Posts Tagged ‘ China ’

The Rest of Europe Can’t be German

December 12, 2011
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The Rest of Europe Can’t be German

The EU Summit and ECB meeting which transpired last week are likely to be the final supporting actions by Eurozone officials this year. The tack forward for Europe has been clarified; move ahead with the long and arduous process of fiscal unification, supported by a reactive ECB. The path ensures two outcomes; that there will be flare ups along the way which will negatively impact sovereign debt/currency markets, and that Europe’s economies will continue to slow as the mending process is drawn out. The way forward will be the German way forward, and the rest of Europe will need to accept it in the near term. Germany has the strongest and most robust economy in the Eurozone. German unemployment is low and the euro has already depreciated to levels...

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China Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity

November 30, 2011
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China Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity

Overnight, financial market sentiment turned around pretty dramatically. The China A-Share market sold-off by 3.3% and approached the vicinity of recent lows. Fears started to mount that Chinese central bankers were going to be slow to ease monetary policy based on continued inflation concerns. After Asian markets closed, the People’s Bank of China announced that reserve ratios were being cut by 50 basis points, from 21.5% to 21.0%. The move was somewhat of a surprise and has started a turnaround in sentiment in the financial world. The reserve ratio cut is significant because it is the first time reserve ratios have been cut since 2008. China’s central bank has been allowing reserve ratios to generally trend higher since 2006 when the ratio used to be in the high single...

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China’s Trade Balance is Adjusting – the Largest Imbalance in the World is no Longer Growing

November 14, 2011
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China’s Trade Balance is Adjusting – the Largest Imbalance in the World is no Longer Growing

Markets in China rallied to start the week. Part of the rally resulted from “catch up” to US markets which closed strongly. But part of the rally was based on positive economic comments coming from Chinese officials. China’s President Hu Jintao pledged to focus on building imports which would boost global economic growth. IMF Deputy Managing Director Zhu Min, and National Economic Research Director Fan Gang, told the Asia Pacific Economic Cooperation forum in Honolulu that a “soft landing” for the economy was expected for China. The officials noted slowing inflation and lower bad debt at Chinese banks. To complete the string of positively toned news, there was also speculation that China was relaxing lending curbs which amounts to incremental monetary policy easing. Both the H-Shares (up 2.8%) and...

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Walt Disney (DIS) Results Strong – Outside of Europe the Global Economy is Solid

November 11, 2011
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Walt Disney (DIS) Results Strong – Outside of Europe the Global Economy is Solid

Long live Mickey Mouse! Walt Disney reported strong results last night which reflected broad strength across the economy. Disney has diversified exposure to discretionary spending with its parks, media properties, and international businesses. A consistent theme through earnings season has been broadly solid corporate earnings and DIS is another example of this from a large capitalization blue-chip multinational. Walt Disney produced the enviable combination of results demonstrating solid top line sales growth, margin expansion, and tremendous EPS growth as cash flow was used to repurchase shares. Disney’s revenues grew 7% this quarter with strength from the parks division, media properties, and product royalties. Developing markets such as Russia, China, and India were called out as strong on the earnings conference call. Disney’s cable and media properties are expanding globally...

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Chinese Inflation Turning Down – More Confirmation on Inflection Point

November 9, 2011
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Chinese Inflation Turning Down – More Confirmation on Inflection Point

Overnight, China released inflation data for October, which came down as expected and declined meaningfully from the previous month. Chinese consumer inflation, which includes food and energy prices, rose 6.1% in September, and 5.5% in October. This data shouldn’t be a complete surprise because China is on a tightening campaign with higher interest rates, lower credit growth, and an exchange rate that has slowly appreciated this year. The actualization of lower Chinese inflation is  important because it provides the political cover for China to start easing monetary policy. In addition, many global commodities such as; copper, oil, cotton, wheat, corn, sugar, etc. have declined which will eventually help ease pressure on Chinese inflation. The Chinese Producer Price Index also declined meaningfully based on the same factors. PPI inflation fell...

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When Will the Market Start to be Forward Looking – Early Signals from Asia?

November 2, 2011
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When Will the Market Start to be Forward Looking – Early Signals from Asia?

The markets have been through a period of wicked volatility with a significant pullback almost to the point of entering a new bear market. Intraday the S&P 500 was down 20% from its high but closed above those levels and went up from there. From the market’s closing bottom of 1,099 the S&P had a tremendous move higher up about 17% in 4-weeks. During this period, the market maintained an obsession with day-to-day and even hour-to-hour news. The situation becomes impossible for investors because the news flow is utterly unpredictable and investors can get whipsawed and hacked up quite easily. Often the market is described as a voting mechanism for 6-9 months out. Understanding that this is the normal state of things will be important at some point in...

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US Industrials See No Evidence of Global Recession – Results from Caterpillar (CAT) and Parker Hannifin (PH) Hammer Home the Point!

October 24, 2011
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US Industrials See No Evidence of Global Recession – Results from Caterpillar (CAT) and Parker Hannifin (PH) Hammer Home the Point!

Caterpillar (CAT) reported very strong earnings this morning, beating estimates quite handily. EPS of $1.71 compared to consensus of $1.57 (a 9% beat). As important, the company outlined an environment consistent with global growth persisting and a strong outlook for 2012. Caterpillar’s organic sales grew by 34% this quarter excluding the recent acquisition of Bucyrus. Caterpillar is a cyclical company, and overly sensitive to changes in the global economy. For perspective, in 2009, Caterpillar saw sales decline by 37%. Each of CAT’s business segments has what are called “trough plans” which are fire drills that prepare CAT in advance for sudden slowdowns in the global economy. This is a company and management team used to handling volatility in the global economy so they are well worth listening to during...

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Uniqlo Launches Flagship in New York City – Prospects for the Brand and Fast Retailing (9983.JP)

October 23, 2011
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Uniqlo Launches Flagship in New York City – Prospects for the Brand and Fast Retailing (9983.JP)

Uniqlo is the main global brand produced and designed by Japanese parent company Fast Retailing (9983.JP). Uniqlo is an older brand with a domestic focus on market share in Japan. The company has done a great job of growing as a Japanese specialty retailer with its compartmentalized presentations and spartan, clean, and colorful styles. The clothes come across as very neat, sharp and essentially Japanese. Over the past month, Uniqlo initiated a major marketing campaign in New York City to build brand and flagship store awareness. The advertising has been all over the subway, grand central, bus stops, and taxis. The New York City flagship opening is on 5th avenue and 34th street. The store just opened on Friday and has some massive sales through the end of the...

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China’s Golden Week Retail Sales Remain Strong – No Hard Landing

October 11, 2011
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China’s Golden Week Retail Sales Remain Strong – No Hard Landing

China’s Golden Week is one of two major 7-day national holidays in China. The two holidays are the Lunar New Year which begins sometime in January or February and Golden Week which starts in early October. The idea of a week long holiday is to provide an opportunity to take time off from work and travel. Although businesses and government officials have a holiday, the retail sector stays open during both of these holidays which make them important for retail sales. Lunar New Year is more important because there is a gift giving tradition associated with Chinese New Year but Golden Week is a very important fall shopping week as well. A number of companies have come out in China and provided indications of strong sales during the week....

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Yum! Brands – Results Indicate Strong China Consumption Growth Continues

October 5, 2011
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Yum! Brands – Results Indicate Strong China Consumption Growth Continues

Yum! Brands (YUM) released results after the close of market yesterday. Yum is the world’s second largest quick service (fast food) restaurant after McDonald’s and operates the KFC, Taco Bell, Pizza Hut, Long John Silver, and A&W Restaurant franchises. Yum is an important company I follow because of the exceptionally strong gearing to China. This year, over 45% of the company operating profits will come from China. The positioning that Yum has in China is the result of decades of investment, brand building, and restaurant openings. There are 4,187 company-owned restaurant units in China amounting to over half of the company owned store base. Yum chooses to own the restaurants units, as opposed to franchise, because the restaurant profitability is so high. Yum makes more money on KFC and...

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China PMI – No Evidence of a Hard Landing

October 2, 2011
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China PMI – No Evidence of a Hard Landing

China’s official PMI was released over the weekend (after financial markets closed on Friday) and the September data point came in slightly higher than last month and slightly higher than expected. The total manufacturing PMI index came in a 51.2 which is the strongest month of the past 4-months. As important as the slight uptick, the gains were broad with improvements in the key categories. Total PMI rose to 51.2 (50.9 in Aug) Output rose to 52.7 (52.3 in Aug) New Orders rose to 51.3 (51.1 in Aug) Export Orders rose to 50.9 (48.3 in Aug) Backlogs rose to 48.9 (47.6 in Aug) Employment rose to 51.0 (50.4 in Aug) In short there was some modest yet broad improvement. While a PMI reading of 51.2 is weak for China,...

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China Hard Landing Fears – The Reality and The Preposterous

September 30, 2011
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China Hard Landing Fears – The Reality and The Preposterous

Slowdown fears in the market have shifted to China. The past two days has seen the start of a shift in sentiment with China exposures viewed more as risk than as opportunity. There is clearly some slowing in China, and there should be, because the government has been trying to slow the economy to help contain inflation for the past year. China starting to slow is a positive because it helps inflation remain under control which is a key element towards China achieving its multi-year economic plans. Over the latter half of this week, the fear has shifted that the slowdown is no longer orderly and that it is accelerating towards a hard landing in China. If this were to be true, it would dramatically increase the chances of...

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