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“The Chinese move to a basket
is understandable because
the dollar is strengthening,
but the yen and the euro are
weakening, so clearly some of
the actions that have been taken
to weaken currencies do have
effects elsewhere” and China’s
currency move cannot and
should not be seen in isolation
from what is happening
elsewhere. To do so would be
distorting the real intentions
behind China’s move.”
A.3. KLSE Technical Analysis
One technical indicator is shown per issue.
The KLSE CI is below its 30-day, 50-day and 50-week moving averages. Both its
daily DMI and MACD are bearish. The KLCI is again testing the 1,600 level. With
the global markets expected to rebound from highly oversold positions, the KLCI
may have a bit more time before falling again.
This week’s
i
Capital updates the daily FBM Palm Oil Index. In 2013, the index
was rallying, and peaked out at 20,331 point in May 2014. Since then, it has been
trapped in a downtrend. Its first attempt to stage a rebound failed; the second
attempt was also not successful as the index stayed beneath its 30-day exponential
moving average. It found its support in Aug 2015 and rebounded. Despite the El
Nino season, palm oil prices have not risen strongly. The index is currently facing
major resistance. Even when palm oil inventories slumped to a 10-month low in
Dec, the index failed to penetrate its resistance and fell below its moving average.
With its daily MACD has shaping a bearish crossover, the index is expected to
retest 13,500 points.
STOP PRESS:
Source: Capital Dynamics
Source: Capital Dynamics
in debt level is a cause for
concern. In fact, the Chinese
government has been
taking steps to address the
problem. China’s Budget
Law has been amended to
allow local governments to
issue bonds on their own. In
addition, the State Council
issued the first comprehensive
guideline on how to deal
with local government debt
in a systematic manner in
Sep 2014. The guideline set
down strict conditions for how
debt may be raised by local
governments and how the
proceeds may be used. In
addition, two debt swap plans
have been arranged to bring
down the interest payment
burden and improve the
duration structure of debts.
The third debt swap plan is
in the pipeline. In order to
reduce the responsibility of
local governments in carrying
out infrastructure investment,
a public private partnership
programme was also
introduced in 2013; at the end
FROM PAGE 8
of 2015, 6,650 projects worth
RMB8.7 trillion were approved.
Three, China has
acknowledged that excess
capacity in the heavy industry
and housing sector is a drag
on her economy. In fact, one of
the key policy focuses in 2016
is encouraging restructuring,
liquidation, mergers and
acquisition, as well as allowing
market forces to weed out
failed companies. Given time,
the excess capacity should
be eliminated. In addition,
domestic demand in China is
unlike that of Japan’s in that
it is strong and big enough to
prevent a contraction in prices.
Even during the present bust
in commodity prices, China
has not fallen into deflation.
Four, China is in a
transition phase of allowing
market forces to play a
determining role in resource
allocation and price setting.
She is also in the transition
period of phasing out the
labour-intensive, low value
add industries and replacing
them with industries on the
higher end of the value chain.
Obviously, the transformation
is massive, complex and
requires suffcient time to be
implemented successfully.
President Xi Jinping and his
team are certainly committed
to reforming and getting rid of
excesses that have built up in
the economy over the years.
Given time, the reforms should
yield the desired results.
China’s government is not only
reforming the economy, it is
even reforming the People’s
Liberation Army.
The current
turbulence in
the stock and
currency markets
is a small hiccup
in China’s
long-term reform
agenda. As
i
Capital advised
elsewhere
in this issue,
for one thing,
the economic
slowdown in
China has been
going on for
years. It is the
most telegraphed,
the most intended,
and the most
well planned
economic slowdown in the
history of mankind. What is
surprising is that the stable
economic growth in China in
the last few years has instead
been interpreted and reported
in the media and analyst
reports as China’s economy
crashing and heading for a
major crisis. In this context,
it pays to listen to Raghuram
Rajan, India’s respected
central bank governor. He
advised that China is still
contributing to global growth
as it adjusts its currency policy
and shifts to consumer-led
growth. What Rajan says
about China’s currency is
valuable and fair but this has
been cruelly ignored by the
Western media. Rajan advised
that the Chinese authorities
should be taken at their word
when they say they are not
deliberately depreciating the
currency. He explained, “The
Chinese move to a basket
is understandable because
the dollar is strengthening,
but the yen and the euro are
weakening, so clearly some
of the actions that have been
taken to weaken currencies
do have effects elsewhere”
and China’s currency move
cannot and should not be
seen in isolation from what
is happening elsewhere. To
do so would be distorting the
real intentions behind China’s
move.
A
| Market Opinion
9
Capital Dynamics Sdn Bhd
The week of 21 January – 27 January 2016
Volume 27 Number 21