HK & China - Market Direction 01 (May08 - Oct08)

[winston]

I have no respect for the IMF after what they have done during the Asian Financial Crisis..

[-dol-]

in this US based problem, IMF is not a participant, I guess

Not at the moment, and seems unlikely to be.

Japan is willing to participate in funding a IMF-led package ---> can we interpret this as an indication of how desperate & clueless they are to even suggest it?

We know from the Asian crisis that it will very painful to go into the IMF intensive care treatment.
IMF is pre-dominantly a European-run institution.
==> No self-respecting Yankee will go under the IMF knife unless it is absolutely necessary.

For now, there is still the US$700b package & the Fed can continue to print more US$ "stealthily"
==> So probably no need to opt for IMF nuclear option.

[-dol-]

I have no respect for the IMF after what they have done during the Asian Financial Crisis..

The same can be said for probably everyone else in positions of power and authority in global finance given the funk we are in now.

[winston]

China Could Be Dragged Down by Wall Street Crash: William Pesek

Oct. 3 (Bloomberg) -- Few questions confound economists more: What might tip China into the meltdown that so many have feared for so many years?

Possibilities include overheating, social instability, corruption, pollution, debt crises, war over Taiwan and a post- Olympics growth swoon. It's a perfectly rational expectation. No rapidly industrializing nation has ever avoided some kind of crisis, least of all upstarts in Asia.

The list rarely, if ever, included a Wall Street crash. And yet, financial troubles in the U.S. may be the catalyst that devastates the world's fourth-biggest economy.

This will sound like a reach to those viewing Asia's strengths. China, for example, is enjoying 10 percent growth as U.S. lawmakers argue over rescuing markets and averting a depression. With its $1.8 trillion of reserves, China could bail out the U.S. without batting an eye.

Japan is returning to acquisition mode after its banks avoided the toxic debt devastating U.S. peers. Mitsubishi UFJ Financial Group Inc.'s $9 billion investment in Morgan Stanley this week is a case in point. After years of lecturing Japan about its shaky banks, the U.S. is coming hat-in-hand to Tokyo.

Yet China's chances of avoiding the U.S. crisis are dwindling by the day.

``U.S. consumers are tapped out and they're going to stop buying Chinese exports,'' says Simon Grose-Hodge, a strategist at LGT Group in Singapore. ``There's no way China's domestic demand can take up that slack.''

Recession Risks

Adds Michael Pettis, a finance professor at Peking University in Beijing: ``We should all hope the recession associated with the U.S. financial crisis is very, very mild.''

The odds of a mild U.S. slowdown are declining almost as fast as stock prices. Even with hundreds of billions of dollars worth of Wall Street bailouts, consumption decreases and big job cuts will probably intensify.

The slow drip, drip, drip nature of Wall Street's swoon should concern officials in Beijing. China's mercantilist model makes the most populous nation dangerously dependent on consumers in the biggest economy. Growth in Asia will experience quite a setback if the U.S. enters a prolonged period of weakness.

While a Japan-like ``lost decade'' isn't the best-case scenario, Americans aren't sitting on the kind of savings that Asians are. As U.S. growth slows, debt is reduced and households increase savings, exporters such as Hong Kong, South Korea and Thailand must look elsewhere for demand.

Little Help

Europe and Japan may be of little help. Japan is on the verge of a recession, while Europe is becoming increasingly vulnerable to events in the U.S. China will be hurt by all of the above, ridding Asia of a key source of stability.

Many say China's slowing from 10 percent growth to 8 percent isn't a disaster. Yet if a government relies on rising prosperity to conceal domestic challenges -- including the widening gap between rich and poor -- slowing growth is a major problem.

Nothing less than a drastic rebalancing will be required: More domestic consumption, a strengthening currency and greater investment in health care, pensions and education. Pulling that off quickly and with minimal disruption would be a feat like no other in economic history.

Anyone who believes China is set for smooth sailing as the U.S. sinks is likely to be as wrong as those arguing a year ago that the subprime-loan crisis was containable.

Asia Decoupling

One of the key points here is the importance of Asia decoupling itself from the U.S. once and for all. It's easier said than done.

It's often pointed out that Asia is holding the cards. Were China to dump its $519 billion of Treasuries, the U.S. would be in for a shock. So would China, as the fallout in the U.S. would drag on China's all-important export industries.

Stocks, too. Many Chinese are recession virgins -- they are far more used to booming than slowing growth. Equity investors are far more accustomed to double-digit gains than big drops in shares. It's an open question how this year's 58 percent plunge in Chinese shares affects sentiment.

There is reason to think Asia can stand its ground. The region's improvements since the 1997 crisis left banks stable, markets humming and currency reserves at comfortable levels. Turmoil in the U.S. is encouraging Asia to take steps to become more independent from bigger economies.

Nations such as China are succeeding by ignoring advice from officials in Washington. After years of being lectured to bolster its banks, China is watching as the financial system the U.S. espoused as optimal crumbles.

The reluctance of Asian banks to buy hard-to-value securities such as collateralized debt obligations left them in ``rock solid'' financial shape, says Marc Faber, managing director of Marc Faber Ltd. in Hong Kong. Also, central banks have been taking steps to boost investor and consumer confidence.

If things get shakier, though, Asia could be dragged down with the U.S. economy. Amid unprecedented upheaval, it almost seems fitting that a risk few considered a year ago could be the one to undermine China.

[winston]

Short selling ban 'not ruled out'

The government will not rule out the possibility of changing short selling rules if market becomes worse, said a spokesperson for the Financial Services and the Treasury Bureau.

The Standard reported today that Hong Kong is ready to ban short sales in financial-sector stocks if there is any abnormal situation in short selling activities and market volatility, quoting government sources.

"I will not confirm or deny [the report]," said the spokesperson, "but the market is changing fast, we will not rule out of any change of regime [if there is need]."

She said the decision will be in the hands of Securities and Futures Commission, according to the current ordinance and the government will leave market regulator to make the decision.

[winston]

HK has not join the world in banning short-selling.

Why ? Do they know something that you don't ? Maybe they already got wind of how the Chinese guffmen will be supporting the market

Hmmm.... maybe this post should be in the Conspiracy Theories thread

===========================================

A more logical explaination:-

HK was ridiculed during the Asian Financial Crisis, for spending about US$15b to prop up the market.

More recently, they also spent a lot of money to buy a big stake in HKEX. They then took a big hit on it..

They are probably now trying to redeem themselves for that HKEX incident as well as the Asian Financial Crisis incident ...

Need to show to the world that they are very market-oriented mah ...

Or do they really know something that the short-sellers don't and wanna squeeze them tight tight ?

[winston]

China to launch stocks margin trade, short sales By Samuel Shen and Lu Jianxin

SHANGHAI, Oct 5 (Reuters) - Chinese regulators, seeking to support the equities market in the face of global financial turmoil, said on Sunday they would soon allow investors to buy stocks on margin and to conduct short-selling of stocks.

The reforms, which have been approved by the cabinet, will initially be conducted on a trial basis by a small number of brokerages and gradually expanded to other securities firms, the China Securities Regulatory Commission said in a statement.

The introduction of short-selling in China would contrast with regulatory moves in much of the rest of the world. In response to the global crisis, U.S. and British regulators last month temporarily banned short-selling of financial stocks, while Australia, Singapore and Taiwan restricted the practice.

But the commission said, "The launch of margin trade and short-selling is an important step in the reform and development of our capital markets, and will inject new vitality into the securities market."

China has been considering since 2006 starting margin trade, in which investors borrow money from brokerages to buy shares, and short-selling, where they borrow stocks from brokers and sell them in the hope of buying them back later at lower prices.

Its launch of the reforms has been delayed by massive market volatility: a bull run that boosted the Shanghai Composite Index .SSEC sixfold between mid-2005 and last October, and then a bear market which took the index down more than 70 percent.

But authorities now appear to believe a government rescue plan for the market is creating conditions under which the reforms can proceed.

The index has rebounded 21 percent from a 22-month low hit late last month in response to steps including purchases of shares from the market by a government fund, and the abolition of the tax on stock purchases.

The commission said on Sunday that it would monitor its reforms closely to reduce risk, and because brokerages had only a limited amount of stocks available to lend, it expected "margin buying will greatly exceed short-selling" in the initial stage.

INVESTOR CONFIDENCE

By underlining the government's desire to stimulate the market, the commission's announcement may encourage fresh buying of Chinese stocks this week, analysts said.

"The government clearly wants to prevent the panic in overseas markets from spreading to the domestic market," said Li Xianming, strategist at Ping An Securities.

"This will keep people guessing about the next step which the government may take to support the market." Some investors are hoping for the introduction of stock index futures, another reform which has been under consideration for years.

The commission did not specify exactly when margin trade and short-selling would start, or name the brokerages that would take part in the initial stage of the reforms.

But many analysts say the first batch of brokerages will include CITIC Securities (600030.SS: Quote, Profile, Research, Stock Buzz), the largest listed securities firm, and China International Capital Corp. Shares in CITIC Securities have jumped 52 percent since late last month because of such speculation.

"This will give investor confidence a short-term boost," said Cao Xuefeng, analyst at West China Securities. "But the market's medium-term trend will continue to depend on global markets and on China's economic performance."

The use of borrowed funds to buy stocks has been banned in China since the mid-1990s, when the practice fuelled rampant market speculation that triggered a government crackdown.

[winston]

The market is still hoping some new policies will be announced during the third Plenary Session of the government committee which will start on Thursday.

[winston]

Please note that HK will be closed tomorrow for the Chung Yeung festival.

[winston]

Why I'll Never Invest in China By Tom Dyson

I pointed the beach cruiser down the road and started peddling. Within five seconds, the little computer on the handlebar said I was going 20 miles per hour. The dust was making me squint, and my shirt was billowing in the wind. I wished I had sunglasses. This was the fastest bicycle I've ever ridden...

The Chinese love bicycles. They love electric bicycles even more. There must be 10 million electric bikes in Shanghai. "'Booming' is maybe too mild a word," said an electric bicycle industry spokesman. According to Tim Johnson, of Post Carbon Cities, "In many major [Chinese] cities, electric bicycles now make up 10 to 20 percent of all two-wheeled vehicles on the roads."

Electric bikes are silent, and they're as fast as mopeds. Watch out before you cross a street in Shanghai. I almost collided with one on my first night here. The rider was going 20 miles per hour in the dark, without lights… in total silence. I didn't see him coming and stepped into his path. He almost ran me over.

Mr. Ching makes the best electric bicycle in the world, the eZee. When you get on an eZee bike, you become stronger than the world's top cyclists. A couple of years ago, American cyclist Floyd Landis took a power meter on the Tour de France. He averaged 232 watts. The silent motor on Mr. Ching's eZee bike generates 350 watts of power... And that's without peddling.

The eZee bike has won the world's most prestigious electric bike race – the Tour de Presteigne – for the last three years. It was the fastest electric bike in the grueling Jurassic Test in the Swiss Alps. In Holland, they've even started using Mr. Ching's bikes as ambulances.

Mr. Ching has a factory near Shanghai. I visited it last week. While I was there, I rode one of Mr. Ching's beach cruisers. Beach cruisers are designed for comfort, not speed. This one had huge "balloon" tires and a wide, bouncy saddle. Peddling gently, I was able to cruise at 25 miles an hour on a flat road. A full battery charge lasts 40 miles. At current U.S. power prices, it costs about $0.10 to recharge the battery overnight.

You'd think Mr. Ching would have a roaring business selling his bikes in China. But he hasn't sold a single bike here. He only sells his bikes to foreigners. He refuses to supply the Chinese market.

"Many years ago, I swore I'd never do business in China again," explained Mr. Ching. He told me his first attempt at business in China – manufacturing PVC pipe for the construction industry – left him bankrupt when his customers refused to pay him what they owed.

Then there's the problem of forgery. Mr. Ching says if he sold bikes in China, they'd make forgeries of his bike and flood the market. Besides, Mr. Ching's electric bikes are 10 times as expensive as the common electric bikes people buy in China.

I take Mr. Ching's decision not to sell his bikes in China as a warning about China investments. First, doing business in the Chinese market is incredibly difficult. The Chinese are not wealthy. Forget Shanghai and Beijing... or what you saw on television during the Olympics. This is a carefully crafted illusion to make foreigners think China is rich. In the countryside, they live on a couple of dollars a day: 99% of China can't afford McDonald's, never mind Apple laptops. And they won't be able to for decades.

Second, Chinese entrepreneurs will copy business models and steal intellectual property. So it's impossible to keep ahead of the market. There's no respect for copyright or patents. Fake goods are everywhere in China... from TaylorMade r7 golf drivers to Rosetta Stone language courses.

Finally, I don't trust the Chinese system to pay me what it owes. Every time I analyze Chinese stocks, I worry I'm playing in a casino where the house has a 15% edge.

Mr. Ching's business is exploding overseas, so it's not a problem. He's building a new, larger factory on a plot of land next door to his current operation and says sales will triple next year. As for me, I'm going to spend $2,000 for one of Mr. Ching's eZee bikes.