Eq: EMs

(Beijing)

As many will know, part of the most recent Chinese stock meltdown has been weak economic data. Now with the government reportedly buying to prop up stocks, new inflation data has come in. Consumer prices rose just 1.6% year on year in December, while producer prices fell 5.9%, more than expected. The article says that deflationary pressures have eased in China, but they are still a concern. The worst of the slowdown is falling on the manufacturing sector, which can be seen in how much producer prices are falling. The chief economist for HSBC, Qu Hongbin, says “The weaknesses in both domestic investment and external demand have exacerbated the deflationary pressures in the economy. All measures of prices now underscore the rising deflationary risks”.


FINSUM: This is bad news, and while it is not worse than recent inflation data, it will do nothing to help stem the tide of panicked selling in China.

 

Source: Financial Times

(Shanghai)

Bank of America Merrill Lynch has made a bold and unsettling prediction for 2016: Chinese stocks (Shanghai Composite) will fall nearly 30% this year. The forecast comes despite, or perhaps because of, the fact that Chinese equities saw a huge decline during summer 2015. The bank thinks the unwinding of the huge build-up in leverage the country has seen will hurt the economy and markets there. The bank’s head of China strategy, David Cui, who is known to be a bear on the nation, said “Historically, any country that grew debt this fast inevitably ran into financial-system problems, including currency devaluation, banking recap, and high inflation, and we do not expect China to be an exception”.


FINSUM: We are not specialists on the Chinese market, but we certainly agree on the overall direction of the economy and markets there. The way the markets have started the year only supports this thesis.

Source: Bloomberg

(Beijing)

China suffered a severe market rout yesterday, with trading halted on major exchanges as prices fell near or more than 7% across the country. In response, China’s government stepped in to stem the falls today, which helped to stabilize the country’s indices. Some traders and analysts said that the “national team” of state-backed financial institutions resumed buying shares the way they did over the summer in order to stabilize the country’s exchanges. Commenting on the volatility more generally, one analyst had this to say, “The moves seen in Chinese stock markets are quite concerning. Many market internals point to a likely renewed sell-off and a revisit of the late-August lows”. The PBoC also injected more cash into the banking system today as a measure to further help stem fears.


FINSUM: China stepped in and dealt with this round of panic much faster than it did in the summer. However, propping up markets may not solve the underlying problem of a slowing economy.

 

Source: Financial Times

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