China, Yuan and Markets

Posted: January 11, 2016 in Uncategorized

First the good news…nothing is happening. What?

The Chinese market (A Shares) has been trapped between 3,800 and 3,000 since last August and still fits comfortably there.

2,800 and 2,500 would signal something new and really bad is happening.

But what is happening?

Looking at the market is a bit like looking into a mirror…you see a distortion.

The crisis is not dissimilar to Europe.

There are two distinct pattern – a shift between industrialization and consumption and a rise of nationalism. Sine nobody talks about the second part…let’s talk about it.

Most Western people forget that China is a mix of different races, cultures…it is a bit like Europe, apart that the center is not Democratic (well less democratic than Europe). So there is a struggle in the economy and a struggle between the rich seaside regions and impoverished Central China region.

So what you are seeing is a struggle which outcome will dictate if China will be the next superpower or will remain a second tier superpower or will fade away.

So this is a struggle that will change the geopolitics of the entire world.

Gentlemen, please choose your sides…carefully!

This struggle will go over the next 2 to five years.

In light of this struggle probably this year the Chinese market will remain trapped between 2,800 and 3,000 – going up and down like a yo-yo.

Of particular interest is the Yuan. China apparent power resides in its USD4 trillion reserves. But the outflow since August has been of approximately USD100 billion a month (December figures are not yet out, but likely to be higher).

China will try and stem this outflow (so I am pretty cautious on Australian Real Estate).

To see what is developing you just have to keep an eye on the Yuan. Now it is 6.53 and the major banks sees at 6.7/6.8.

If we go over that (NOT NOW) we could have a serious issues.

Unfortunately my idea is that the YUAN will have to target 7.5 to make any difference for China (NOT a crash…if  crash happens you will see 8 or 9).

So no crash…but as I said before …an increase of volatility for 2016 is pretty much sure

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