<<and wine...>>
... i like the way the candles are posed ;0)
just in in-tray, per GREED and fear
· From a technical perspective, GREED & fear is still viewing the 1150 level on the S&P500 as the limit on any countertrend move. Meanwhile, market rallies will delay the still seemingly inevitable policy response to counter the growing deflationary threat in the West.
· GREED & fear is still unclear as to exactly what form the European bank stress test will take. One issue is the treatment of the unlisted entities, be it Spanish cajas or German landesbanken. Another is whether assessments of sovereign debt will include only debt held on trading books or the bonds also held until maturity. Clearly, if it is only the former, it is not really a stress test.
· Investors are looking for an excuse to buy China “policy” stocks, most particularly property stocks. The bigger the institutional investor, in terms of funds under management, the more it makes sense to position the portfolio ahead of any formal policy move, or indeed property price declines which would encourage expectations of such a policy move.
· GREED & fear remains of the view that any formal easing towards the property sector is more likely to come next quarter, not this quarter, and only after official data has confirmed price declines on an annualised basis in the major cities. The authorities will also want to prevent an immediate rebound in prices. In this respect, there is unlikely to be a comprehensive easing of policy, with the clear likelihood of the introduction of at least pilot schemes for property taxes.
· The focus in China policy going forward is likely to remain on reversing or at least reducing the big divide in income distribution which has been a feature of the past decade. That means a continuing focus on raising minimum wages as well as a central government-driven ramp up of social housing where local governments will be asked to follow an agenda set by Beijing.
· GREED & fear also remains of the view that it is too late to be underweight China and that it is right to be increasing bets there. The view is also maintained that the best way to hedge continuing China tightening is to be underweight the derivatives of China growth, be it Australia in the Asia Pacific universe or the likes of Brazil and Russia in the emerging market world.
· The failure of the DPJ to secure a majority in the Upper House means Japan now has a weakened government which means Prime Minister Naoto Kan will have less ability to put pressure on the Bank of Japan which, as always, would prefer to remain passive. This has increased the likelihood of a further rebound in the yen in the next wave of risk aversion.
· With the 10-year JGB yield having declined from 1.41% to 1.09% since late March, and therefore signaling a renewed decline in the nominal GDP growth trend, this suggests renewed downside risk for the Topix. The recent rally in the JGBs has also further delayed the day when the Japanese fiscal situation finally unwinds.
· The Hong Kong residential property market has so far proved remarkably resilient, despite last quarter’s bout of risk aversion in global markets. The recent gradual uptick supply is not expected to upset the residential market unduly since it is being supported by continuing low interest rates.
· Hong Kong’s mass residential property market is now playing catch up with the luxury market, which is already well above its 1997 peak price level. The mass residential market is still being supported by a positive carry. Demand for property is also being driven by moderate but positive income growth and a pick up in Hong Kong inflation.
· With growing confidence that the Fed will not raise interest rates this year, and in GREED & fear’s view not next year either, and with the renewed signal that the renminbi will be appreciating against the Hong Kong dollar again, there is clearly a growing temptation for speculators to re-enter the Hong Kong property market. This could trigger more abrupt government action to cool down any speculative froth. Still, such a policy response will only come later and after a further gain in residential prices and related property prices.
· The investment in China’s Real Gold Mining in the Asia ex-Japan absolute-return portfolio will be removed, with the money added to the existing investment in Newcrest Mining. While the underweight in Australia in the Asia Pacific ex-Japan relative-return portfolio will be increased by 2ppts, with the money added to Hong Kong and Singapore.
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