By Carl Delfeld of Chartwell ETF & ETF Passport
China news (FXI, HAO) news was dominated by inflation and growth concerns. “The bottom line is the Chinese government has become a little concerned about the degree of frothiness in the real economy,” said Eswar S. Prasad, an economist at Cornell and former head of the IMF’s China division.
China’s financial top-heavy ETF (FXI) continues to exhibit weakness. It is hard to tell where support is and when it could bounce back. In 2009, it never formed any proper basing patterns so little support is identifiable on the weekly chart until the $35-$35.50 zone.
Yesterday, Guangzhou Daily reported that Bank of China and Industrial and Commercial Bank of China, another aggressive lender, had to suspend lending in some cities because they reached their quota for the month. Consumer price inflation jumped from a rate of 0.6 per cent year-on-year in November to 1.9 per cent last month. And vegetable prices rose 16 per cent month on month.
Arthur Kroeber, managing director of Dragonomics in Beijing, says that monetary policy is “far too loose” and that the authorities have been slow to respond to the threat of inflation, which could top 5 percent by April or May. Liu Ligang at ANZ forecasts that inflation this year could rise as high as 8.6 per cent.
Peking University economist, Huang Yiping, published a piece in the East Asia Forum making his not-so-rosy predictions for 2010. They were:
1: The renminbi will probably begin to appreciate against the dollar.
2: Job market pressures may rise again even as the economy recovers.
3: Housing prices will probably begin to weaken.
4: Structural imbalances are likely to worsen.
5: The government will likely introduce another stimulus package
Many believe, but not me, that China’s lack of democracy is an advantage in making unpopular but necessary changes. “It is more challenging for democratic systems because every day they come under public pressure and every short period they have to go back to the polls,” said Victor Chu, chairman of First Eastern Investment Group in Hong Kong, the largest direct investment firm in China. “China is lucky to have the ability to make long-term strategic decisions and then execute them clinically.”
China delivered a blunt and disdainful retort on Monday to the American request that it investigate recent attacks on American computers from Chinese soil, saying that any suggestion that it conducted or condoned the hackers’ intrusions was “groundless and aims to denigrate China.”
The first Russian IPO in Hong Kong went badly this week.
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