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 《财经时报》：人民币主动升值5%气候渐成 |
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《财经时报》：人民币主动升值5%气候渐成 -- 游客 - (8614 Byte) 2004-2-07 周六, 10:54 (1202 reads) |
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作者：游客 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Ending the Beta Party
***The high-beta party is ending
Both China and the Fed are tightening. China's cooling of its property
market would cause demand for commodities to decelerate. The Fed's
tightening decreases liquidity by triggering deleveraging.
***Over half of China's demand increase for commodities last year was
cyclical
About half of China's investment growth in the past three years was due
to low Fed funds rate. Low US interest rate doubled China's pace of
urbanization and the associated commodity demand since 2001.
***We still call for a soft landing in China
China's property market could achieve a soft landing this year, which is
the basis for the economy to have a soft landing. Mortgage market and
export growth cushion the downside in property price.
Summary and Investment Conclusion
---------------------------------
Investors are almost unanimously bullish on growth and and bearish on
dollar. The consensus still bets on emerging markets, especially Asia,
and commodity- a highly successful strategy last year. I believe that
the opposite would turn out to be true in 2004. The market appears to
be mixing China's secular story with the Fed rate cycle; half of China's
economic strength last year was cyclical, in my view.
As the Fed kept the Fed funds rate at a historical low and signaled that
the rate would remain low for the foreseeable future, it sparked
financial speculation, especially in real estate market, on an
unprecedented scale. It resulted in strong momentum in global economy
and triggered massive speculation in stock markets, especially in
emerging markets sensitive to commodity prices.
The upward momentum in the global economy due to financial speculation
is peaking out, in my view. First, China is implementing policies to
rein in the massive speculation in its property market, which has
accounted for most of the increase in demand for commodities in this Fed
cycle. Hence, commodity prices could come under pressure in the weeks
to come.
Second, the Fed became uncomfortable with the rampant speculation in
financial markets and withdrew the promise not to increase the Fed funds
rate for a 'considerable period of time'. The threat of higher interest
rate would cool the speculative fervor in financial markets and trigger
some unwinding of the leverage that has built up in the past two years.
Thus, liquidity conditions should deteriorate from here even as the Fed
keeps the rate stable for now.
Still Cyclical
--------------
Global economy has had a massive upturn in the past two years, as
reflected in the surge of Asian exports, even though the US economy
turned up convincingly only in 2003. The genesis of this upturn was the
aggressive reduction of interest rate by the Fed in 2001, which caused
liquidity in the US to surge. Its impact on financial markets was
temporarily suppressed by the bearish sentiment post the NASDAQ burst
and '9-11'.
While the bearish sentiment suppressed the impact of the Fed monetary
easing on the US, it started to impact China right away; its domestic
credit surged by 73% between 2001-03, funded mostly by capital inflow.
As the spreads between US and China's interest rates turned negative,
massive amount of Chinese capital came home and overseas Chinese added
to it by purchasing Chinese properties. The massive credit surge funded
an investment boom; China's fixed investment rose by 68% between
2001-03.
China's investment demand was the trigger for the recovery of the global
economy in this Fed cycle, in my view. The resulting positive sentiment
translated much of the surplus liquidity in the system into financial
speculation, which eventually pushed up demand in the US, Europe and
Japan. The feedback demand from these economies for Chinese exports
reinforced the recovery cycle, triggering more investment in China.
The central role of China's investment in this cycle caused many, if not
most, investors to believe that something new was happening this cycle.
One popular theory is that China's investment has entered a phase of
high and autonomous growth on the back of its urbanization program.
The above view is erroneous. China has a secular urbanization story.
But its strength is heavily influenced by the Fed cycle. China's export
success has made it the first stop in any liquidity surge in the world.
This is why its money supply has become so sensitive to the Fed cycle.
I believe that half of China's investment strength was due to the
Fed-inspired liquidity boom.
China Will Not Follow Southeast Asia
------------------------------------
Many investors accept that China's investment boom is partly cyclical
but believe that it could sustain high growth for one or two more years,
because it is still not short of money, i.e., its foreign exchange
reserves are rising. The Fed-related booms in Mexico and Southeast Asia
went burst only when their foreign exchange reserves began to fall.
The above reasoning, however, does not take into account Chinese
government's obsession with preventing crises. Of course, China could
allow its property sector to continue at 25% growth rate for two more
years and then crash like Thailand in 1997. Chinese government is
reigning in its extended property sector precisely to prevent such an
outcome, which could have inventory of two year's sales by 2006 even
with the restrictive policies in place, in my view.
During the period of easy credit in earl 1990s, Mexico and Southeast
Asia mistook the resulting foreign investors' enthusiasm for emerging
markets as true indicators of their costs of capital and used foreign
liquidity to leverage up to improve economic growth. When the Fed cycle
turned, the resulting liquidity outflow caused currency collapse and
financial crises.
Most Southeast Asian economies experienced rapid increase in foreign
exchange reserves during the period of low US interest rate in early
1990s; their currencies came under intense appreciation pressure. With
the benefit of hindsight, the appreciating pressure on their currencies
was just a bubble.
China's macro bears uncanny similarities to what we observed in
Southeast Asia ten years ago. Foreign trade, investment and foreign
exchange reserves are rising rapidly at the same time, while capital
misallocation is happening on a massive scale and excessive optimism
dominates foreign investors; profits are usually associated with price
rise or arbitrage rather than business fundamentals.
Some investors believe that China's property sector isn't a bubble
because hundreds of millions want to move into cities from villages.
Unfortunately, one could have made the same argument in Southeast Asia
ten years ago. With housing price at about ten times urban household
income, it is farfetched to believe that hundreds of millions of migrant
workers could purchase urban properties.
If China doesn't watch for inventory accumulation in the property sector
and/or excess capacity formation in commodity industries, it could end
up like Southeast Asia, even though it could maximize growth for another
two years. Chinese government wants growth to support job creation.
But it is more sensitive to stability. That is why it is implementing
aggressive tightening measures to rein in the property sector before the
inventory becomes like in Thailand.
As China reigns in its investment excess before the Fed tightens, it
could avoid a Southeast Asian style of financial crisis. But it also
means that the commodity cycle turns down before the Fed hikes interest
rate; the historical relationship between the Fed and commodity prices
could mislead this time.
Does The Fed Care About Bubbles?
--------------------------------
The Fed has not tried to reign in any financial bubble in the past.
This is why, when CPI inflation is low, investors assume that interest
rate would not rise. This perception is vital to financial markets, as
increasing leverage has become a primary source of profit in the global
economy, i.e., borrowing short-term money at low interest rate and
buying higher risk assets.
The Fed policy provides fertile grounds for financial bubbles when
disinflationary forces are powerful as it has been in the past ten years
due to technology and globalization, since it would allow liquidity to
overflow despite of strong economy and asset inflation. Thus, every Fed
cycle creates a bubble and borrows growth from the future. The current
cycle is not different in that regard.
But, a significant change happened last week when the Fed signaled that
the low interest rate could end soon. It puts financial markets on
notice that the leveraging game could become unprofitable. There are
various interpretations on why the Fed did it. My two cents is that it
was concerned about the rampant speculations. The Fed's change in its
wording is equivalent to tightening, as it would cause some leverage in
the financial markets to unwind.
The High Beta Party Is Ending
-----------------------------
As China and the Fed tighten, the high-beta party-rising commodity
prices and falling dollar is ending. Some financial accidents may
happen as the leverage comes off; commodity markets, in my view, could
see some accidents in the coming weeks.
A major financial crisis in emerging markets could be avoided this time
for two reasons. First, the Fed funds rate will likely peak out at much
lower level than before. Most forecasts put the Fed funds rate below 4%
by the end of 2005. Second, the capital flow in this Fed easing cycle
was not dominated by borrowing in foreign currencies. Most of the
increase in foreign exchange reserves in emerging markets has come from
higher terms of trade for commodity economies, portfolio flow into stock
and currency markets.
I am essentially calling for a soft landing in the emerging markets this
time, which rarely happened before. The call is quite dependent on
China's preemptive tightening of its property boom. As long as China's
property price declines by 10% or less, its soft landing could be
secured.
Andy Xie (Hong Kong)
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作者：游客 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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