22nd January 2012: Changing China – Enter The Dragon

Quote of the Day:

A goal is not always meant to be reached, it often serves simply as something to aim at.

Bruce Lee

 

Macro Overview

Enter The Dragon

• Kung Hei Fat Choi or Happy New Year to all our Chinese friends!
• An apt quote from Bruce Lee as we enter the Year of the Dragon. This is a year of change for China, a new plan, a new leadership but not a new philosophy. China continues to set extremely ambitious goals for itself and yet, despite the skeptics of the past decade, seems able, not just to achieve them, but to exceed them.
• The next 10 years will be no different in this respect. But the goals will change; a breakneck growth-rate is no longer the panacea for China. As Jim O’Neill  points out, if China grows at a “mere” 7.5% pa it will likely contribute more to the global economy than Europe and America put together over the next 10 years. If Westerners want an exhibit of “change they can believe in”, they’d do well to look East.
• China will morph into a model which focuses on internal demand and high-employment industries (tertiary industry). This will lessen the dependence on Western consumption and also, crucially, raise wages.
• To do this without creating volatility, pockets of social unrest and rising tail-risk is impossible. To do this without risking mass food inflation spikes, social revolt and plunging the economy off a cliff (hard landing) is difficult, but not impossible – and my money is on China’s new leadership navigating the minefield of the next decade as deftly as the old leadership did the last decade.
• That said, there is a BIG difference between being optimistic about China’s medium and long term economic prospects and positioning yourself as “risk on” in a China-centric/Asian investment portfolio. It will be vitally important that investors understand the difference between the two in the Year of the Dragon.

Market Overview

Microsoft Gives Google A Whoopin’

• Microsoft executives must be allowing themselves a wry grin this weekend. Microsoft, once the largest company in the World, has played second fiddle to Google for much of the last 7 or 8 years. But on Friday, despite the slightly unpredictable economic outlook Microsoft beat earnings, whereas the young pretender missed earnings for the first time. Still young enough to feel the back of Mr Market’s hand.
• MSFT shares rose 5.65%, whereas GOOG dropped 8.38%… what’s that $20bil, $25bil difference within a day? Nice little bump for MSFT shareholders… and they get a dividend too!

 

Auction Calendar

• Chart of the Day – see auction calendar. Another big week for Italy.

 

Chart of the Day

Bond Auctions - Daily Chart (click to enlarge)

Bond Auctions - Weekly Chart (click to enlarge)

 

Events

Macro Events:

Update:

• Taiwanese Industrial Production disappoints (-8.15%)
• HK Inflation persistently high at  +5.7%

 

Alerts:

• Hong Kong CPI
• TaiwanIndustrial Production

 

Corporate Events:

Results:

• Halliburton [HAL],Texas Instruments [TXN]

Dividends:

• Lowe’s [LOW], Thyssenkrupp [TKA GR]

 

Reading, Links:

Nothing Significant