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Wednesday 27 January 2010
Investors Wrong on China, Wen Won’t ‘Do a Volcker,’ Jen Says
China’s monetary tightening is likely to be more gradual than this month’s stock sell-off reflects, and the economic rebound will be sustained this year, said Stephen Jen of BlueGold Capital Management LLP.
Investors Wrong on China, Wen Won’t ‘Do a Volcker,’ Jen Says
27 January 2010
(Bloomberg) -- China’s monetary tightening is likely to be more gradual than this month’s stock sell-off reflects, and the economic rebound will be sustained this year, said Stephen Jen of BlueGold Capital Management LLP.
“The kind of tightening we are seeing in China is appropriate and will not be a repeat of what Volcker did while he was the Fed Chairman,” Jen, managing director of currencies and macroeconomics at BlueGold in London, wrote in a report late yesterday. Former Federal Reserve Chairman Paul Volcker’s attack on inflation in the early 1980s tipped the U.S. into a recession.
China’s central bank has ordered some banks to pare lending, raised the ratio for deposits banks must set aside as reserves and guided bill yields higher this month. Concern that Premier Wen Jiabao’s efforts to stem asset bubbles and inflation will slow China’s growth contributed to a 5 percent tumble in the MSCI Asia Pacific stock index since Jan. 18.
“I am starting to think that some investors simply don’t understand China, even though they feel they do,” said Jen, the former head of foreign exchange research at Morgan Stanley, who has previously worked at the International Monetary Fund. “It is highly unlikely, in my opinion, that Beijing will drive the economy into a growth recession just to contain inflation.”
The central bank Jan. 12 announced increases to banks’ reserve requirements for the first time since June 2008. It raised the level by 0.5 percentage points to 16 percent for big banks and to 14 percent for smaller ones.
Credit Restraint
Chinese banks have also begun restricting new loans as regulators move to contain credit after a surge in lending in the first half of this month. Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area, except for clients who have repaid earlier borrowings, a person familiar with the matter who declined to be identified said yesterday. Chinese banks advanced 1.45 trillion yuan ($212 billion) of loans in the first 19 days of this month, the 21st Century Business Herald reported yesterday, without citing anyone. That’s equivalent to 19 percent of the China Banking Regulatory Commission’s full-year lending target.
The increase in banks’ reserve requirements “was, if anything, not enough” and a cap on loans for the rest of this month “makes a lot of sense,” Jen said. “Why this measure would lead investors to think the PBOC is about to do a ‘Volcker’ is unclear to me.”
China’s Stocks
China’s stocks fell today, sending the Shanghai Composite Index briefly below 3,000 for the first time since Oct. 30. The Shanghai Composite Index has slumped almost 8 percent this year, making it the fifth-worst performer among the 94 benchmarks tracked globally by Bloomberg.
The central bank could have done “a better job” communicating with the market over policy and its “minimal communications” may have allowed “investors’ imagination to run wild,” Jen said.
Economic growth will remain at 8 percent to 10 percent for much of this year, “with only a modest and benign deceleration from the excessive pace” in the fourth quarter, when gross domestic product climbed 10.7 percent from the same period a year earlier, he said.
Yuan-denominated assets “may under-perform, but countries and assets that are leveraged to the real economy of China should continue to perform well,” Jen said.
The International Monetary Fund yesterday revised up its projection for China’s growth to 10 percent, from the 9 percent it projected in October.
Inflation accelerated to a more-than-forecast 1.9 percent in December and policy makers have said managing inflation expectations is one of the government’s central objectives.
The central bank will likely act sooner than previously anticipated to contain prices, a Bloomberg News survey of economists showed Jan. 21.
The central bank will raise interest rates by the end of June and also ratchet up banks’ reserve requirements, according to the median of 17 forecasts.
A survey on Jan. 8 indicated the PBOC would wait until the third quarter before lifting borrowing costs.
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Investors Wrong on China, Wen Won’t ‘Do a Volcker,’ Jen Says
27 January 2010
(Bloomberg) -- China’s monetary tightening is likely to be more gradual than this month’s stock sell-off reflects, and the economic rebound will be sustained this year, said Stephen Jen of BlueGold Capital Management LLP.
“The kind of tightening we are seeing in China is appropriate and will not be a repeat of what Volcker did while he was the Fed Chairman,” Jen, managing director of currencies and macroeconomics at BlueGold in London, wrote in a report late yesterday. Former Federal Reserve Chairman Paul Volcker’s attack on inflation in the early 1980s tipped the U.S. into a recession.
China’s central bank has ordered some banks to pare lending, raised the ratio for deposits banks must set aside as reserves and guided bill yields higher this month. Concern that Premier Wen Jiabao’s efforts to stem asset bubbles and inflation will slow China’s growth contributed to a 5 percent tumble in the MSCI Asia Pacific stock index since Jan. 18.
“I am starting to think that some investors simply don’t understand China, even though they feel they do,” said Jen, the former head of foreign exchange research at Morgan Stanley, who has previously worked at the International Monetary Fund. “It is highly unlikely, in my opinion, that Beijing will drive the economy into a growth recession just to contain inflation.”
The central bank Jan. 12 announced increases to banks’ reserve requirements for the first time since June 2008. It raised the level by 0.5 percentage points to 16 percent for big banks and to 14 percent for smaller ones.
Credit Restraint
Chinese banks have also begun restricting new loans as regulators move to contain credit after a surge in lending in the first half of this month. Bank of China Ltd. has stopped extending new corporate loans in the Shanghai area, except for clients who have repaid earlier borrowings, a person familiar with the matter who declined to be identified said yesterday.
Chinese banks advanced 1.45 trillion yuan ($212 billion) of loans in the first 19 days of this month, the 21st Century Business Herald reported yesterday, without citing anyone. That’s equivalent to 19 percent of the China Banking Regulatory Commission’s full-year lending target.
The increase in banks’ reserve requirements “was, if anything, not enough” and a cap on loans for the rest of this month “makes a lot of sense,” Jen said. “Why this measure would lead investors to think the PBOC is about to do a ‘Volcker’ is unclear to me.”
China’s Stocks
China’s stocks fell today, sending the Shanghai Composite Index briefly below 3,000 for the first time since Oct. 30. The Shanghai Composite Index has slumped almost 8 percent this year, making it the fifth-worst performer among the 94 benchmarks tracked globally by Bloomberg.
The central bank could have done “a better job” communicating with the market over policy and its “minimal communications” may have allowed “investors’ imagination to run wild,” Jen said.
Economic growth will remain at 8 percent to 10 percent for much of this year, “with only a modest and benign deceleration from the excessive pace” in the fourth quarter, when gross domestic product climbed 10.7 percent from the same period a year earlier, he said.
Yuan-denominated assets “may under-perform, but countries and assets that are leveraged to the real economy of China should continue to perform well,” Jen said.
The International Monetary Fund yesterday revised up its projection for China’s growth to 10 percent, from the 9 percent it projected in October.
Inflation accelerated to a more-than-forecast 1.9 percent in December and policy makers have said managing inflation expectations is one of the government’s central objectives.
The central bank will likely act sooner than previously anticipated
to contain prices, a Bloomberg News survey of economists showed Jan. 21.
The central bank will raise interest rates by the end of June and also ratchet up banks’ reserve requirements, according to the median of 17 forecasts.
A survey on Jan. 8 indicated the PBOC would wait until the third quarter before lifting borrowing costs.
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