TRANSCRIPT: Hang Seng gets sinomania, a possible
upside to global inflation? The commodities boom
and impacts on China trade...
Sinomania! Volume I Webisode 34, October 4, 2007
Hang Seng 30,000?
Is There An Upside to Inflation?
And Commodities Boom!
HANG SENG 30,000?
Markets on mainland China are closed for the
National Day holiday, one of China's golden weeks
- a week long national holiday. Trading ended
last Friday with a bang! The Shanghai Composite
hit a new record high and closed September 28
over 5,552. The CSI 300 also hit a new record
and reached 5,580.813. And Shanghai B shares finally
bested May's performance and won back lost ground
from the tripling of the transaction stamp tax
and closed September 28 at 367.35, a new record.
Meanwhile Hong Kong's markets remain open and
there is quite a rally in the Hang Seng index
that reached a new record high just under 28,000
on October 2nd but is back below 27,000 today.
The Hang Seng has exploded since September and
there are many reasons behind the new bull run.
Certainly cash coming from China's domestic markets
is playing a part but the bigger reason may be
the interest rate moves of the United States Federal
Reserve since the Hong Kong dollar is directly
pegged to the US dollar. In fact some analysts
believe this signals a long rise for Hong Kong
equities and we may see the Hang Seng go to 30,000
Meanwhile Chinese regulators are constricting
the flow of liquidity into Hong Kong by delaying
direct retail investment by individual Chinese
investors and a new rule announced this week aimed
at preventing Chinese companies from issuing stock
simultaneously in Hong Kong and on domestic markets.
The IPO Report will be back next week!
The big talk of the week is the upward trend
in prices of nearly all commodities all over the
world. The Commodities Week conference going on
this week in London and Dubai has plenty of talk
about the amazing global commodities boom that
shows little sign of abating.
Speculation is back that oil may reach $100 dollars
a barrel as early as 2008 confirming calls made
last year by George Soros and Goldman Sachs, among
many others. Jeff Rubin, chief economist of Canada's
CIBC World Markets is the latest to make this
pronouncement. The warnings of two big reports
on world oil and supply demands that I discussed
in Webisode 24 of this program back in July confirm
Indeed some forecasters believe the world may
be in a 50-year commodity boom. And recent prices
for everything from lead and copper to wheat will
give investors a lot to think about.
One thing appears obvious -- commodity values
are affecting prices everywhere. While globalization
may trend toward deflationary impact the current
reality is that inflation is back and going up.
Most countries today remove food and energy prices
from official inflation numbers in order to dampen
the psychological effects of high inflation. Unfortunately
almost everyone is noticing that everything they
buy is becoming more expensive everywhere in the
world. The real inflation rate in China is probably
getting close to double digits and in the USA
perhaps as high as eight percent.
Inflation rates like this will have an impact
on the Chinese currency and already there are
signs that the Yuan may appreciate more than expected.
Reading the tea leaves from the last bank regulators
meetings in Beijing, Morgan Stanley economist
for China Qing Wang believes that Yuan appreciation
will accelerate faster than expected.
And that will mean higher prices for Chinese
goods. The blame China crowd is already complaining
that China's next big export will be inflation.
The fact that that inflation is born in a United
States mired in recession is beside the point.
Increasing the costs of Chinese goods will also
be due the quick efforts Chinese regulators and
manufacturers are making to improve the quality
and safety of Chinese goods in the wake of the
toy and tainted food crises. Just today more big
headlines about Chinese toy recalls. Despite the
apology to China from Mattel and their admission
that the toy crisis was a design and oversight
problem on their end, the US Consumer Products
Safety Commission continues to be the blunt weapon
of choice to confront the China trade challenge.