weekly option strategy

What A Week For China, Paulson Concludes Two Day Meeting With Chinese Officials

Friday, 25 May 2007 17:17:22 GMT  |  Richard Lee, Currency Analyst

Recap Of The Week’s Top Stories…

 

On the heels of a gloomy forecast pitted by former Federal Reserve Chairman Alan Greenspan, equity shares in China fell from a record close just the day before.  Noting that Chinese equities may undergo a “dramatic correction”, Greenspan stated that the current rally “is clearly unsustainable”.

 

Chinese Stock Markets Spooked By Greenspan, Declines From Record Trade

On the heels of a gloomy forecast pitted by former Federal Reserve Chairman Alan Greenspan, equity shares in China fell from a record close just the day before.  Noting that Chinese equities may undergo a “dramatic correction”, Greenspan stated that the current rally “is clearly unsustainable”.  Incidentally, the comments, made from a conference in Madrid by satellite, hark back to similar warnings by the former Fed policy maker when he noted American equity markets were displaying irrational exuberance.  Traders will remember that, although it did require about 4-5 years to take effect, the voiced concerns did come true as the tech bubble eventually burst, leaving many holding the bag.  Concerns over a repeat of the recessionary start surged through shares in Shanghai, turning the benchmark’s earlier gains into the red by the end of the session.  The benchmark CSI 300 index dropped 0.4 percent to 3,912.67 as bellwether shares helped to suppress market optimism.  Notably, however, brokerages were a positive for the day, with Citic Securities Co. gaining shortly after announcements by US Treasury Secretary Henry Paulson that the US will have access to the industry.

 

Paulson, Wu End Two Day Talks – Expands US Investment

After two days of talks between Chinese and US officials, little was left resolved on the currency foreign exchange policy.  Instead, Chinese officials attempted to appease US Congressman, opening up both the financial services and aviation sectors to foreign investment.  Notably, for the financial sector, China opened up quotas that previously restricted the amount of stock allotted to international investors.  In addition, foreign banking institutions will be able to issue yuan denominated credit and debit cards to the consumer level.  In aviation, both sides agreed to more than double the number of daily flights between to and from the US by the year 2012.  Both plans were considered a vast improvement to deepen ties with the US and China, however, for the most part remained “incremental” as per US Treasury Secretary Paulson.  It seems that the one thing policy makers wanted, remained off the table as the pace of change was still under contention.  “They agree with us on principle, the question is the pace of change…we’re impatient”, noted Paulson at a press conference in Washington.  Incidentally, the talks spurred further speculation on another round of widening as People’s Bank of China Governor Zhou Xiaochuan noted plans for further flexibility in the yuan.  As a result, the yuan traded at a record high against the dollar, appreciating to 7.6540 in the overnight session.

 

Chinese Stock Markets Rocket To Record, Global Thermometer For Risk?

For the second straight session, China’s stock market skyrocketed to close at a record high.  Property developers helped to support the move higher as housing demand is expected to remain robust in the coming quarters, adding to positive bottom lines.  As a result, the Shanghai Composite gained 0.9 percent to break above the 4,100 level for the very first time, closing at 4,110.38 in midweek action.  Incidentally, the benchmark index’s surge ahead is confirming that investors continue to be risk seekers, with plenty of people hoping to capitalize on further gains in equities while disregarding notable warnings from policy makers.  As a result, the notion has some wondering whether or not Chinese shares may be the new thermometer of risk for the global forum.  Once in the form of US equity markets back in the 90s’, risk has now been reflected in the nascent Chinese stock market as gains continue to race ahead.  The only question now it seems, is whether or not momentum is sustainable.  It’s not difficult to judge, however, at this point with growth widely being supported by the fact that Chinese shares have risen by 54 percent this year alone on top of a 130 percent advance seen in 2006.  

 

Blackstone Deal Makes Headlines, Obtains $3 Billion In China Funding

Blackstone underwriters expanded the initial deal to bring Blackstone Group LP public after it was established yesterday that Chinese officials had made an investment of $3 billion in the public offering.  Part of longer term plans to diversify the nation’s $1.2 trillion in foreign exchange reserves, the investment will essentially grant access to international opportunities for Chinese investments and help to bolster higher rates of return.  Further investments are likely in the works as officials work towards establishing a $200 billion state investment agency.

 

 

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