China’s Shanghai Composite Index threatens a bear trap on the weekly chart, reversing above former primary support at 2000, headed for a test of resistance at 2150. Bullish divergence on 63-day Twiggs Momentum suggests that a bottom is forming. Penetration of the descending trendline would strengthen the signal.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
Alan Kohler writes about the Fed’s quantitative easing strategy which is effectively debasing the US dollar:
Because it is trying to reduce the world’s reserve currency, the Fed is effectively giving other countries two choices: either allow your currencies to appreciate against the US dollar and thus make your economies less competitive and crunch your export industries, or print money with us and risk (or perhaps guarantee) inflation.
It is a Hobson’s Choice, and like most other countries’ central banks, the Reserve Bank of Australia doesn’t quite know what to do.
The strategy is also debasing the more than $2 trillion of US Treasuries held by China and Japan, placing these Asian exporters in an awkward position. Repatriating their investments would send the dollar plummeting against the yuan and the yen, reversing their export advantage maintained over the last two decades through capital account inflows into US Treasuries. Capital inflows were used to offset the current account outflows and prevented the yen and yuan from appreciating against the dollar. If the flows reverse, the US will enjoy an unfair trade advantage from an under-valued dollar.
Methinks those who predict a globally dominant China with continued growth rates of 7% to 8% are a mite premature. …….Possibly a century or two.
Read more at What to do about the US currency war | Alan Kohler | Commentary | Business Spectator.
Michael Pettis writes about the latest Australian government White Paper Australia in the Asian Century that projects an average 7% GDP growth rate for China between 2012 and 2025:
This seems to put the Australian government among the most optimistic in the market when it comes to long-term growth expectations for China. I have always assumed that government projections should generally be on the pessimistic side to prepare for unexpected negative shocks (positive shocks can take care of themselves), but apparently not. I am glad to say that my own conversations with Australian government officials lead me to believe that this White Paper may represent the official view of the government, but it does not represent the private views of all Australian government officials…….
Read more at Pettis: Australia should be pessimistic | MacroBusiness.
Jack Rodman, president of Global Distressed Solutions LLC, spent 1999 to 2011 living in Japan and China, packaging and disposing of nonperforming loans and distressed assets. He writes on the problems facing China:
At the end of 1989, Japan’s bubble economy burst and its economic miracle came to an abrupt end. The Nikkei exchange fell from nearly 40,000 to its current 10,000 range. Over the course of 20 years, what appeared to be “unstoppable” economic growth proved to be anything but.
Today, China, in some ways, appears to be closer to following Japan than to sustaining its own economic miracle. China’s Shanghai Index (stocks) has fallen from a high of 7,000 in 2007 to a low of 2,000 for the past few years, and Chinese domestic investors have little confidence in their domestic stock market. The Japanese bubble, and its aftermath, was the result of a series of domestic financial and economic imbalances, many of which China faces today—to varying if not greater degrees….
Read more at China is now heading toward Japan-style economic paralysis if it doesnt change course – Quartz.
Hongmei Zhao and Lucy Hornby report:
Investors rushed to [Hua Xia Bank Co Ltd]’s Jiading branch in a suburb of Shanghai after one of four wealth management products issued by the Zhongding Wealth Investment Center failed to pay out as scheduled on November 26.
via China regulator frets over confidence crisis after investment product fails | Reuters.
The ASX 200 found resistance at 4540 after a strong rally. Reversal below 4500 would indicate retracement to test support at 4450. Breach of the falling trendline indicates the correction is over. Respect of 4450 would confirm. A 21-day Twiggs Money Flow trough above zero would signal medium-term buying pressure. Breakout above 4580 would indicate a primary advance to 4800*.
* Target calculation: 4580 + ( 4580 – 4350 ) = 4810
China’s Shanghai Composite Index monthly chart displays controlled descent rather than free-fall, declining in layers of roughly 200 points since early 2010. After breaking support at 2000, expect a decline to 1800*. Oscillation of 63-day Twiggs Momentum below zero reflects the primary down-trend. Recovery above 2000 is most unlikely but would suggest a bear trap.
* Target calculation: 2000 – ( 2200 – 2000 ) = 1800
The Shenzhen Composite Index offers a target of 600* after breaking support at 800 on the monthly chart. 13-Week Twiggs Money Flow below zero indicates selling pressure.
* Target calculation: 800 – ( 1000 – 800 ) = 600
Hong Kong’s Hang Seng Index respected resistance at 22000. Bearish divergence on 13-week Twiggs Money Flow warns of medium-term selling pressure. Reversal below 21000 would indicate a test of the rising trendline at 20000. Recovery above 22000 is unlikely at present but would signal an advance to 24000*
* Target calculation: 22 + ( 22 – 20 ) = 24
Simon Rabinovitch at FT writes:
Shadow banking is flourishing in China, helping to make non-bank institutions as big a source of credit as banks themselves since July – something that has never happened before. Chinese bankers, leading rating agencies and the International Monetary Fund have all warned about risks from the surge in loosely regulated lending, with some even pointing to parallels with developed economies before the global financial crisis. But the Chinese government itself has taken a permissive stance.
Highly regulated banks restricted lending to property developers following concerns over a real estate bubble. But regulators turned a blind eye to unregulated shadow lenders who borrow short — normally no more than 3 months — and lend long. They may believe this will sustain economic growth while protecting banks from risky lending. The thinly capitalized sector, however, is at risk from defaults and a consequent liquidity crisis which could spread to the banking sector.
The ASX 200 encountered resistance at the descending trendline — around 4450. A sharp rise in 21-day Twiggs Money Flow indicates short-term buying pressure. Breakout would indicate a primary advance to 4750*. Retreat below 4400 is less likely but would suggest a decline to 4250.
* Target calculation: 4550 + ( 4550 – 4350 ) = 4750
China’s Shanghai Composite Index followed the DJ Shanghai Index, breaking primary support at 2000 to warn of a down-swing to 1850*. Completion of another 63-day Twiggs Momentum peak, this time deep below zero, would indicate a strong primary down-trend. Recovery above 2000 is unlikely but would suggest a bear trap.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
Dow Jones Shanghai Index earlier broke support at 250, signaling a primary decline. 13-Week Twiggs Money Flow below zero warns of selling pressure.
* Target calculation: 250 – ( 270 – 250 ) = 230
Hong Kong’s Hang Seng Index is far stronger, testing resistance at 22000. But a sharp fall on 13-week Twiggs Money Flow warns of medium-term selling pressure. Breakout above 22000 would signal an advance to 24000* but reversal below 21000 is as likely and would indicate a test of the rising trendline at 20000.
* Target calculation: 22 + ( 22 – 20 ) = 24
