Tags: China | Eunice Yoon | Dong Yangyang | Steven Lewis | Barry Dawes

Govt Intervention 'Eroded Confidence' in China's Financial Sector

By    |   Wednesday, 05 August 2015 07:00 AM

CNBC's Eunice Yoon reports from Beijing that Chinese fund manager Dong Yangyang, of China AMC, had been achieving a 20% annual return until this year.

Leveraged investors began a panic in June that reached its worst point so far on July 6.

The market “corrected” by 30% in only a week and a half. The government, which has been promoting the market, also got nervous and took several measures to bolster stocks, including suspending trading in about half of them.

Li Yimeh, Vice GM of China AMC doesn’t think these actions damage the integrity of the market, but Peter Alexander, MD of Z-Ben Advisors, disagrees and says the intervention “eroded confidence” worldwide and investors are still “looking to exit.”

This writer selected this clip to make the point that the U.S. set an example with the bank bailouts of 2008 and is likely to intervene again if the bubble the authorities have reconstructed should burst, particularly in an election year.

This is also to repeat that the notion that the Fed might also intervene by buying Chinese stocks, while admittedly extreme, is worth contemplating, because what the Treasury and Fed have already done is admittedly extreme, and the argument that they “had no choice” is the same as what the communist Chinese are saying now.

Drawing another analogy, Steven Lewis, Global Lead Banking Analyst at EY, while acknowledging that UK investment banks can no longer count on 20% annual returns, thinks 12%-20% is still achievable. For this writer it raises a question as to whether global central banks, led by the U.S. Fed, are prepared to help deliver these results. Perhaps this will become another target for the FOMC to adopt and discuss in its guidance.

It’s been a while since we’ve talked about gold, but now Barry Dawes, of Paradigm Securities, speaking from Sydney, thinks that with the Philly Gold Index of gold stocks back to the level it was in 2000, when gold was only 250, now is the time to buy, at least in Australia, and he also thinks this is a signal for commodities in general, citing strong demand for gold in Asia.

Looking now at the Fed, Andrew Sentance, Senior Economic Advisor at PWC, says the central bank faces “a strategic challenge” in trying to normalize rates, or at least get them off the zero bound. He suggests that the 2% inflation target should also be the target for interest rates, so that at least rates wouldn’t be negative, and he adopts the consensus that the rise, when it occurs, will be gradual.

These views coincided with remarks by moderate Atlanta Fed President Dennis Lockhart, cited by Citi’s Todd Elmer, that the FOMC is ready to raise rates in September. Elmer further predicts continued strength in the dollar against commodity currencies such as Canada.

Looking at another bellwether, Hugh Anderson, MD at Hightower Las Vegas, is willing to gamble on Apple stock (AAPL) based on its “strong financials and proven ability to produce numbers,” and he puts Disney (DIS) in the same category, a stock that dropped over 6% in after-hours trading. His position is also based on the assumption that the Fed “will sit on its hands” after whatever initial action it takes to raise rates.

However, Daryl Guppy, CEO of Guppytraders.com, sees something fishy in the performance of Apple since it has underperformed the market recently. His downside targets are first 108 and 96 longer term before he would move in to buy.

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Eunice Yoon reports from Beijing that Chinese fund manager Dong Yangyang, of China AMC, had been achieving a 20% annual return until this year.
China, Eunice Yoon, Dong Yangyang, Steven Lewis, Barry Dawes
Wednesday, 05 August 2015 07:00 AM
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