Radio Show: Why you should look to sell China & Hong Kong


Thursday, December 08, 2016 // Written by Enzio von Pfeil

 Start planning to sell both markets: China's Economic Time® is worsening, as is Hong Kong's.

 

CHINA FX RESERVES

China’s foreign exchange reserves have fallen by $69.1bn to $3.05 trillion in November. That’s the biggest drop since January and the fifth consecutive monthly decline in reserves at the People’s Bank of China. Economists estimate that half the decline is a valuation effect from the lower US dollar which decreases the value of reserves in other currencies. However, China does not disclose the composition of its reserves leaving economists to estimate that the PBOC has spent around $34 billion defending the currency. The yuan has fallen more than 6% so far this year and by 10% since last summer.

Overnight the PBOC set the yuan fixing substantially weaker at 6.8808 against the USD, the biggest downward move since November 11th.  Onshore yuan is now trading at 6.89 close to a 6-year low against the USD.

 

  1. Magnitudes. If the Central Bank must spend $34 billion to stem a six per cent drop, then it has to spend $57 bn for every 10% that the RMB falls. Maybe Beijing wants the Yuan to fall to 7.78 in order to replace our Hong Kong dollar's peg to the US dollar?
  2. Cattle prod.  The government is fanning capital flight by
    1. imposing more and more restrictions, so those with RMB say to themselves that they best had get out of the RMB asap.
    2. Besides, the key reason for flight has to be to get illicit money abroad before the corruption clampdown worsens.
    3. Then there is that other prod: if the RMB is going to fall, then I best had get out asap before it falls further.
  3. Trade screams.  This continued wilting of the RMB will raise hackles in the White House, which will focus on that ultimate lie – that a weak exchange rate helps exports….my book, Trade Myths, dispels this nonsense
  4. Worsening Economic Time®, When the Central Bank supports the RMB, she has to buy yuan. This means that money is withdrawn from the system. That, in turn, contributes to an “excess demand for money” 8in the jargon of our Economic Clock®, Whenever there is a pronounced excess demand for money, there is none that can go into assets like the stock market. So it falters…..whilst the Shanghai Interbank Offerred Rate rockets, as the six month one has been doing of late.

HONG KONG

In its annual assessment of Hong Kong, the IMF says that the territory faces triple whammy of risks from a declining property market, rising US interest rates and financial market stresses in China.

It forecast economic growth of 1.5% this year and 1.9% next year in Hong Kong but warns of stretched property price valuations and high household debt which is at risk from larger than expected US interest rates rises. It also warns that upheavals in the European banking sector could have an oversized effect on HK due to its role as a global financial sector.

In a separate report by the Hong Kong General Chamber of Commerce, 65% of respondents expected economic growth in the city to be between zero and 2% next year. 73% of the respondents said Hong Kong’s competitiveness had deteriorated over the past year. 53% of respondents were not planning to invest next year, and 49% planned to freeze hiring in the next 12 months.

  1. We are the water skier off the back of the Chinese speed boat.
    1. Listeners know this analogy of mine only too well.
    2. Currently, our HK water skier has been faltering.
  2. ALL of our problems are HOME –MADE, i.e. China has played NO role in these
    1. Rotting standard of English
    2. Senseless  allocation of resources to white elephants like

                                         i.    West Kowloon Cultural Hub

                                        ii.    Bridge to Macau

  1. Massive MTR cost overruns
  2. Not addressing our domestic issues
    1. Lack of sufficient doctors and hospitals
    2. Crying need for more up to date education and schooling facilities
    3. Pollution
    4. Glaring, politically-explosive income divides. Instead of bundling and focusing on the poor, our Financial Secretary gives each of us HKD 6,000!
  3. Blaming China is dangerous escapism from our own problems
  4. Rising levels of litter on the street reflect just how little people here think of their own society
  5. Until our domestic issues are focused upon by a leader with VISIION, we will continue to rot.
  6. Evidence-based investing. When we do Evidence-Based Investing, we focus very much on corporate size and growth in profitability. Tough to see how our profitability can increase in light of wilting competitiveness, i.e. wilting productivity
    1. Profits = f(population growth and productivity/competitiveness). Both keep wilting courtesy of a HK government devoid of any leadership or vision.

 

 

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