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18 Mar 2014
Asia EM Express: Reports of another Chinese corporate default unsettle the markets
FXStreet (Łódź) - On Monday it was reported that another Chinese company was at risk of bankruptcy. The property developer from the Eastern town of Fenghua, currently the largest in the country, has a 3.5 billion yuan debt and the owner has been detained for illegal fund-raising activities. Chinese property bond and stock prices fell on the news.
In March China recorded its first domestic bond default in recent history when a relatively small Shanghai solar company failed to meet interest payments on its debt and now, with another firm on the brink of collapse, investors fear a domino effect.
But in the opinion of Greg Gibbs from RBS: “The government appears to be in the process of tightening credit conditions to squeeze out weaker players in several sectors that may have relied on credit that was too easily available and contributing to excesses. This may be a part of this process. It continues to point to a lower growth outlook.”
Nevertheless, many experts, such as Lee Hardman, Currency Analyst at BTMU believe that economic growth slowdown in China, evident in recent data, continues to pose more downside risks to global growth than the crisis in Ukraine.
Economic data
According to data released by the Chinese National Bureau of Statistics on Tuesday, China's House Price Index rose 8.7% in February, down from the 9.6% increase in January
As Prashant Newnaha, Asia-Pacific Macro Strategist atTD Securities specifies: “Prices increased in 57 cities, was unchanged in 9 and decreased in 4 for New Residential Apartments; For Existing Residential Apartments 46 cities registered gains, 9 were unchanged while prices declined in 15 cities over the month.”
In the opinion of Tim Condon from ING: “Rising numbers of cities reporting rapid new home price increases requires a policy response. Today’s data are good news because they don’t add to the authorities’ list of things to do.”
China's Foreign Direct Investment, also published on Tuesday, grew 10.4% in Janaury on an annual basis, following +16.1% the previous month.
Technicals
The CNY continued weakening on Monday, falling by 0.13% against the dollar. Lee Hardman, Currency Analyst at BTMU comments: “The USD/CNY spot rate remains within its old +/- 1.0% trading band following the band widening over the weekend to +/-2.0%. The Chinese authorities continue to set a stable fixing rate at just above the 6.13-level as they have done over the past week providing no clear signal that they are actively seeking to weaken the yuan.”
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index overbought. RSI was neutral at 77.8389 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 273 pips, with ATR (14) expanding at 156 pips. The 1D 200 SMA is at 6.1037, while the 1D 20 EMA at 6.1262.
Meanwhile, IDR appreciated 0.27% against the dollar on Monday.
The daily FXStreet Trend Index for USD/IDR was slightly bearish, with the OB/OS Index oversold. RSI was neutral at 22.7040 at the last close.
In March China recorded its first domestic bond default in recent history when a relatively small Shanghai solar company failed to meet interest payments on its debt and now, with another firm on the brink of collapse, investors fear a domino effect.
But in the opinion of Greg Gibbs from RBS: “The government appears to be in the process of tightening credit conditions to squeeze out weaker players in several sectors that may have relied on credit that was too easily available and contributing to excesses. This may be a part of this process. It continues to point to a lower growth outlook.”
Nevertheless, many experts, such as Lee Hardman, Currency Analyst at BTMU believe that economic growth slowdown in China, evident in recent data, continues to pose more downside risks to global growth than the crisis in Ukraine.
Economic data
According to data released by the Chinese National Bureau of Statistics on Tuesday, China's House Price Index rose 8.7% in February, down from the 9.6% increase in January
As Prashant Newnaha, Asia-Pacific Macro Strategist atTD Securities specifies: “Prices increased in 57 cities, was unchanged in 9 and decreased in 4 for New Residential Apartments; For Existing Residential Apartments 46 cities registered gains, 9 were unchanged while prices declined in 15 cities over the month.”
In the opinion of Tim Condon from ING: “Rising numbers of cities reporting rapid new home price increases requires a policy response. Today’s data are good news because they don’t add to the authorities’ list of things to do.”
China's Foreign Direct Investment, also published on Tuesday, grew 10.4% in Janaury on an annual basis, following +16.1% the previous month.
Technicals
The CNY continued weakening on Monday, falling by 0.13% against the dollar. Lee Hardman, Currency Analyst at BTMU comments: “The USD/CNY spot rate remains within its old +/- 1.0% trading band following the band widening over the weekend to +/-2.0%. The Chinese authorities continue to set a stable fixing rate at just above the 6.13-level as they have done over the past week providing no clear signal that they are actively seeking to weaken the yuan.”
The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index overbought. RSI was neutral at 77.8389 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 273 pips, with ATR (14) expanding at 156 pips. The 1D 200 SMA is at 6.1037, while the 1D 20 EMA at 6.1262.
Meanwhile, IDR appreciated 0.27% against the dollar on Monday.
The daily FXStreet Trend Index for USD/IDR was slightly bearish, with the OB/OS Index oversold. RSI was neutral at 22.7040 at the last close.