BIGCAPITAL's Blog

December 17, 2010

China Credit – S&P Raises China’s Long-Term Sovereign Rating – CNBC

China Credit – S&P Raises China’s Long-Term Sovereign Rating – CNBC

S&P Upgrades China’s Credit Rating

BEIJING—Standard & Poor’s Ratings Services upgraded China’s sovereign-debt rating, citing its large foreign reserves, strong fiscal position and positive growth outlook.

S&P raised its rating on China’s sovereign debt to double-A-minus from A-plus, reflecting “the government’s modest indebtedness, a strong external asset position, and our view of the economy’s exceptional growth prospects,” the agency said Thursday.

The announcement from S&P follows a similar move by Moody’s Investors Service, which raised its rating for China’s sovereign debt last month.

S&P said the government may face “contingent liabilities in the banking system that could materialize if an extended economic slowdown unfolds,” but that China’s many strengths outweigh that potential pitfall.

The upgrade amounts to a vote of approval for China’s response to the financial crisis. “We believe the Chinese authorities would respond to future threats to financial stability with timely measures, based on our observation over the past two years,” S&P analyst Kim Eng Tan said.

Implementing structural reform during the global slowdown improves the likelihood of macroeconomic stability, S&P said in a statement.

“We may raise the ratings again if structural reforms lead to sustained economic growth that significantly lifts the average income level,” Tan said.

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December 1, 2010

China Approves Gold Fund Of Funds

Filed under: Uncategorized — bigcapital @ 9:15 am
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China Approves Gold Fund Of Funds
HONG KONG (MarketWatch) — China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.

 Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund, the first of its kind for mainland China, according to a statement posted on the Beijing-based fund provider’s website.

 The fund has been granted permission to invest outside of China under the Qualified Domestic Institutional Investor (QDII), the fund managers said in the statement.

 The fund will invest in gold-backed exchange-traded funds operated outside of China, though the fund provider’s statement didn’t specify which ETFs, or which markets, it was considering.

 Hong Kong launched its own gold-ETF earlier this month, back by bullion held at a government-run depository at the city’s international airport. See report on Hong Kong’s first locally backed gold ETF.

 The QDII scheme enables financial institutions to invest in overseas markets and is widely seen as a vehicle to allow capital outflows from China at a time when the currency is not freely traded, prohibiting China’s vast pool of savers from investing abroad.

 One-year yuan deposits at the Bank of China Ltd., for example, fetch 2.5%, with the People’s Bank of China having last hiked its policy rate by a quarter-point in October.

 However, cash kept in these savings accounts are actually losing purchasing power at a dramatic rate, as with consumer prices in October 4.4% higher than they were a year earlier, and with the inflation rate expected to hit 5% in December, according to estimates by Bank of America- Merrill Lynch.

 The state-run China Daily said Tuesday that the new gold fund was the first of it its kind to be available to mainland investors.

 More funds could be on the way soon, as several other fund providers have pending applications for similar products, seeking to tap rising interest among mainland Chinese investors for precious metals, the report said
-Market Watch-

October 19, 2010

China Unexpectedly Hike Rates‎, ready to reduce the value of US Dollar next time

Filed under: Uncategorized — bigcapital @ 11:17 pm
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China Unexpectedly Hike Rates‎, ready to reduce the value of US Dollar next time

 

The People’s Bank of China unexpectedly raised the one-year lending and deposit rates by 25 basis points each, effective Wednesday. October 20, 2010

Higher interest rates in China might attract more inflows of speculative “hot money” that regulators worry might be fueling a dangerous bubble in stock and real estate prices. Beijing has tried to block such flows, and analysts suggested earlier that might have been a reason for delaying a rate increase.

U.S. POINTS TO CHINA

The G20 finance ministers and central bank governors at the meetings in Gyeongju, South Korea are expected to tackle head-on the disparities in currency policies that are distorting capital flows in the hopes of achieving a more coordinated approach.

But U.S. officials have put most of the blame on China’s highly restrictive exchange rate regime, which until recently had kept the yuan largely pegged to the dollar. The United States is pressuring China to allow the value of its yuan to rise to take some pressure off capital flows and to rebalance its economy away from exports.

On Friday, however, Geithner delayed a report about whether the yuan’s value is being manipulated, saying instead that he wants to work through the G20 process to hash out a multilateral solution.

Geithner said in Palo Alto that he believes China will continue to lift the value of its yuan currency to aid the rebalancing of its economy away from exports and toward domestic growth.

Asked how much higher China should allow the yuan to rise, Geithner said: “Higher.”

“You can’t know how far it should go. What you know now is that it’s significantly undervalued which I think they acknowledge and it’s better for them, and of course very important for us, that it move. And I think it’s going to continue to move,” Geithner said.

 

Many banks expect that AUD/USD will rise to parity by the year-end

BNP Paribas is one of the largest global banking groups in the world, bet on Aussie’s strength.

Strategists at BNP Paribas are loyal to the forecast that Australian dollar will rise above the parity with the greenback to $1.0200 by end of the fourth quarter.

Technical analysts at RBS Morgans are quite bullish on Australian dollar expecting that the pair AUD/USD will advance to US$0.978 in coming months. Some traders even bet that Aussie’s going to strengthen to parity with its US counterpart.

Analysts at BNP Paribas SA in London expect that Australian currency will for the first time rise to parity with the greenback by the end of 2010 and trade at the level of $1.02. According to the specialists, this may happen as Australia’s economic growth is gaining pace, while the Federal Reserve intends for further monetary policy.

Everyone is worried about exchange rates except Australia. The Australian dollar has appreciated 50 per cent since March 2009 and 20 per cent since June this year and is this morning sitting comfortably above 97 US cents, but there has not been a peep from either politicians or central bankers.

Australia is an island of laissez-faire calm in a frothing sea of competitive devaluation. Why? Because we have neither a demand deficit nor high unemployment.

As 12-year Reserve Bank staffer and now HSBC’s Australian economist, Paul Bloxham, said in my interview with him on Inside Business yesterday, the RBA likes the appreciation of the Australian dollar because it helps reduce inflation.

 

SOUTH KOREAN Central Bank Looks To Gold

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering buying gold to diversify its dollar-heavy portfolio, the country’s central bank said, adding it would be cautious in making any final decision.

Even a small realignment of South Korea’s reserves would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold – or 0.2 per cent of its $290bn reserves – Seoul is one of the smallest holders of gold among large economies. The world average is 10 per cent, according to the World Gold Council, while countries such as the US, Germany and France hold well over 50 per cent of their reserves in gold.

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