Kiron Sarkar lives in London and Ireland where he works as a money manager. He occasionally attends the Scarsdales Equity idea lunches when he comes to New York, which is where I met him.
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The Chinese National Bureau of Statistics reports that home prices declined in 23 cities in May (out of 70), more than the 16 cities which experienced a decline in April. Rising, but still suggests that the property bubble is continuing in the majority of the main Chinese cities. The outlook for Chinese property developers was cut to negative from stable by S&P a few days ago – they added that price declines of 10%+ were certainly a possibility in the next 12 months.
The property price bubble extends to Hong Kong. The Financial Secretary, Mr Tsang continued to warn against the recent exuberance, stating that prices were “quite frightening”. S&P warns of a “sharp correction”;
The Chinese equity market declined to a 9 month low today – some 14% since mid April indeed. Just thought I’d remind those of you who remain bullish. For full disclosure purposes, I am short China, through the US listed ETF (ticker FXI);
Chinese stockpiling of rare earths (they produce approx 90% of Global
production) has resulted in prices doubling in the last 3 weeks. Last year, China reduced exports by 40%. China is clearly trying to manipulate the market, but at these prices, will there be any commercial buyers (source FT);
There are increasing signs that the Indian RBI is concerned about slowing growth. The market has priced a further 75bps of tightening this year – this may prove to be too aggressive.
The Indian Sensex declined to a 4 month low today – one reason for today’s sell of was due to a report that suggested that investments routed through Mauritius (most Indian focused funds are based in
Mauritius) would not be tax exempt;
The Turkish Central Bank is trying to curb consumer lending.
Basically, they have increased costs for banks that exceed a new limit for consumer lending. If consumer loans exceed 20% of total loans, a bank must increase its general provision to 4%, from the 1% current rate. Turkey has a massive current account deficit and wants to curb consumer spending;
Russian President Mr Medvedev suggests that he will not stand against Mr Putin in the next Presidential elections. A whole series of rambling comments – very Russian – can someone translate please;
Well had to go back to Greece. The Euro Zone Finance Ministers decided to delay a decision (to July) to provide Greece with the additional E12bn, until Greece passed the necessary legislation to cut the State’s budget deficit and implement the privatisation scheme. The Greek PM is to face a confidence vote tomorrow – silly chap called for one. The EU Heads of State meet on 23/24th June. In addition, representatives of the EU/ECB/IMF are back in Athens to check the books – the opportunity for the Greeks to fiddle the accounts has gone.
Personally, I believe the decision to delay providing more financing is sensible – Greece just has not delivered on its commitments.
However, I still believe (just) that the further tranche of E12bn of bail out funds will be provided to Greece.
Euro Zone Finance Ministers still bleat on about a “voluntary participation” by the private sector ie sign up to an extension of maturities on Greek loans or we will force you to drink retsina/ouzo for the rest of your life, whilst listening to Greek politicians make yet more promises. Where are the relevant papers – quick !!!!
The Greek opposition stated today that they had agreed to be part of an unity Government last week, though the PM subsequently withdrew the offer !!!!!;
The FT reports further protests by the Spanish against austerity measures. Protests and civil disorder will rise. You really need to introduce some growth measures. These “hair shirt” austerity measures just wont work economically, politically, financially or for the people, particularly in the more volatile Southern Europe.
Spanish banks are relying on ECB funding much more – ECB funding rose to E53bn in May, up from E42bn in April. A recently introduced scheme in Spain penalises Spanish banks from paying excessive amounts to gain deposits. The Result, more demand for ECB funding. Good luck Mr Trichet;
Italian April industrial orders slumped by -6.4% in April, the largest decline since August 2009. Wow – not good news, though maybe Japanese disaster related;
Better news from Germany – the Bundesbank state that German GDP growth will be 3.1% this year (expect a higher number). However, the 2012 forecast is 1.8%;
Fitch reports that Euro Zone Finance Ministers are to back a plan, supported by the ECB, dubbed “Vienna plus”. Basically, holders of Greek debt, maturing within the next 3 years will not only be “encouraged” to continue to hold these bonds, but, in addition, to buy new longer term bonds. Fitch adds that it would lower Greece’s sovereign credit rating to “restricted default” under such a plan.
Essentially, such a scheme will allow the ECB to continue to accept Greek bonds as collateral. Complete mickey mouse stuff;
Consumer credit is expected to rise by a third this year. The current lending boom is resulting (what a surprise) in rapidly rising bad debts – currently 6.1% and expected to rise to 8.0% by year end. At 250% per annum, what do you expect !!!!;
Some great points from Mr Andy Lees of UBS (a must read daily note) today, I summarise.
Even after a 5th year of a record corn harvest, production will not meet demand. Chinese consumption exceeds Brazil’s entire production (I remain particularly bullish on the agricultural sector) Average income in the UK has declined by the most since 1870, as inflation is much higher than wage increases The Chinese are warning that the growth of imports will slow and that export prospects are not optimistic. Retail sales are below GDP growth. Expect more Fixed asset capex coming through again ie another stimulus programme;
A number of people trade Sovereign CDS’s – I do not. There are serious issues as to whether CDS’s will actually pay out – beware;
Summary
Asian markets generally down, yet again (ex Japan which was flat).
Europe is down again, following the delay in providing the Greeks with more money. US markets have opened lower.
Oil (Brent) has declined to a 4 month low of US$111.60 at present.
However, supply/demand data suggests to me that Oil will not decline back to the mid 80’s expected by most analysts. Whatever, I certainly wont short.
US, UK and German Government bonds continue to rise. Should have followed my own advice. Ho hum.
Euro is looking weaker, even against Sterling. May bounce back following an EU deal on Greece, but thereafter, I remain of the view that it will weaken further.
Must say, I had thought that there would be a bounce in the markets, assuming a resolution re Greece. However, given today’s news, no such luck. I should stick to my positions, rather than trying to trade.
However, the markets are not that badly off at present.
Best
Kiron
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