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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: THE ANT who wrote (63400)	5/6/2010 9:45:13 PM
From: TobagoJack	Respond to of 217769

a detail hendry forgot or never aware that china is in actual fact a self-contained continental economy, and at peak accounted for 35% of global gdp (many hundred years ago) and could well revert to same % japan is truly an export oriented economy in the mean time, just in in-tray, per GREED n fear · The predictable EU/IMF joint €110bn package for Greece has not led to the short-covering trade that GREED & fear had expected. The lack of a more positive response reflects surely the market’s realisation that this is only the beginning, not the end, of the deflationary dynamic caused by Euroland’s incompatible mix of monetary union without political union. · GREED & fear’s view remains that Greece would be better off opting for a return to the drachma and debt restructuring in line with the sort of classic IMF programme implemented in countless emerging market restructurings before; most particularly as foreigners own about 70% of Greek government debt. · The continuing lack of an exit mechanism, whereby if Greece does not meet its targets it can be expelled from the euro area, means the incentives are all wrong. It also means that the moral hazard trade has been given a new lease of life. · European financial institutions have avoided for now a surely inevitable haircut on their Greek government debt while Germany’s industrial establishment is undoubtedly pleased by the following wind provided by the falling euro. Investors should continue to bet on euro weakening against both the US dollar and an Asian currency basket. · The predicament of the PIIGS has cut Britain some slack in terms of the markets’ focus on fiscal crisis having been elsewhere. Also in Britain’s favour has been a far longer debt maturity than some of the PIIGS as well as the perception that the supposedly orderly British have a history of cutting fiscal deficits. Still such a perception will not last for long if the new government does not make its fiscal policy clear within three months of taking office. · GREED & fear’s view remains that the end game of the coming systemic crisis of government debt will be the collapse or disintegration of the US dollar paper standard. But the guess here remains that the fiscal crisis will hit Europe first, then Japan and then the US. · The relatively benign action in the US Treasury bond market of late is a reminder that renewed fiscal stimulus will follow sooner rather than later when the inevitable happens, and Washington realises that the American economy is not as solid as hoped. · There is the potential for US financial institutions to extend “duration” dramatically if they become convinced that deflationary pressures linger. It will be interesting to see if the Fed’s recent decision to stop buying mortgage-backed securities causes a renewed deceleration or even contraction in M2 growth. · The machine gun burst of tightening measures directed at the Chinese property market in recent weeks has begun to impact the global commodity trade and related stocks. This is the natural follow on trade from the negative head wind already seen in Chinese property stocks and bank stocks. The next potential area of vulnerability will be the derating of high multiple Chinese consumer stocks. · The short term market focus will remain on the trend in China property transactions and prices. But the other area which in GREED & fear’s view deserves more focus is the secondary residential property market. · All this will feed the likelihood of an intensifying growth scare in China with the market switching schizophrenically from worrying about rising CPI and overheating to worrying about the opposite. As the scare stories mount on China, as they likely will in coming weeks, it will add credence to the China collapse stories now popular. But investors need to remember that China has induced the growth scare. · While GREED & fear will admit to the risk of a PRC policy mistake, the likelihood is that the stock market and buyers of mainland properties will again respond positively when Beijing again puts on the green light as regard the property market. · GREED & fear expects that, sooner or later, the PRC will fill the gap left by a slowing private property market by announcing a far more comprehensive government subsidised scheme for low cost housing than currently exists, possibly on a Singapore-style HDB model or a Brazil-style model where developers would be told the profit margin they can charge. This will create a new growth story. · The risk is now that China-related concerns spread to other markets or sectors perceived as China geared. With the S&P500 having reached GREED & fear’s 1200 target, and having twice failed to break convincingly above that level, the odds now increasingly favour more of a corrective phase unfolding in Wall Street-correlated world stock markets. · A significant growth scare on China is likely to lead to significant underperformance by Australia since both the currency and stocks will decline with commodity stocks and bank stocks declining. A real growth scare in China will also hit the recently recovering Australian housing market, as Australian consumers believe themselves to be leveraged to the world’s best growth story, namely China. · GREED & fear will reduce the allocation in Australia in the Asia Pacific ex-Japan relative-return portfolio by a further 2ppts and reduce China’s overweight by 1ppt. The bet here is that Australia is now more vulnerable in US dollar performance terms. The money will be deployed by adding two more percentage points to hopefully still low beta Malaysia and another percentage point to India. · GREED & fear is going to undo a change made here recently by re-introducing India’s SBI into the portfolio and removing Yes Bank. The investment in ICBC will also be removed and replaced by a 4ppt investment in Astra of Indonesia and an extra percentage point in Indocement. A 3ppt investment will be introduced in China Taiping Insurance which will be paid for by shaving the existing investment in China Life. The investment in Lihir will also be replaced by a 3ppt investment in China’s Real Gold while 2ppts will be added to Chunghwa Telecom. · Any further correction in Indonesia caused by China related concerns will be used to increase positions in this market in the long-only portfolio. It is increasingly clear that Indonesia and India are the two Asian economies with the greatest potential to move to a higher level of sustainable growth over the next five years, with the key variable being the potential for a sustained infrastructure cycle. · The longstanding allocation in German physical property in the global portfolio for US dollar denominated pension funds will be removed and the money will be added to the existing allocation in US 30-year Treasury bonds. While German property remains a fundamentally strong story with a healthy yield, the risk from a US dollar investor’s perspective is that the euro collapses before the Deutschmark is resurrected. · The agreement of the Abhisit government to hold a general election on 14 November should allow for more of a relief rally in Thailand. But there is zero evidence that the issue of the fundamental political schism dividing the country has been resolved. Foreign investors who bought Thailand in the first four months of this year should use any temporary calm before the next storm to reduce positions in Thailand and add to Indonesia on any China driven commodity driven correction. Please consider the environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.