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Asia Market Snapshot: Most Asian Stocks Fall on Concerns over Japanese Debt Despite Gains in Mining and Developers

Most Asian stocks fell as concerns over Japan’s ability to cut its debt overshadowed gains in mining and developers. The Japanese ruling party lost control of the upper house of parliament in yesterday’s election, undermining its efforts to cut public debt as well as Japanese political stability. The Liberal Democrats won 51 seats beating the Democratic Party by 7 seats. (See RGE Critical Issue: DPJ Loses Outright Majority in Japan's Upper House: What Happens Next?). PM Naoto Kan, the fifth PM in four years, has been losing approval since he took office in June with unpopular suggestions like an increase of the consumption tax. The results of the election helped send Japanese stocks and the MSCI Asia Pac index lower despite the rally in Australian miners and Chinese developers. …

A Fuss Over Chinese Leading Indicators?

Today the conference board announced a downward revision in its almost brand new leading indicator for China, suggesting that Chinese growth trajectory will be slower than expected. Markets characteristically did not react well, with the Shanghai stock exchange falling over 4% today, extending its losses to 26% from the peak. But liquidity rather than just the news about the revision seems more likely to be the cause. The most recent (April 2010) reading of the conference board leading indicator, which launched earlier this quarter shows an increase of only 0.3% rather than the 1.7% previously indicated. The downward revision, wholly due to a miscalculation in one of the four main indicators used (the construction sector), brings the CB survey more in line with the longer standing OECD leading indicator for China, which has been signaling a deceleration of growth of late. In fact, the strength of the indicator was puzzling when the first version was released in mid June, since it seemed at odds with a range of other recent data.…

Unpacking China’s Trade Deficit

So China has a trade deficit...and a big one at that. The first monthly deficit in 6 years is a gap of US$7.24 billion! Despite hints from Chinese officials, this was much larger than consensus expected (Bloomberg surveys pointed to US$500 million), and we actually expected a small surplus, proving that as usual, Chinese government statements in the press about forthcoming data releases should be taken at face value.  …

RMB Politics Boiling Over

The rhetoric on exchange rates is heating up again, even more so than we indicated in yesterday’s newsletter. Following Premier Wen’s statement that the Renminbi is not undervalued and that U.S. pressure for dollar “devaluation” felt like trade protection from China’s perspective, Congressional leaders have been seething and calling for action. First there was the signed letter urging that China be labeled a currency manipulator at the next report on U.S. trade partners which is due April 15 from the Treasury department.  Then a group of senators launched some new legislation that grafts together past legislation and focuses on whether or not currencies are misaligned, and plans a schedule of remedies if they are deemed so. All in all, politicians in both countries are trying to gain domestic support by attacking each other’s policies. This, as the economist argued last week, could actually defer the adjustment both sides know is necessary.…

Still Buying Treasurys…

Today’s report that China’s holdings of Treasurys slipped to US$889 billion in January 2010 surely added grist to the fire surrounding the heightened tensions in the pivotal bilateral relationship.  These tensions are coming to a head in U.S. and Chinese legislative sessions and imply that coming weeks and months may be filled with more posturing as we wend our way to a series of bilateral and multilateral meetings.  Policy makers from both countries are starting to draw lines in the sand and it remains to be seen how far they will go to defend these lines. This posturing, if it is posturing, could be counterproductive in the long-term. Both sides are sorting out how strong their hands are...More on this to come from us later this week.…

A Glimpse Inside the CIC’s Portfolio

Last week, the China Investment Corporation (CIC), China’s sovereign wealth fund, filed what seems to be its first ever 13-F disclosure with the U.S. Securities and Exchange Commission (SEC).  The move is significant both from a financial disclosure perspective, showing as it does the CIC’s continued commitment to disclose information about its portfolio in line with other institutional investors (13-F’s are required of investment managers managing over US$100 million in assets, and report their U.S. long positions, including options and shares), but also because it allows a glimpse into a part of the Chinese government’s foreign asset portfolio. As RGE has noted in the past, how China allocates the approximately US$2.8 trillion in government managed foreign assets, will be important for several asset classes.…

Risk of a Chinese Bust?

The World Economic Forum  (WEF) released its annual Global risks report today. As always, it’s an interesting read.   There’s actually a lot of continuity with risks highlighted in 2009,  including fiscal crises, the risk of asset price falls (presumably if some the incipient bubbles burst), chronic diseases and the global governance gaps on dealing with long-term issues relating to the environment, health, development and financial regulation.  With countries exiting recession at different speeds and focused on boosting their domestic growth, more friction on these issues and more delays are a risk. Moreover with the global crisis having been averted by concerted policy action, the willingness to act and coordinate and re-regulate has dissipated.  Ian Bremmer and David Gordon highlighted this concern in the Eurasia group’s risks for 2010 report last week – noting that the divergences between U.S. and Chinese leaders would become even more pronounced in 2010, as the need to be seen to be cooperating has ebbed.  …

Could Capital Inflows to EM be Slowing?

One by-product of the massive capital reallocation to emerging market economies, highlighted by RGE for some time, has been a sharp acceleration in foreign exchange reserves accumulation. Central banks, particularly in emerging market economies, have been adding reserves at the pace of an average US$250 billion per quarter since Q2 2009 as they sought to reduce the appreciation and volatility of their currencies.  IMF data reported that the global reserve stock exceeded US$7.5 trillion in Q3 2009, well higher than aggregate pre-recession levels. October and November data suggest that Q4 looks to be more of the same story.  At this pace (US$1 trillion annualized), reserve accumulation in excess of the deficits of the U.S. and other “overspenders”.…

Wednesday Note – After Dubai

This week we turn our attention to the fallout from the debts of Dubai Inc that roiled global markets last week. Today’s note is excerpted from two pieces of analysis…