices but as China’s growth prospects are not as good as their authorities want us to believe, I have my doubts we could see sustainable higher oil prices any time soon.

No doubt, whatever happens, bumpy but interesting times await ahead.

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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I have my doubts we could see sustainable higher oil prices any time soon.
investors, market, economy, oil price
Wednesday, 13 January 2016 08:44 AM
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