My view on the liberalisation in China’s markets: Chinese Central Bank says China must work on loosening of its Capital Controls. In order to rival the Dollar, the Remnibi needs to be a global currency, and this can be done by giving foreigners more access to Chinese stocks and bonds .This liberalisation, however, also carries the risk of the Govt losing control on cross-border capital flows; it is this insulation from World’s markets that shielded China from the global crisis earlier. On the other hand, ‘trapping’ money in China in closed markets like now has generated a massive ‘bubble’: inflationary pressures are rising, and property prices are through the roof. The central bank has suggested a 3-step reform, the first one aiming to increase Chinese investments and loans outside of China in the wake of the shrinking global banking systems; the second step, in 3-5 years, involves increasing Remnibi lending, and the longer third step plan over 5-10 years seeks to give foreigners more control over Chinese stocks and bonds. I see the overall interpretation of these ideas as first cautiously testing Remnibi outside of China, before creating a ‘dependence’ of the currency in trade activities, and then finally opening up Chinese markets when the country’s exposure to Remnibi has reduced significantly. This move would be anything but a ‘bull in a China shop’
- Markets optimistic today; Euro resilient, Yen at a 7-month low
- Stocks: FTSE All World ticks up 0.3%, FTSE Eurofirst is up 0.2% and FTSE 100 gained 0.1%; S&P 500 climbed 0.4% yesterday and is still expected to open firm
- Currencies: Euro shows resilience as data from Germany is highly optimistic. Euro consolidated its 10-week high against Dollar at $1.34; Yen, meanwhile, weakened to a 7-month low against the Dollar- this might have been a result of the Japanese policy to weaken their currency to their advantage
- Commodities: Copper stays at $3.83/pound; Gold has eased to $1779/ounce after hitting 3-month highs yesterday; Brent Crude stays around the $124/barrel mark
- Other news, briefly
- P&G to slash 5700 jobs and cut costs by $10 bn in the face of slow growth in the West. These cuts comprise almost 10% of the total jobs at P&G
- CitiGroup sells its stake in HDFC Bank in India which is ~10%. Each share was sold for Rs. 657.56, which resulted in an after tax gain of $722mn for the CitiGroup.