Record valuations and leverage alone do not make a market top. Add macro timing:

Maximum Vulnerability: China (And the World) Are Still in Big Trouble

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via smh.com.au:

China’s majestic and elegantly-stable GDP figures are best seen as an instrument of political combat.

Donald Trump says “trade wars are good and easy to win” if your foes depend on your market and you can break them under pressure.

He proclaimed victory when the Shanghai equity index went into a swoon over the winter. This is Trumpian gamesmanship.

It is in China’s urgent interest to puncture such claims as trade talks come to a head. Xi Jinping had to beat expectations with a crowd-pleaser in the first quarter. The number was duly produced: 6.4 per cent. Let us all sing the March of the Volunteers.

“Could it really be true?” asked Caixin magazine. This was a brave question in Uncle Xi’s evermore totalitarian regime.

Of course it is not true. Japan’s manufacturing exports to China fell by 9.4 per cent in March (year on year). Singapore’s shipments dropped by 8.7 per cent to China, 22 per cent to Indonesia, and 27 per cent to Taiwan. Korea’s exports are down 8.2 per cent.

The greater China sphere of east Asia is in the midst of an industrial recession. Nomura’s forward-looking index still points to a deepening downturn. “Those expecting a strong rebound in Asian export growth in coming months could be in for disappointment,” said the bank.

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China’s rebound is hard to square with its own internal data. Simon Ward from Janus Henderson said nominal GDP growth – trickier to manipulate – is still falling. It dropped to 7.4 per cent from 8.1 per cent in the last quarter on 2018.

Household demand deposits fell by 1.1 per cent last month. This means that the growth rate of “true” M1 money is still at slump levels. It has ticked up a fraction but this is nothing like previous episodes of Chinese stimulus. It points towards stagnation into late 2019. “Hold the champagne,” he said. A paper last month by Wei Chen and Chang-Tai Tsieh for the Brookings Institution – “A Forensic Examination of China’s National Accounts” – concluded that GDP growth has been overstated by 1.7 per cent a year on average since 2006. They used satellite data to track night lights in manufacturing zones, railway cargo volume, and so forth.

“Local officials are rewarded for meeting growth and investment targets,” they said. “Therefore, it is not surprising that local governments also have an incentive to skew the statistics.”

Liaoning – a Spain-sized province in the north – recently corrected its figures after an anti-corruption crackdown exposed grotesque abuses. Estimated GDP was cut by 22 per cent. You get the picture.

 

 

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