China & HK Archives - Page 29 of 61

June 27, 2014

S&P 500 unfazed

Summary:

S&P 500 continues a primary advance.
China respects primary support.
ASX 200 continues to signal weakness.
Momentum investors need to hold positions.

The S&P 500 retraced to test its latest support level at 1950 after a downward GDP revision for the first quarter. Respect indicates medium-term buying pressure — also evidenced by rising 21-day Twiggs Money Flow. Follow-through above 1970 would confirm a test of 2000*. Reversal below 1950 is unlikely, but penetration of the secondary trendline would warn of a correction.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

The CBOE Volatility Index (VIX) remains low, indicative of a bull market.

S&P 500 VIX

The Shanghai Composite Index respected primary support at 1990/2000. 21-Day Twiggs Money Flow oscillating above zero indicates buying support, but this may be due to the managed “soft landing”. What we do know is that a fall below zero would definitely signal selling pressure. Breach of support would signal a decline to 1850*. The primary trend is expected to continue its downward path, but further ranging between 2000 and 2150 is likely. An abrupt fall is a fairly remote possibility.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 made a false break above 5470, but 21-day Twiggs Money Flow below zero warns of medium-term selling pressure. Breach of support remains likely and would indicate a correction to 5300. The long-term trend, however, remains upward. Support at 5300/5400 would offer a great entry point for long-term investors. Recovery above 5470 is unlikely at present, but would signal a test of resistance at 5550.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

I repeat my warning from last week: Momentum investors should not attempt to time secondary corrections and need to endure the present volatility in order to reach their intended investment goals.

June 21, 2014

How Indonesia and the Philippines Solved Their Maritime Dispute | The Diplomat

Arif Havas Oegroseno is Indonesia’s Ambassador to Belgium, Luxembourg and the EU, and President of the 20th Meeting of the States Parties of United Nations Convention on the Law of the Sea (UNCLOS) 1982:

There are two important lessons arising from the negotiations between Indonesia and the Philippines over their bilateral maritime boundaries. Firstly, whether you like it or not, the current prevailing law to settle maritime boundaries is UNCLOS. This is true regardless of your historical record, even if it is 115 years old. If a rectangular line map from a century-old Treaty had to be aligned with UNCLOS, aligning a dash-line map that was created only in the mid-1940s with UNCLOS should be relatively problem-free. While there is a difference in shape between the rectangular line of the Treaty of Paris that the Philippines previously used with Indonesia, and the nine dash-line map that China currently bases its maritime claims in the South China Sea on, they share one similarity: both are unilateral expressions of claims that are not based on international law. The first Indonesia-Philippines maritime boundary signifies the emergence of a state practice whereby in a maritime boundary dispute a unilateral proclamation of maps will eventually be aligned with prevailing international law. Secondly, the claimants need not look far to see how countries in the region can work together for the larger interest over a large swath of waters devoid of maritime boundaries…..It is my conviction that all claimant states in the South China Sea, especially China, which is also a Permanent Member of the UN Security Council, carry the moral, political, and legal responsibility of creating peace and stability in the world and are able to work together peacefully.

June 20, 2014

A good week for the S&P 500 but not the ASX

Summary:

Good week for US markets.
China continues to threaten further down-side.
The ASX 200, pulled in opposite directions, is range bound for the present.
Momentum strategies require persistence.

The S&P 500 broke through 1950 and is expected to test the next resistance level at 2000*. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Reversal below 1925 is unlikely at present but would warn of a correction.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

The CBOE Volatility Index (VIX) continues its downward path, indicating low risk typical of a bull market.

S&P 500 VIX

The Shanghai Composite Index rebounded Friday after a tough week and continues to test primary support at 1990/2000. Breach of support would signal a decline to 1850*. 21-Day Twiggs Money Flow oscillating above zero indicates buying support; a fall below zero would suggest selling pressure. The primary trend is expected to continue its downward path, but this is a managed descent and an abrupt fall seems unlikely.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

After a strong surge on Thursday the ASX 200 retreated below 5450 on Friday, suggesting another test of support at 5400. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of support is likely and would indicate a correction to 5300. Recovery above 5500 is unlikely at present, but the long-term trend remains upward.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

Resist the urge to avoid discomfort

Momentum stocks have suffered a fair degree of turbulence since April, after a strong first quarter. Investors unfortunately have to endure periods like this, when the market appears hesitant or lacks direction, in much the same the same way as travelers can expect turbulence during an air flight. It is important is to resist the urge to avoid discomfort by exiting positions. Enduring uncomfortable parts of the journey are necessary if you want to reach your intended destination. Our research on both the ASX and S&P 500 has shown that attempting to time secondary movements in the markets does not enhance but erodes performance: the average (re-)entry price is higher than the average exit price after accounting for brokerage.

A basic rule of thumb in investing is that investors need to endure higher volatility in order to achieve higher returns. If your investment time frame is long-term, it is important to focus on the end result and not be overly concerned by weekly fluctuations.

June 17, 2014

Asian stocks revive

India’s Sensex is retracing to test the new support level at 25000. Respect would confirm an advance to 26000*. The primary trend is up and rising 21-day Twiggs Money Flow suggests buying pressure. Breach of 25000 is unlikely, but would warn of a test of 24000.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index is headed for another test of 2150 after breaking resistance at 2050. A 21-day Twiggs Money Flow trough at zero signals medium-term buying pressure. Breakout above 2150 is unlikely, but would complete a triple-bottom reversal. Reversal below primary support at 1990/2000 also appears unlikely at present, but would signal a decline to 1850*.

Shanghai Composite Index

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

Japan’s Nikkei 225 found resistance at 15000/15200 on the weekly chart. A 13-week Twiggs Money Flow trough above zero signals long-term buying pressure. Breakout above 15200 would target 16000. Reversal below 14800 is unlikely, but would signal a test of primary support at 14000.

Nikkei 225

Hong Kong’s Hang Seng Index is headed for a test of long-term resistance at 24000 on the monthly chart. A 13-week Twiggs Money Flow trough at zero indicates long-term buying pressure. Breakout above 24000 would signal a primary advance to 27000*. Reversal below 21000 and the rising trendline is most unlikely, but would warn of reversal to a primary down-trend.

Hang Seng Index

* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000

June 9, 2014

Creating a Learning Society | Joseph Stiglitz | Project Syndicate

By Joseph Stiglitz:

The Nobel laureate economist Robert Solow noted some 60 years ago that rising incomes should largely be attributed not to capital accumulation, but to technological progress – to learning how to do things better. While some of the productivity increase reflects the impact of dramatic discoveries, much of it has been due to small, incremental changes. And, if that is the case, it makes sense to focus attention on how societies learn, and what can be done to promote learning – including learning how to learn.

Stiglitz also includes an observation particularly relevant to Australia, with its shrinking manufacturing sector.

The great economist Kenneth Arrow emphasized the importance of learning by doing. The only way to learn what is required for industrial growth, for example, is to have industry. And that may require ….ensuring that one’s exchange rate is competitive….

June 8, 2014December 1, 2021

China’s Investment-Driven Growth “Miracle”

Worth Wray quotes Michael Pettis from his 2013 book, Avoiding the Fall: China’s Economic Restructuring, about the future path of China’s debt-laden economy:

Every country that has followed a consumption-repressing, investment-driven growth model like China’s has ended with an unsustainable debt burden caused by wasted debt-financed investment. This has always led to either a debt crisis or a lost decade of very low growth.

We couldn’t agree more. China is no different to Japan or Brazil. Investment-driven growth is only sustainable where investment earns a higher return than the long-term cost of servicing the debt. With diminishing returns on additional investment, returns dwindle and a debt/investment imbalance develops.

Keynesian thinking goes even further, however, suggesting that a fiscal deficit can be used to fund expenditure that does not earn a return, whether public fountains or school libraries. But that is short-term thinking, as Keynes indirectly acknowledged with his response “in the long run we are all dead.” In the long run, as with Japan, the government ends up with a huge pile of public debt and no income from investment assets with which to service the interest, let alone repay the principal.

The effect of a Chinese slow-down is likely to be similar to that of Japan in the early 1990s — just on a larger scale.

June 4, 2014

What Is China’s Biggest Weakness? | Bloomberg

By William Pesek:

China’s debt reckoning is coming. Maybe not this quarter or this year, but Chinese President Xi Jinping’s unbridled effort to keep growth from falling below the official 7.5 percent target is cementing China’s fate…..

Why then, with so many clear examples of financial excess leading to ruin, is Xi continuing down this road? Blame it on the ghosts of Tiananmen Square. In the aftermath of the crackdown on student protesters on June 4, 1989, China’s leaders made a bargain with their people: We will make you richer, as long as you no longer dissent. After the crash of Lehman Brothers, the regime had to go to extraordinary lengths to keep up its end of the bargain, pumping up what was already the world’s highest investment rate. In doing so, China itself became a Lehman economy…

June 3, 2014

Asia: India bullish but China weak

India’s Sensex found support at 24000. Recovery above 25000 would signal a fresh advance to 26000*. Breach of support is unlikely, but would warn of further correction. The primary trend is up and bearish divergence on 13-week Twiggs Money Flow indicates nothing more than medium-term selling pressure from the present correction.

Sensex

* Target calculation: 21000 + ( 21000 – 16000 ) = 26000

China’s Shanghai Composite Index continues to test primary support at 2000. Follow-through below 1990 would signal a decline to 1850*. Reversal of 13-week Twiggs Money Flow below zero signals medium-term selling pressure. Recovery above 2150 is unlikely, but would complete a triple-bottom reversal.

Shanghai Composite Index

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

Japan’s Nikkei 225 rebounded off primary support and is testing resistance at 15000. Follow-through above 15200 would signal another test of 16000. Recovery of 13-week Twiggs Money Flow above 20% would confirm long-term buying pressure. Reversal below 14000 is unlikely, but would signal a primary down-trend.

Nikkei 225

May 26, 2014

Policy, not capitalism, is to blame for the income divide | FT

James Galbraith describes the research on inequality over the last two decades at the University of Texas Inequality Project:

Since 2000, inequality has declined in the post-neoliberal countries of South America, and we believe it has been falling since 2008 in China. There, ever more comprehensive urbanisation plays a major role. In Europe and the US, inequality fell after the financial crisis, but rose again as stock markets recovered.

Rising inequality is not necessarily a sign of bad times. The boom creates jobs, reduces poverty and expands wellbeing. But high inequality tends to prefigure a crisis. After a crisis inequality falls – like blood pressure after a heart attack. But that is a bit late.

May 26, 2014

China Isn’t Just Slowing Down — It’s Contracting | Business Insider

Kyle Bass, founder and principal of Hayman Capital Management, on China’s debt bubble:

China’s banking assets have grown to over 100% of its GDP in the last three years, according to Bass. If the U.S. had engaged in similar policies – which he said would translate to $17 trillion in lending over that time period – it, too, would have achieved more than 7% GDP growth.

China’s banking assets now total approximately $25 trillion, or almost three times the size of its $9 trillion economy. Its low default rate on bank loans – about 1% – is about to rise, according to Bass. Much of that lending is construction-related. Bass said that 55% of China’s GDP growth has been in the construction sector. The marginal return on those loans must be very small, he argued.

“A rolling loan gathers no loss,” Bass said, “and that’s what’s been going on in China for the last few years.” He said it is impossible to believe China could “manipulate” the inputs of its financial system without losing control of the outcomes.

Deflation is also threatening China. Bass said that its GDP deflator is now below zero. He expects the PBoC to engineer a devaluation of the renminbi as a way to stimulate exports and avert further deflation…

China may well attempt to engineer a devaluation of the RMB, but neither the Fed nor the ECB are likely to tolerate China exporting their deflation to the US/Europe.