The PBOC cut benchmark short rates today and continued with targeted liquidity injections.
Following a nice increase earlier in the year China M-2 money growth has flattened out
despite liquidity injection measures in recent months. With real estate asset values in decline,
China's very large shadow banking system is likely experiencing cash flow difficulties and
rising debt liquidation. To counter shrinking sub-sector liquidity, the PBOC is likely preparing
more aggressive liquidity support ahead.
the Shanghai was up 1.4% today and is closing in on 2500. With the Shanghai - Hong Kong
trading link in place and a turn to easier monetary policy, there may be further interest
in China stocks. Note though that IPO volume is scheduled to pick up sharply with dilutive
effect on the Shanghai. With a new year nearly upon us, and The PBOC now interested in
goosing liquidity, I have raised my fully valued target to Shanghai 2575 for 2015. $SSEC
This past summer the long side trade was clean and easy. With an accomodative PBOC, it
may continue so. However, I am far from sure we have seen the last of short term stop / go policy
and monetary experimentation. Since I am a world away from China, and have some other
trades in mind, I am likely to be more of an observer than a player for the forseeable future.
The idea here is not to bad mouth the market but to watch how the reforms program co -exists
with the obvious pressure to maintain 7% or better real growth. Mr. Xi is going to be "wing
walking" for a while.
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