China: Buy - SAMPLE REPORT

Admin — Tue, 23 May 2006 18:04:06 +0800

Monday, 22 May 2006

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Summary

The Economic Time® is fine, but beware of profitless growth. The government has to keep the place growing in order to create more employment, so talk of "hard" or "soft" landings misses this policy imperative.

The Economic Time™

Monetary Economy:

Inflation started contracting last February and still is. Food deflation keeps decelerating faster than non-food deflation. Because of deflation, the People's Bank of China (PBOC) has allowed the monetary aggregates to keep expanding. Growth in reserve money is still increasing, albeit at 8%. Growth in M1 is the weakest of all the aggregates, while growth in M2 is accelerating. Lending is way below its 2003 peak, but is still barreling along at 22%. Despite the 27 basis point (bp) rate hike on one year loans on 4^th May, interest rates remain very low. The yield curve steepened in September 2004 because long rates were pushed up by 80 bp. The RMB's exchange rate will keep strengthening extremely gradually. On a three month monetary policy view, expect the PBOC to raise reserve requirements slightly. But why "tighten" if inflationary pressures remain low? Because Beijing wants to curtail fixed asset lending, which is wreaking havoc with deflation and thus profits.

Enzio's Clock - China: Buy - SAMPLE REPORT - Comments

China: Buy - SAMPLE REPORT

Summary

The Economic Time™

Monetary Economy: