Wednesday, 7 March 2012

It's Not Greece We Should Worry About, It's CHINA!

Tin hats to the ready chaps! Yesterday saw a remarkable rout in world equity markets. The reason? Greek ministry of finance issued a thinly veiled warning telling all you bondholder scumbags to accept the 75% NPV reduction in your bonds or else we will default and watch contagio sweep across your portfolio's muahahahaha.

However, in a country but only a few hours flight away, the Mr President Wen told us that China was targetting a 7.5% growth rate compared to c8.5% the year before (and one of the lowest in recent memory). Furthermore, they would now rebalance the economy from investment to consumption...

As the old adage goes, a picture paints a thousand words, so with the help of my trusty excel...

Armed with this knowledge, what would we expect to happen with China's demand for the above commodities and what would we expect this to do for their prices? Take a look at the nickel and Aluminium price charts...

*This chart may not actually load - technical problems....

The above lead me to conclude that a fundamental change in our economic landscape is about to occur. China who have been a relatively small importer of european and us products (c12% for European), may begin to import a lot more so I would pay particular attention to cars (Roads per car ratio @ 80x is the highest in the world, Spain at number two manages half that) and luxury consumer goods while cement producers (China uses 5x the annual average cement, or1,500kg per person per year) may well suffer!

Top down, I would have thought that there would be a lot of downard pressure on equity mkts in general as the worlds last burgeoning economy admits that the future isn't as bright.

Looking at Greece it is important to remember that only 75bn Eur of debt still remains on balance sheets, and even though the size and scope of contagion is completely uncertain the reduction in the Chinese GDP target represents a 35bn Eur decrease from the world economy.

 RedRut, over and out...


  1. China's state figures are not to be trusted, as they are a pack of lies.

    7.5% compared to the year before in absolute terms is 8.13%, which considering the cooling in there property market is impressive.

    Surely china will fulfil this domestic demand at home and use it to create more industry rather than import it?

  2. It will obviously fuel some of the demand domestically, but as you can see by the prevalence of various european and us goods makers in the USA, they obviously have a taste for imports. It is the European cars that the chinese middle class aspire to and it is the non Chinese brands that are considered fashionable