While I was whittling my precious weekend hours away I stumbled on to a finance documentaries website and found a very interesting documentary on China. The film is called "Brits Get Rich in China" and follows three entrepreneurs as they go to China to make their fortunes. As any one familiar with China can imagine, anything like this makes for very interesting viewing!
I wont give too much away, but I would highly recommend it to anyone who's thinking about doing business in China, or with Chinese businesses - and that includes investing. Sure, it is only anecdotal evidence, but it just shows that when you go to do business (or invest) in a place like China it pays to know what you're doing, or at least to know someone who knows what they're doing.
Business is tough in China, Chinese are tough, they play a hard business game. If you go in expecting to do business like you would in likes of the US or UK, to some degree you're right, but a lot of aspects are accentuated so you need to sharpen up your act. You need to carry a healthy mistrust, you need to know at least some of the language and customs (more language skills are better) or have a very trustworthy partner who does.
But though business and investing in China can be fraught with risk and challenge, it doesn't mean it's not worth going. As you'll see the people in the documentary the rewards can certainly make it all worth it (and then some). But then that's what investing and business is all about isn't it? Taking risk and doing the hard yards to achieve your dreams.
Watch the documentary here: http://www.financedocumentaries.com/2011/05/brits-get-rich-in-china.html [more]
Here's the economic calendar for the week commencing the 30th of May 2011. This week we say goodbye to May, as such there's the May PMI numbers due out, with China, the US, and most other major economies reporting. There's also more GDP data from Canada, Switzerland, and Australia. In the US there's nonfarm payrolls, S&P/Case-Shiller house price index, and consumer confidence. In terms of monetary policy, the central banks of Russia, Canada, and Thailand are due to announce rate decisions.
The Central Bank of Russia increased its fixed overnight deposit rate by 25 basis points to 3.50% from 3.25%. The Bank held the benchmark refinancing rate unchanged at 8.25% and the overnight auction-based repurchase rate at 5.50%, while also leaving reserve requirements unchanged. The Bank said: "This decision was taken keeping in mind the high level of inflationary expectations and risks for sustainable economic growth,".
Full Story: http://www.centralbanknews.info/2011/05/central-bank-of-russia-raises-overnight.html [more]
This week we look at some of the latest economic data coming out of Japan; noting a rare occurrence of positive inflation, and observing a further trade deficit in April. Then we look at some US data, first checking in on the US consumer sentiment index, and then a proxy for investor sentiment - long term mutual fund flows. Finally the latest monetary policy interest rate decisions are covered-off.
1. Japan Inflation
As noted Japan recorded a rare positive inflation figure in April as consumer prices rose 0.3% on an annual basis, having sat at 0% for most of this year, while April 2010 saw deflation of -1.2%. A certain degree of the positive inflation figure can be attributed to temporary shortages brought about by the earthquake, but inflation had been in a mild upward trajectory anyway. Like the rest of the world, Japan had seen some impact from rising commodity prices (as can be seen in the upward trend in imports on the next chart). Meanwhile aggregate demand has probably only had a marginal impact on inflation as the Japanese economy has been in its second recession after a brief period of growth.
2. Japan International Trade
Japan reported exports of JPY 5.2 trillion in the month of April, down -13% year on year and -12% month on month. Imports were JPY 5.6 trillion, up 9% from April last year and down -1% compared to March. The April figures add another month of trade deficit as rising import costs meet relatively stable exports. The April figures did see some impact from the earthquake as supply chain disruptions weighed on exports. Overall Japan is yet to see either its exports or imports reach pre-crisis levels, which shows the weakness of the Japanese economy, but also the slow rate of growth and economic recovery in its trading partners (not to mention a rising share of global exports for China and other emerging markets).
3. US Consumer Sentiment
The Reuters/University of Michigan US consumer sentiment survey showed some improvement in the final reading for May, with the index at 74.3 vs consensus 72.4, and the April reading of 69.8. Future expectations performed well, at 69.5 vs 61.6 in April, meanwhile current conditions was basically flat at 81.9 vs 82.5 in the previous month. So while the current conditions result was not inspiring, the trajectory of the future expectations part was promising, indeed if the trajectory continues it will be positive for the medium term outlook, which is consistent with other indicators and conditions.
4. US Mutual Fund Flows
US mutual fund flows remained in positive territory in total during April, with the majority of net inflows going to bond mutual funds, showing a possible pick up in momentum after flows into bond funds dried up at the start of the year. Domestic equity flows continued to languish, while foreign equity fund flows remained positive as investors looked elsewhere for better macro-economic fundamentals. It will pay to watch this chart through the year, especially as key events unfold such as the ending of quantitative easing, and a potential short-term correction in US equities. A final thought on the chart below is the large amount of funds that have flown into bond mutual funds, this aspect will be interesting for equities when/if bond returns begin to suffer as the monetary policy stance turns later this year.
5. Monetary Policy Review
The past week in monetary policy saw six emerging market central banks announce interest rate decisions. Those that altered interest rate levels included: Israel +25bps to 3.25%, and Nigeria +50bps to 8.00%, while those that held interest rates unchanged were: Pakistan 14.00%, Turkey 6.25%, Georgia 8.00%, and Mexico 4.50%. So it was very much a continuation of the theme were emerging markets begin to take more caution in balancing the growth vs inflation risks, but also as the inflation impulse begins to taper off as policy measures and stable commodity prices begin to take effect. But the rate hikes in Israel and Nigeria show that inflation pressures are not completely gone in emerging markets, indeed Vietnam is still a hotspot of inflation.
So we saw the emergence of inflation in Japan, after a long period of deflation, however short term factors were likely the main cause of this. Meanwhile Japan's international trade results showed stagnant growth and short term impact from the earthquake. In the US consumer sentiment improved again, heading in a promising trajectory. Also in the US long term mutual fund flows pointed to some interesting trends, and some key areas to watch in the stock and bond markets through the rest of the year. Finally, the week in monetary policy saw two emerging market economies tighten, while other emerging markets opted for caution in the growth risk vs inflation risk balancing act.
1. OECD Statistics stats.oecd.org
2. Trading Economics www.tradingeconomics.com
3. Reuters customers.reuters.com
4. Investment Company Institute www.ici.org
5. Central Bank News www.centralbanknews.info
Article Source: http://www.econgrapher.com/top5graphs28may11.html [more]
The past week in monetary policy saw six emerging market central banks announce interest rate decisions. Those that altered interest rate levels were: Israel +25bps to 3.25%, and Nigeria +50bps to 8.00%. Meanwhile those that held interest rates unchanged were: Pakistan 14.00%, Turkey 6.25%, Georgia 8.00%, and Mexico 4.50%. The Central Bank of Nigeria also raised its bank cash reserve requirement by 200bps to 4% from 2%.
Full Story: http://www.centralbanknews.info/2011/05/monetary-policy-week-in-review-28-may.html [more]
Here's the Economic Calendar for the week commencing the 23rd of May 2011. This week there's more GDP results (revisions) for 1Q 2011 with Germany, the U.K., and the U.S. all due to report. In the U.S. there's new home sales, house price index, pending home sales, University of Michigan Consumer Sentiment, and Personal consumption expenditure data due out. In Japan there's international trade data, consumer price index (inflation) numbers and retail sales results, while China has industrial profits figures.
This week we take a look at some inflation numbers from the EU and UK, and while on the topic have a check in on commodity prices. Then we review the latest GDP numbers from Japan, before finishing up with a check in on global monetary policy.
1. EU Inflation
The EU saw a continued spike in inflation, with Euro Area annual inflation at 2.8%, vs 2.7% in March (1.5% in April 2010), while EU annual inflation rose to 3.2% vs 3.1% in March (2.0% in April 2010). Meanwhile Euro Area Core inflation was perhaps the most remarkable, rising to 1.6% in April, from 1.3% in March, and just 0.8% in April 2010. The highest rate of inflation was seen in Romania (8.4%), followed by Estonia (5.4%); while the lowest rate of inflation was recorded in Switzerland at just 0.1%, followed by Norway with 1.3%. While there is a degree of divergence in results, inflation is broadly creeping upwards in the Euro Zone and Core inflation is fast approaching the ECB inflation target.
2. UK Inflation
Over in the UK, a similar theme of rising inflation was seen with April annual consumer price inflation of 4.5%, up from 4.0% in March, and 4.0% in April 2010. The spike in inflation in the UK has caused some to speculate on a sharp rise in interest rates from the Bank of England, with inflation still well above its official inflation target. However the Bank of England, by and large, is not particularly set on aggressive tightening, particularly when the UK economy is still struggling along in recovery mode. The most likely policy path will be a steady path of rate increases, perhaps commencing later this year, depending on how the broader economy fares.
On a rolling 12 month return basis, the latest data shows commodities were up 35.6% as measured by the Reuters/Jefferies commodity index. On a rolling monthly basis though the figure was -6.6% driven by a sell-off in a few commodities, particularly Silver. Commodity prices continue to be the key variable for 2011, as rising prices have catalyzed uprisings and social unrest, driven surging inflation in emerging markets, and have begun to have an increasing impact on inflation in developed markets. There's also the growth risks that high commodity prices present. But commodities are probably a good example of mean reversion in practice as high prices generally lead to a supply response, thus prices shouldn't be able to run up too high for too long unless structural changes have taken place in the global economy.
4. Japan GDP
Japan had a disappointing Q1 GDP figure, with GDP declining -0.9% on a quarterly basis (annualised -3.7%) , compared to -0.8% in Q4 2010, while Q1 2010 was 2.2%. On an annual basis this mean contraction of -0.7%, compared to 2.4% in Q4 2010, and 5.5% in Q1 2010. Much of the negative results can be explained by the impact of the earthquake as the disaster weighed heavily on private consumption and caused supply chain disruption impacting on net exports, and general uncertainty limiting capital spending. As with most large scale disasters the economic pattern is a short-term hit, but a medium term spike. So, provided the Japanese government can manage the process well, the rebuilding phase should help Japan's economy return to growth later this year, with 2012 likely to see much stronger economic activity levels.
5. Monetary Policy
The past week in monetary policy was relatively quiet with only 5 central banks announcing monetary policy decisions, and of those, only 1 adjusting its policy stance. Vietnam was the only bank to adjust monetary policy settings; increasing its reverse repurchase rate by 100 basis points to 15.00%. Meanwhile those that held their monetary policy interest rates unchanged were: Serbia (12.50%), Hungary (6.00%), Sri Lanka (7.00%), and Japan (0.10%). So there was somewhat of a theme of emerging markets beginning to ease off on aggressive policy tightening (with the exception of Vietnam, which is still seeing rampant inflation) as some inflation pressures begin to ease, if not peak, and as the growth outlook comes to fore in terms of policy risk. Monetary policy, and by extension inflation, remains one of the key factors for the growth and financial market outlook in emerging markets this year.
So we saw the pace of inflation beginning to show a more marked uptrend in the Euro Zone, which may well mean that the ECB's interest rate increase in April will likely be repeated in the near term. Meanwhile the UK also saw a continued high rate of inflation, but the Bank of England is still unlikely to budge as the UK economy is still on the go-slow. On a related topic, commodity prices saw surging 12-month returns in May, but with monthly returns diving into negative territory, perhaps heralding an easing in commodity prices over the medium term. In Japan, first quarter GDP results were disappointing, driven into negative territory by the disaster impact. On monetary policy, further signs of a peak in monetary policy tightening for emerging markets surfaced as the growth-inflation risk mix is becoming increasingly finely balanced.
1. EuroStat epp.eurostat.ec.europa.eu
2. National Statistics Office www.statistics.gov.uk
3. Jefferies www.jefferies.com
4. OECD Statistics stats.oecd.org
5. Central Bank News www.centralbanknews.info
Article Source: http://www.econgrapher.com/top5graphs22may11.html [more]
The past week in monetary policy was relatively quiet with only 5 central banks announcing monetary policy decisions, and of those, only 1 adjusting its policy stance. Vietnam was the only bank to adjust monetary policy settings; increasing its reverse repurchase rate by 100 basis points to 15.00%. Meanwhile those that held their monetary policy interest rates unchanged were: Serbia (12.50%), Hungary (6.00%), Sri Lanka (7.00%), and Japan (0.10%). Elsewhere in monetary policy news, the Reserve Bank of Australia, Bank of England, and US Federal Open Market Committee all released the minutes from their recent monetary policy meetings.
Full story: http://www.centralbanknews.info/2011/05/monetary-policy-week-in-review-21-may.html [more]
Vietnam briefly slipped into the headlines this week with yet another interest rate increase, bringing its refinancing rate to 15.00% (up 100bps). The move follows a series of 100 basis point increases in interest rates and is driven by a surge in prices, with annual inflation reaching 17.5% in April. These events rightfully bring into focus the merits of investing in this emerging (or frontier?) market, at least in the short term, but also in view of the longer term prospects... [more]
The Banco Central de Chile just increased its monetary policy interest rate by 50 basis points to 5.00%. So what is going on in the Chilean economy? This report provides a brief insight into the monetary policy decision, the state of Chile's economy, and how investors can gain exposure to this market.
Here's the Economic Calendar for the week commencing the 15th of May 2011. This week brings more inflation results from the eurozone, the U.K., and Canada. There's also Q1 GDP from Japan, which also has industrial production figures out, and an interest rate decision due from the Bank of Japan. The U.S. has housing starts, building permits, and existing home sales data due this week. Elsewhere there's retail sales figures due from the U.K. and Canada, and foreign direct investment numbers from China.
The past week saw monetary policy decisions announced by 12 different central banks around the world. Those that increased interest rates were: Azerbaijan +25bps to 5.25% Poland +25bps to 4.25% Norway +25bps to 2.25% Peru +25bps to 4.25% and Chile +50bps to 5.00%. Meanwhile Ghana was the only country that eased policy, cutting rates 50bps to 13.00%. Those that held rates unchanged were: Indonesia 6.75% South Africa 5.50% Latvia 3.50% and South Korea 3.00%. Besides interest rate changes two economies lifted reserve requirements: Uruguay lifted its required reserve ratios 300bps to 15%, while China increase its RRR by 50 basis points to an average 21% for large banks.
Full story: http://www.centralbanknews.info/2011/05/monetary-policy-week-in-review-14-may.html [more]
The People's Bank of China raised the required reserve ratio by 50 basis points, bringing the average rate to 21% for large banks (and 19% for smaller banks), effective 18 May 2011. [more]
Here's a graphical rundown on some of the key economic indicators that [more]
China reported a trade surplus for the month of April at $11.4B, up from virtually 0 in March. Exports rose to a record $155.7B (up 2% m/m, 30% y/y) from $152.2B in March and $119.9B in April 2010. Imports slipped month-on-month to $144.3B (down 5% m/m, up 22% y/y), from $152B in March, and $118.2B in April 2010. The return to a monthly surplus will likely accentuate pressure from the US for China to alter its yuan policy, but there are other forces at work which will drive both upward and downward pressure on China's trade balance.
With China continuing to see high inflation and the PBOC implementing a series of monetary policy tightening moves, the Yuan (or particularly the Yuan-Dollar exchange rate) has been highlighted as a potential inflation fighting tool. To be sure, there is also the ongoing chorus from the US urging China to allow a more flexible exchange rate. They say the exchange rate is artificially kept high; granting China an advantage in trade. So with these points in mind, and noting the impending talks between China and the US, it is timely to take a look at some Yuan data, and perhaps developing an informed view.
Here's the Economic Calendar for the week commencing the 8th of May 2011. This week features China's monthly economic data release with PPI, CPI, industrial production, retail sales, fixed asset investment, and international trade stats due out from the world's second largest economy. Elsewhere there is an emphasis on inflation data with CPI due from Germany, France, Switzerland, and the US, there's also PPI data due from those countries. The other key data pieces will be eurozone GDP, and industrial production data from the eurozone, UK, Italy, France, and of course China.
A quick check-in on the Chinese property market shows prices continued to rise in April, but apparently at an increasingly slower pace. According to SouFun/China Real Estate Index System, the average property price across 100 cities rose 0.40% in April to CNY 8,773 per square meter. The results compare to 0.59% in March where property prices rose to 8,738 per square meter. The average price per square meter six months ago was 8,418 Yuan, i.e. average prices are now 355 Yuan higher. For a 100 square meter place this would translate to about a 35,500 Yuan (US$5500) increase in the total purchase price.
The week ending the 7th of May saw continued emerging market monetary policy tightening, with developed market central banks holding off from further tightening. Of the central banks that made decisions on monetary policy settings this week, those that increased were: India +50bps to 7.25%, Philippines +25bps to 4.50%, and Malaysia +25bps to 3.00%. Meanwhile those that held rates were: Australia 4.75%, Romania 6.25%, United Kingdom 0.50%, European Union 1.25%, and the Czech Republic 0.75%. In terms of other policy tools Malaysia also increased its required reserve ratio +100bps to 3.00%, meanwhile Angola reduced its required reserves by -500 basis points to 20%. Overall there were no major surprises, but India did increase by 50bps where as the market was expecting 25bps.
Full Story: http://www.centralbanknews.info/2011/05/monetary-policy-week-in-review-1-may.html [more]
The Reserve Bank of Australia gave the market no surprises today when it held the cash rate unchanged at 4.75%, offering no respite for those lamenting the strong Australian dollar. But there were a number of assumptions in the accompanying media release that might be considered bold at best. It is fitting, then, that in this release the Bank added another sentence to the final paragraph: "In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation." But more on that later.
With silver spiraling out of control, it's worth checking in on some of the other commodities. Indeed the agricultural or soft commodities have, as a group, been surging in recent times, sending the Dow Jones UBS commodities index up over 30% year on year... [more]
China's April PMI stats just came out and were more or less flat compared to March. The official CFLP manufacturing PMI came in at 52.9 in April, down slightly from 53.4 in March, and below the Bloomberg consensus of 53.9. The preliminary HSBC/Markit reading was 51.8, the same as the March reading. The readings show the manufacturing sector in China still in expansionary mode, which bodes well for the Chinese economy. Paradoxically perhaps, in the short term it will likely mean further monetary policy tightening with an increasing likelihood of an additional interest rate hike as the economy proves relatively resilient to the inflation fighting efforts to date.
Here's the Economic Calendar for the week commencing the 1st of May 2011. The week ahead sees PMI (Purchasing Managers Index) data due out from a range of key economies including China, the U.S., the Euro Zone collectively and country-by-country, and others. On the monetary policy front there's the Reserve Bank of Australia, Bank of England, and European Central Bank among those reviewing policy settings. There's also employment data from the U.S., Canada, and New Zealand.