Markets  |  November 22, 2012 15:09:35

China's economy expands, stocks are falling

Today, it is one of the biggest U.S. holidays, Thanksgiving. In the U.S. stock market is closed and will be less liquidity in all markets, since the U.S. Trader shall return tomorrow parquet EXCHANGE only during the shortened seance. Day before this feast is living history for shares positive and SP500 index recorded growth since 1950 on this day in 77% of cases. Yester predsviatočný cocktail stock: Dow Jones +0.38% SP500 +0.23%, Nasdaq Composite +0.34%.

To shares in growth management helped yesterday that between Israel and Hamas was vyrokované ceasefire and also behold a corporate governance. Its shares last fall expunged Hewlett-Packard and is also signed by the growth of company shares (+8.8%) after kvartálnych better results. Macroeconomic management did not end too well, since consumer trust by the University of Michigan ended under expectations, no position before the conclusion of the feast was a stronger impetus to the movement.

China vs. Greece

While U.S. stocks shall record a decrease after the last attempt to bounce up in China, we see a completely different evolution. Shanghai Composite Index hovers at the lowest level since early 2009. Interestingly, this period of Chinese grew up around one third of GDP, but the stock market is essentially nepohol. Even at the next graph we can see that from the beginning of the year, the Shanghai Composite index in strategic about 7%, while the Greek stock index Athex Composite grow by 25%.When one considers that Greek GDP will drop it fifth year, while China's GDP is around 9% level, this is a very interesting development.

China's economy expands, stocks are falling

What is the problem of the Chinese stock market? Probably no one escaped red color on Chinese pledge. Central management of the economy has its big negatives. As credit market. That the Chinese company gained access to credit, either needs to have knowledge of, or have otherwise simply nepožičia. May go to the companies working on the Banking tieňovom that im at an attractive interest rate well above 20% požičajú, but it is not very interesting match.

On the contrary, large firms can borrow at very low interest rates. A basic loan rate is 6%, while the banks even have the option to reduce this rate by one percentage point. This will encourage investment in the bad economy. For example, a huge glut real estate decisions in the economy did not cause developerov, but to stimulate the economy through enormous dominates expenditure on infrastructure, efforts to finance regional governments through the sale of land, and the fact that households pay down the whole system.

Households subsidize Chinese system

How? Well, simply by the fact that interest rates on vkladoch are just over 3%, while inflation in recent years, reaching an average of 4%. This means that real household wealth declined and presúvalo towards the companies which have borrows at low interest rates. If it were a market-set rates, interest would have been higher.

Because households are robbing their wealth through a decrease in accounts (otherwise they do speak behold financial repression), we have to state their company and somehow bind. A team is high employment. China can not afford to increase the unemployment rate given the possibility spoločenského conflict and, therefore, prefer to subsidize jobs via artificial injuriously menu also alleviating or export directly via reigns expenses. Profitability of firms decreases, and therefore investors have no appetite buy Chinese stocks.

At the same time the economy is pending rebalansácia necessary. If has a share of domestic consumption in GDP increased (improving the standard of living of households), the government will have to accept a slowdown in GDP. If has a lower rate of participation by the government in GDP will cause a lapse of course part of the GDP and thus the growth slowdown. Hours path does not exist.If the will is the current trend continues, Chinese households will ultimately pressured to Wall, and can come to something, or what new politburo nečaká.

View on today

At night, the Chinese PMI data published showed that purchasing managers in the manufacturing sector they feel best for the last 13 months. These reports, together with the cease-fire between Israel and Hamas, and the result of the eurozone PMI, support the growth of the common currency. Given the empty makrokalendár of U.S. growth we anticipate the continuation of the euro. Current market struggles with resistances at 1.2880 / 1.2900. If the break, will open room for growth to 1.30. The slide to 1.2800.

Author: John Benaki | TRIM Broker, as | Trading on exchanges TRIM Broker

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