As if the stock market hadn't received enough bad news yesterday (Tuesday), reports surfaced that China's banks have nearly hit their lending quotas for the year - meaning the world's fastest growing, and second-largest, economy will cool considerably over the next few months.
However, the news - out of China at least - might not be as bad as it seems.
Political strife resonated throughout the investing world yesterday as North Korea and South Korea exchanged fire over Yeonpyeong Island and Irish Prime Minister Brian Cowen pledged to dissolve that country's government and allow for an early election in January.
Strictly economic headlines weren't any consolation as it was revealed that China's banks are unlikely to extend many new loans as 2010 draws to a close.
Three Ways to Profit as China Dumps Japanese Debt
As a veteran trader, I have a tendency to look past the day's top headlines. That's why a recent Bloomberg News story - which stated that China sold a net total of 769.2 billion yen ($9.24 billion) worth of Japanese debt in September - really caught my eye.
By itself, this story probably wouldn't be a big deal. But this development is the start of an important new trend in the global currency markets. And the following three factors tell me that we should be taking a close look at why China has decided to dump Japanese debt. For instance:
- Given that the same thing happened in August, September marked the second straight month Beijing has sold more Japanese securities than it purchased.
- This marks the reversal of a seventh-month stretch of China being a net purchaser of Japanese debt.
- The two months of sales nearly wiped out the net surplus of 2.32 trillion yen ($27.86 billion) that China had amassed as a result of seven months of buying Japanese debt.
- Finally, the 2.02 trillion yen ($24.26 billion) worth of Japanese debt that China sold in August was China's single-largest monthly sale of Japan government bonds since 1995, when these statistics first started being recorded.
Let me explain....
To understand how to profit from this currency-market development, please read on...
In China, Record Hairy Crab Prices Point to Continued Strong Economic Growth Next Year
BEIJING, People's Republic of China – While other investors are busy rounding up all sorts of economic data, tea leaves and fortune cookies in an attempt to figure out China's economic situation next year, I'm heading out the door once again to take a look at hairy crab prices.
Because of the timing of this trip, I'm a bit late in the season – but not enough that I won't be able to get a good reading on this surprisingly accurate indicator of China's economic health.
The delicious little morsels come into season each fall, and are regarded as a delicacy – not to mention as an important indicator of this Asian giant's wealth and prosperity. People flock to various restaurants to eat them. The tiny little guys are given as gifts to business partners, family members and others. Live hairy crabs are even being sold in vending machines in such big Chinese cities as Shanghai.
China's Continued Failure to Rebalance Growth Threatens Global Economic Stability
China announced yesterday (Wednesday) that its trade surplus grew 60.7% in October from the month before as efforts to rebalance its economic growth this year have failed. Furthermore, recent policy tightening measures mean domestic demand is unlikely to pick up in the near future.
"The rebalancing of China's economy has an awfully long way to go – in fact it's hardly even got started," Mark Williams, an economist at Capital Economics Ltd. who previously worked at the U.K. Treasury as an adviser to China, told Bloomberg. "In normal circumstances, the world might be willing to wait, but not when the likes of the U.S. are struggling with very high unemployment."
In a sign China's export-driven growth has not shifted to an increase in domestic consumption, China's trade surplus hit $27.15 billion last month, up from $16.9 billion in September. Exports rose 22.9% in October from the year before and imports climbed 25.3%. The trade surplus was slightly higher than expectations of $26.4 billion, according to a poll reported by Dow Jones Newswires.
China's Urban Migration Catapults Copper Prices to New Heights
The next phase of China's economic plan is fueling a relentless appetite for electricity, spiking demand for copper. That has moved investors to drive up the price of the metal, as well as the stocks of companies that mine it.
Copper has risen 14% this year, with contracts traded on the London Metal Exchange tripling since December 2008. The Bloomberg index of world mining stocks this year has climbed 16% to the highest level since Aug. 1, 2008, driven by miners like Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), and Ivanhoe Mines Ltd. (NYSE: IVN)
"Copper is red gold," Jeremy Gray, global head of resources at Standard Chartered PLC in Hong Kong told Bloomberg News. "We're on the verge of the biggest commodities bull market we have ever see."
Gray predicts the metal could rise by 50% to $12,000 a metric ton in the next six to 12 months.
China Increases Domestic Buying as Manufacturing Drives Growth
China's economy continues to rocket ahead, showing evidence of new strength in manufacturing and domestic consumption and easing fears that slower growth there could hamper the global recovery.
Manufacturing in China surged at the fastest pace in six months in October after contracting briefly earlier this year and raising fears the engine of the global recovery was faltering.
China's official Purchasing Managers Index (PMI) increased to 54.7 in October from 53.8 a month earlier, the China Federation of Logistics and Purchasing said Monday. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.
A China PMI index produced by HSBC Holdings plc (NYSE ADR: HBC) jumped to 54.8 from 52.9, one of the largest one-month rises since the bank started tracking it in 2004.
The strong report also showed that China is increasing domestic consumption and is increasingly insulated from the struggle in the world's advanced economies to recover from the Great Recession.
But it also raises the specter of overheating and the possibility of further measures to contain inflation.
Money Morning Mailbag: Rising Global Energy Demand Is Providing Key Investor Opportunities
Energy companies reported robust third-quarter profits this week in another sign that rising global energy demand is something investors can't afford to ignore.
Exxon Mobil Corp. (NYSE: XOM) reported yesterday (Thursday) its third-quarter net income rose 55% from a year earlier to $7.35 billion, or $1.44 a share - the biggest jump in six years. Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) reported its third-quarter profit rose 18% from the year before, noting it's in a "delivery window for new growth," and ConocoPhillips (NYSE: COP) said its third-quarter profit more than doubled.
"Global oil demand implications have continued to surprise to the upside," Barclays Plc (NYSE ADR: BCS) analysts wrote in an Oct. 20 note to clients.
Money Morning Chief Investment Strategist Keith Fitz-Gerald addressed the importance of energy industry investing earlier this week on a Fox Business Network appearance.
Taipan Daily: The "Secret" Global Alliances That Can Make You Rich
I have a confession to make… I'm a big Harry Potter fan. Last night, I was re-watching Harry Potter and the Goblet of Fire. In this movie, Hogwart's School of Witchcraft and Wizardry hosts the Tri-Wizard's Cup, an Olympics, of sorts, for witches and wizards from international schools. Its purpose is to promote international magical [...]
Surging Corn Prices Making Hay for Commodities Producers
Corn prices have surged more than 70% since May and could rise even higher in coming weeks. Prices will remain elevated for at least the next year, perhaps even testing their 2008 record high of $7.65 a bushel. That will likely mean higher food prices across the board for at least the next year.
Money Morning predicted in May that after falling below $3.50 per bushel in March, corn prices would surge higher than $6 by the end of the year. That forecast has proven prescient, as corn rose to a two-year high earlier this month.
Increased demand from emerging markets and a smaller-than-anticipated U.S. harvest are the driving forces behind corn's resurgence.