In a first for not just China, but the entire world, Alibaba"s online auction website, Taobao, has successfully auctioned off two Boeing 747-400 jumbo jets for a combined $49 million. The jets were bought by Chinese cargo airline SF Airlines after they were seized by courts during Jade Cargo"s bankruptcy proceedings in 2013. According to the South China Morning Post, the successful online auction was conducted after six failed private auctions.
Two Boeing 747-400 Freighters were sold on Tuesday on Taobao, the online shopping platform owned by Alibaba, for a combined 322.8 million yuan (US$49 million), reflecting the first time such jets were sold via online auction in China, and possibly the first-ever globally at online auction.
The sale was concluded after six failed attempts at offline private auctions organised by the seller – a state court – in the past few years.
SF Express, China’s largest private courier, bought the jets from the Intermediate People’s Court in the southern city of Shenzhen, which seized them after Jade Cargo International filed for bankruptcy in 2013.
Three Boeing 747-400s had been put up for sale on Taobao’s judicial auction arm from Monday to Tuesday. One of the jets parked at the Shenzhen Bao’an International Airport went unsold, with a starting bid of 122.6 million yuan.
According to rules on Taobao’s auction site, bidders were required to make security deposits of 6.1 million yuan, 6.7 million yuan, and 6.8 million yuan for the respective jets before the auction. The winning bidder now has 15 days to send payment in full according to Taobao auction rules.
Last year, Concord Aerospace, a Florida-based aerospace company, tried to sell a Boeing 747 jumbo jet on eBay, with a starting bid of US$300,000. The aircraft’s four jet engines had been removed and its electrical components had been stripped...needless to say, the plane didn’t sell.
And, for our next item, this entire Chinese Ghost City, complete with dueling horse statues, can be yours for an opening bid of just $10...any takers?
When many American traders went to bed last night, China was tumbling, the euro was in trouble, and US equity futures were notching lower. Then, as former fund manager Richard Breslow scoffs, it appears the world "reconsidered" and everything rallied to erase any sign of discontent or uncertainty by the time everyone woke up...
Via Bloomberg,
Apparently, the word of the day is “reconsider.”
Across a whole host of assets, we got somewhat violent moves early in the 24-hour trading cycle that managed to unwind themselves over the course of the day.
I kept being told that the euro, Chinese equities, U.S. equity futures, gold, bond yields, Eurostoxx 50, and so on, all reversed their opening, sometimes gap, moves after the market reconsidered what it all meant.
Of course, that’s being a bit too kind. It would be more accurate to say things turned around when traders actually considered things for the first time. But this all matters more than just a collection of knee-jerk reactions that have come to naught as another trading region came in.
North America isn’t being asked to break the tie and decide who was right. They are being told that they can afford to ignore the news that propelled things in the first place. After all, we’re right back where we started. No harm, no foul. That would be a mistake, as once again we keep muddling-up short-term and long-term information as if they should be discounted by the same rate and assuming we should trade without benefit of context.
Chinese equities opened lower leaving gaps from last Friday’s close.
Big swings: the Shenzhen dropped a quick 2.1% before staging a relentless rally throughout the day to finish up by 0.9%. No leap on the close, just a steady rally.
The commentary at the lows was as dire as the dismissive tone was at the close.
The PBOC proposed additional regulations to curb the run-away shadow banking industry. What was described in the morning as policies that would cause a flood of outflows from various short-term investments were later described as likely to attract foreign inflows. Wait, we’re not collapsing through the last lines of support any more? What a gift -- buy!
The message from this is that, once again, the PBOC is delivering on what they have warned about and promised to address. Perhaps instead of trying to deconstruct the “real” Chinese intentions based on outmoded epigrams, we should start to listen to what they’re actually saying. And accept that regulation isn’t bad by definition. Sometimes a healthier Main Street can actually be good for equities--the old-fashioned way. But it would be folly to decide these new regulations must not be all important because of the day’s price action.
European shares and the euro were hit early on the German coalition talks collapse.
What began as “markets are being roiled” quickly turned to markets “shrugged it off.” Hardly. They recovered on the very fortuitously timed announcement that Volkswagen was going to spend an additional EU25B over the next five years on its core brand. That’s hard and good news. May even help out with Germany’s hopelessly flat Phillips curve.
But don’t think, Chancellor Merkel on her back foot isn’t something with negative possibilities that make it foolish to dismiss. Just hard to enumerate the immediate implications.
As Breslow concludes, the mirage of markets" ignorance does not mean anything is solved.
Some of the other realities to keep factoring into your analysis and avoid being lulled into ignoring include:
Brexit wasn’t solved because today’s headline was upbeat, it’s serial noise;
you’ve no way of handicapping Nafta as each debating point is aired;
no one has a firm handle on the Middle-East;
and U.S. tax reform may end up just stoking the debate of whether a bad deal is better than no deal.
Don’t ever let someone tell you the really big news is the ones you can afford to ignore
Gaining perspective on China’s monstrous economy isn’t always the easiest thing to do.
As Visual Capitalist"s Jeff Desjardins notes, with 1.4 billion people and the third-largest geographical area, the country is a vast place to begin with. Add in explosive economic growth, a market-oriented but Communist government, a longstanding and complex cultural history, and self-inflicted demographic challenges – and understanding China can be even more of a puzzle.
To truly grasp the emergence of China, one approach is to look at the impressive economic footprint made by the country’s cities.
Of course, cities like Shanghai, Beijing, and Hong Kong are the metro economic powerhouses that most people are familiar with. But have you heard of cities like Shijiazhuang, Wuxi, Changsha, Suzhou, Ningbo, Foshan, or Yantai?
There are literally dozens of Chinese cities that most people in Western countries have never heard of – yet they each hold millions of people and have an economic output comparable to nations.
The infographic above illustrates 35 of them, but here’s a list of 10 of them, the size of their local economy, and a comparably sized national economy:
MEGAREGIONS
It’s also important to remember that these cities don’t exist in isolation, and are instead cogs in the wheels of larger megaregions. Such areas would be comparable to the Northeast U.S., in which New York City, Philadelphia, Boston, Baltimore, and Washington, D.C. are all hours apart and remain largely integrated as a regional economy.
In China, there are three main megaregions worth noting:
Yangtze River Delta With a combined GDP of $2.17 trillion, which is comparable to Italy, the Yangtze River Delta contains cities like Shanghai, Suzhou, Hangzhou, Wuxi, Ningbo, and Changzhou.
Pearl River Delta With a combined GDP of $1.89 trillion, which is comparable to South Korea, the Pearl River Delta has cities like Hong Kong, Guangzhou, Shenzhen, Foshan, Dongguan, and Macao.
Beijing-Tianjin With a combined GDP of $1.14 trillion, which is comparable to Australia, this megaregion holds the two largest cities in northern China, Beijing and Tianjin. The two cities are a 30-minute bullet train ride apart.
IPO mania is gripping Hong Kong and if you’ve been looking for a warning sign that equity markets are close to a peak, just maybe this is it. It was a feature of the Hong Kong market in 2006-07, before the Great Financial Crisis, and in 2000, prior to the bursting of the Dot.com bubble. No surprises, the current mania is also focused on the technology sector. The focal point today is the China Literature Ltd IPO which began trading this morning. The stock price rose as high as HK$110 per share compared with the HK$55 IPO price. No wonder the company’s executives were looking smug.
China Literature is an Amazon Kindle “look-alike”, being the Chinese mainland’s largest publisher of e-books. However, it is also growing its own network of contract writers and owns the rights to well-known Chinese online novels, such as the Grave Robbers’ Chronicles and Ghost Blows Out the Light series. The HK$8.3 billion IPO was more than 600 times oversubscribed with 5% of the city’s population applying for shares. According to Bloomberg.
Hong Kong demand for new share sales has hit fever pitch, with 417,000 people applying for lots in Tencent Holdings Ltd.’s online bookstore unit -- more than 5 percent of the city’s population. China Literature Ltd.’s retail offering was 625 times oversubscribed, according to the company. That locked up at least HK$520 billion ($67 billion), or a third of the city’s monetary base, the South China Morning Post reported. It’s easy to see why the clamor: China Literature’s shares surged as much as 100 percent on their Wednesday debut…"You can tell Hong Kong investors like tech stocks," said Daniel So, Hong Kong-based strategist with CMB International Securities Ltd. "If you’d managed to get the stock, you’d have made a lot of money.”
One signal of the scale of the current IPO mania is that the China Literature had a 200-basis point impact on Hong Kong’s interbank rate, as Bloomberg explains.
Interest in initial public offerings is so intense it’s affecting the city’s interbank rates. The overnight Hibor fixing jumped 2.1 percentage points on Oct. 31, the most in a decade, as investors placed orders for China Literature.
In contrast to some of the Dot.com era’s IPOs, at least China Literature is profitable and has a coherent strategy. It uses “big data” to drive revenues and aims to cross-sell content into other media. As Bloomberg reports.
China Literature had profit of 213.5 million yuan ($32 million) in the first half of this year, compared with a 2.4 million yuan loss for the same period in 2016, according to its prospectus. The company -- created through the merger of Tencent’s online literature business with Carlyle Group LP-backed Cloudary Corp -- had 9.6 million works and 6.4 million writers as of June 30. Customers can pay for an entire book or buy a few chapters at a time to see if they want to keep reading.
“We can study our users’ social network and understand their preference and recommend to them what their friends like to read,” Co-Chief Executive Officer Wu Wenhui said in an interview. “We already have compiled a great amount of user data, which will enable us to study what they like.” The company also wants to leverage its content into other forms of entertainment, such as movies, TV series and anime, as Tencent aspires to create a Marvel-like empire. Shenzhen-based Tencent became China’s second-biggest technology company on the strength of its WeChat messaging app, which since has morphed into a portal for shopping, banking, gaming and consuming entertainment.
China Literature will select some content, and co-invest or co-produce movies or anime series, co-CEO Liang Xiaodong said. He added that his company is closely working with Tencent’s film and video units. “User demand for content is getting very strong, especially original material,” Liang said in an interview with Bloomberg Television. “Our content can easily be converted into movies and games to maximize coverage.”
The China Literature IPO came on the heels of HK’s largest ever fintech IPO, ZhongAn Online Property & Casualty Insurance. ZhongAn raised $1.5 billion and priced at the top end of its valuation range. As Bloomberg notes, there are more tech IPO’s in the pipeline with the focus now shifting to the gaming accessories sub-sector.
China Literature’s IPO follows ZhongAn Online P&C Insurance Co., which went public in September. The first major fintech listing in Hong Kong, and backed by Ant Financial, the owner of Alipay, the retail portion was almost 400 times oversubscribed. Focus will now shift to Razer Inc., a manufacturer of high-spec gaming accessories, which will begin trading in Hong Kong on Monday after raising $529 million.
The Razer Inc. IPO will make co-founder and CEO, Tan Min-Liang, a dollar billionaire. The global gaming market is “hot”, with growth expected to increase by 52% to $160 billion by 2021. Buyers of Razer shares will include Singapore’s sovereign wealth fund, GIC.
If we were to be strictly precise, the ZhongAn IPO was 391 times over-subscribed, while China Literature was 625 times over-subscribed. Consequently, the latter beat out ZhongAn to hold the record for a Hong Kong IPO. We look forward to seeing the metrics for Razer, but Hong Kong IPOs are obviously white hot.
Shouting on deaf ears no doubt, the FT reports that one analyst urged caution.
In recent years, a doubling in the share price on the first day of trading for a Hong Kong listing has been rare. The strong appetite for China Literature stock on Wednesday was driven by retail investors trying to get a piece of what many perceived could be the next Tencent, said Kevin Tam, an analyst at Core Pacific-Yamaichi in Hong Kong.“ They expect this to be Tencent number two,” he added. “Many retail investors missed out on the first Tencent IPO and the 10-times growth.” But Mr Tam cautioned that such expectations for China Literature were misguided. Much of Tencent’s value is locked in its userbase but China Literature has “just a very small slice of that”, he said.
Wu Wenhui. co-chief executive of China Literature, stated that he wants to bring original Chinese literature to a global audience. He might eventually be successful in this but, right now, he"s bringing the melt-up stage in the Chinese bubble to a global audience.
In the U.S., equity markets have officially reached the phase in the bubble where fundamentals are almost entirely irrelevant and stocks trade up irrespective of whether company earnings are positive or negative...in technical terms you could say we"re in the later stages of the BTFD phase of the economic cycle.
That said, as Bloomberg points out today, regulators in China still have to be a bit more "creative" to quell market volatility during important national events. As such, the China Securities Regulatory Commission has sent out a notice to public companies kindly requesting that they delay their earnings report during China"s Communist Party Congress...but only if they"re going to be bad.
China’s securities watchdog has asked some loss-making companies to avoid publishing quarterly results this week as authorities seek to ensure stock-market stability during the Communist Party Congress, according to people familiar with the matter.
The China Securities Regulatory Commission made its requests via the country’s stock exchanges, the people said, asking not to be named as they’re not authorized to talk to the media. At least 17 Shenzhen-listed companies announced delays to their earnings reports from Oct. 20 to Oct. 24, up from three during the same period last year, exchange filings show. The CSRC declined to comment, while China’s bourses didn’t respond to faxed questions.
Chinese regulators have stepped up efforts to quell market volatility during the twice-a-decade congress, a highly-choreographed reshuffling of the country’s top leadership that’s expected to shape President Xi Jinping’s influence into the next decade. While the smallest equity swings in 25 years suggest government interference has worked, critics argue that China’s leaders have backpedaled on a pledge to give market forces a more central role in the world’s second-largest economy.
And, to our great shock, the strategy seems to be effective:
Of course, you can"t be too blatant in your attempts to control markets so a lot of companies have suddenly decided they need to "finish checking earnings reports" while others simply said they "have a lot on our plate to deal with" and can"t be bothered by silly regulatory filings at this point in time.
Shandong Minhe Animal Husbandry Co., which farms chickens, and Shenzhen Hifuture Electric Co., an electrical equipment maker, were among the Shenzhen-listed companies asked to withhold their results this week, the people said.
Shandong Minhe, which estimated a loss for the Jan.-Sept. period in an Oct. 13 filing, said on Sunday that it hasn’t finished checking the content of its earnings report and will postpone its release, previously scheduled for Tuesday, to Oct. 30. Shenzhen Hifuture, which also projected a Jan.-Sept. loss on Oct. 13, gave this explanation for a similar delay in a Sunday filing: “We have a lot on our plate to deal with.”
Shandong Minhe declined to comment further when contacted by Bloomberg News. The stock dropped 1.1 percent on Tuesday and is down 35 percent this year. Shenzhen Hifuture, whose shares have been suspended since January, didn’t immediately reply to an email.
Most of the 17 Shenzhen-traded companies that announced delays to their results had previously predicted losses or steep earnings declines, filings reviewed by Bloomberg show. Ten of the companies declined on Tuesday, while one was little changed and one rose. Trading in five of the stocks was suspended.
Of course, now that the cat"s out of the bag, we"re going to go out on a limb and suggest it might be a safe bet to go ahead and unload any company that delays earnings reports over the next week or so...just a hunch.
The most widely-expected "base-case" outcome of the first round of the French election occurred... and yet, as RBC"s head of cross-aset strategy Charlie McElligott notes, risk-markets have still screamed-higher in comedic relief rally fashion.
Why?
McElligott write, this sounds obvious, but two points:
1) the hedging-flows into the event-risk now come off (i.e. Japanese owners of OATs punting on their EURJPY downside hedges, thus EURJPY +2.7% on day as an example) and
2) we now see general investors ‘unshackled’ and able to add exposure to the region in what has rapidly become the world’s favorite risk-region.
But, now is where it gets interesting though, as the ‘risk-ON’ / ‘bond bear’ catalysts by-and-large are again being priced back into the market, with little thought of downside. This is where expectations are again ripe for an overshoot.
So taking a step back from Euro-phoria for a hot-second…I wanted to touch on a concept that Mark and I have been discussing / working-on - this idea of a tactical “US reflation trap.”
This move higher in rates is playing-out exactly as we expected and spoke to last week: the squeeze / capitulatory ‘force-in’ to that 2.15-18 level, then followed by a double-whammy of 1) event- / geopolitical- risk fade (France, Syria / Russia, and China now ‘handling’ NK) and 2) new hope on Trump fiscal progress (tax plan roll-out and ‘trending’ Freedom Caucus support of new ACA repeal & replace) sees a push up to 2.35/40 levels. In turn, this emboldens the ‘bond bear’ camp further—especially if you look at Fischer’s comments last week as him essentially telling-us that June is a “go” for the Fed.
Here too is where I come back to my recent focus on China commodities price-action, and the view that the recently better data there means that the clamps are now being put back on the ‘PBoC liquidity pumping mechanism’ (from daily operations to social financing to new loans cram-down). Check out some of the distress in Shanghai commod futures recently:
Take a look at the Bloomberg Commodities Index trend-support break:
As I’ve stated approximately 1000 times in recent weeks, there is no factor more critical to risk-asset upside that ‘inflation expectations’ - which are of course fueled by the price input that is commodities. Looking at those forward prices above, there is ‘real’ downside coming.
This is now bleeding through to the Chinese equities complex, with Shanghai Comp -1.4% today (crashing through its 200DMA to the downside) and -2.9% MTD; Shenzhen -2.4% today and now -5.7% on the MTD; while perhaps most-glaringly, the Shanghai Property Index closed -2.2% on the day today as a risk appetite bell-weather. The liquidity tightening in conjunction with shadow-banking crackdown is now a real negative driver.
A world away, the US economic data ‘upside’ dynamic is now fatiguing, with the ‘soft’ data mean-reverting lower, while on average, the ‘hard’ data is now modestly surprising LOWER on a z-score basis. Still expansive, but this ‘true-up’ will come with adjustment.
With this sudden pivot with the market again turning bullish on US fiscal policy progress, it is critical to note that there is still significant Democrat pushback to tax plans on principle of ‘tax cuts for rich’ (Schumer comments this morning) while the prickly determination of ‘revenue neutrality’ being required for long-term tax change now looking unlikely per reports on the ‘death of the BAT’….which now means that ‘dynamic scoring’ will be required for just short-term tax changes, which still need to be still be ironed-out amongst the sponsoring GOP itself. Trump’s “big announcement” Wednesday is already being downgraded by his own White House budget director Mick Mulvaney, stating that they will be speaking to governing principles and guidance on tax rates, rather than policy details.
Finally, one need highlight what the removal of this French event-risk does to the mindset of both the ECB and the Fed with regards to their not-so-secret ‘market stability’ mandates: it eases them. As such, the eventual ‘easy’ election of Macron will likely see Draghi quicker to exit their extraordinary policy now, as the background conditions continue their better trajectory. I would expect the forward guidance laid-out this week to be upgraded as such. And looking at the Fed, this dictates a similar response - it provides them an easier backdrop to hike into.
Of course I understand that this ‘green light to hike’ in theory means higher front-end rates. But against the backdrop of ‘pivoting lower’ data beats and a breakdown of the commodities which have been driving higher ‘inflation expectations,’ the market risk remains concerned around the idea that the Fed will be ‘tightening faster that we are growing’—especially with a growing handful of perceived ‘cracks’ (retail messy, subprime auto, C&I loan growth collapse as debts are instead serviced, multi-year highs in bank card default rate) developing in real-time.
As such, I continue to believe we ‘range trade’ in both rates and stocks.
And, as Bloomberg reports, it seems the catalyst is further crackdowns on shadow-banking.
China’s banking regulator, which said late Friday it will focus on guarding against financial risks, has ordered local units to assess cross-guaranteed loans,according to a Caixin report.
Having gone 86 trading days without a loss of more than 1% on a closing basis, the longest stretch since the market’s infancy in 1992...
It seems they might be... (or The National Team is going to have to work very hard today)...
As Shanghai Composite breaks below ist 200-day moving-average withe the biggest intraday drop since Dec 12th...
CHINEXT (China"s Nasdaq) is also getting hammered - testing its lowest levels since February 2015....
Late in September, we showed a viral surveillance video from inside new construction in east Hangzhou, which captured the sheer buying frenzy and panic, prompted by the new purchasing restrictions set to be unveiled just days later which would prevent people born outside Hangzhou from buying more than one property.
The crackdown on China"s latest housing bubble takes place as local home prices rose 9.2% in August from a year earlier, while in places like Shenzhen, prices soared almost 37%, in Beijing more than 23% and in Shanghai topped 30%. Such hefty price rises have been common all year in these so-called Tier 1 cities.
Now that the widely telegraphed restrictions have kicked, as expected China"s housing market now appears set for a sharp pullback after several months of record pricing gains. As Reuters reports, a wave of restrictions imposed on housing markets in major Chinese cities last week have cut the area of new homes sold in places such as Beijing and Shenzhen by more than half. More than 20 cities have imposed measures, including higher mortgage downpayments, to cool hot property markets that have raised official alarm in Beijing and fresh concerns about China"s ballooning debt.
Last week was a public holiday to mark National Day, traditionally a high season for property sales. Property agents said prices of new homes sold in the southern city of Shenzhen and in Beijing dropped 20 percent last week to entice buyers, compared with the previous week.
Beijing and Wuxi, a city near Shanghai, had no new launches last week, a survey of 10 major cities by property researcher CREIS showed. But the area of residential space sold, based on developments launched previously, plunged 86 percent and 72 percent, respectively, compared to the previous week. CREIS said cities including Shanghai, Hangzhou and Wuhan, launched new developments but the area put on the market declined more than 50 percent and the area sold dropped 35 percent to 60 percent.
"The new tightening measures are quite stringent," said Alan Cheng, general manager of realtor Centaline Shenzhen. "It"s a blow to confidence and people are worried that prices will drop, so they are observing from the sidelines now." The latest restrictions varied from city to city, but included higher mortgage downpayments for second and third-time home buyers, in a bid to stem the flow of cash into the red-hot property market.
* * *
However, since this is China, where one zombie asset bubble dies (briefly) only for another bubble to be (re)born, at the same time as the housing bubble is set to pop, the local population has turned its attention to cars.
According to Bloomberg, Chinese passenger-vehicle sales surged a gargantuan 29% last month, led by small-car makers Geely Automobile Holdings Ltd. and Mazda Motor Corp., as consumers seeking to beat an expiring tax cut helped clear inventory on dealer lots. Deliveries of sedans, minivans, sport utility and multipurpose vehicles to dealerships rose to 2.27 million units in September, the state-backed China Association of Automobile Manufacturers said Wednesday.
Just like with the rush to buy housing ahead of purchasing restrictions, in the case of autos, consumers rushed to buy to take advantage of potentially expiring preferential tax terms. The government has so far stayed silent on whether it will extend a tax cut on purchases of vehicles with smaller engines beyond Dec. 31. As a result, sales could plunge next year if levies are allowed to double to 10 percent, said Cui Dongshu, secretary general of the China Passenger Car Association, a separate industry group. A slump in demand would worsen a capacity glut and dent profit margins, according to Steve Man, an analyst with Bloomberg Intelligence.
“The expiration of the current purchase tax cut is encouraging consumers to catch the last bus and bring forward their car purchases,” said Huang Xiaowei, an analyst with Shenzhen-based WAYS Consulting Co. “Dealers are preparing stocks for the surging demand at the year-end.”
The scramble to buy cars has left many carmakers with little to no inventory. A gauge of vehicle inventory fell for a third straight month in September to the lowest level in two years, according to the China Automobile Dealer Association. Dealers of Japanese brands in August saw profits increase by 27% from a month earlier to 1,851 yuan per vehicle after scaling back discounts due to strong demand, according to WAYS Consulting.
Mazda said its sales in China jumped 49 percent in September from a year earlier, led by models including the Axela compact, which qualifies for the tax cut. Geely raised its full-year sales target after September deliveries surged 82 percent from a year earlier.
Even General Motors" car sales, which had recently slowed in China, surged 16% to 343,773 units, with deliveries of Cadillac sedans increasing 63%. Great Wall Motor Co.’s sales rose 49 percent to 97,685 units, with SUV deliveries reaching 87,627 units.
What happens should both the housing and car bubbles pop? Well, buy stocks (again) or (even more) bitcoin, because in China, where the total amount of bank deposit is in the mid-$20 trillion range, the bubbles never actually die, they just get recycled.
