Hong Kong stocks set for trip down Dragon's back: CLSA


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johnahoon
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Hong Kong stocks set for trip down Dragon's back: CLSA

Jan 18 (Reuters) - In the year of the Black Water Dragon, investors could get torched again if they leap back into the market too soon.

But the outlook is expected to brighten considerably later in the year.

In a world of economic turmoil that's scorched investors, it's tough to make predictions, but that's the forecast for Hong Kong's Hang Seng Index if one follows the principles of feng shui - the ancient Chinese art, or science, based on 'Qi', the natural flow of energy - according to brokerage CLSA.

CLSA analysts, dressed in bright, Mandarin-collared traditional clothes, on Wednesday presented their tongue-in-cheek stab at predicting what every feng shui-savvy investor needs to know - the outlook for stocks and local property prices in these volatile times.

Their report, brandishing a colourful melange of cartoons, graphs and caricatures, features on the glossy front cover a menacing black dragon sporting red and yellow swimming trunks and a matching snorkel about to take a dip in the ocean.

If the rest of the report is to be believed, that snorkel is not coming off any time soon in the Year of the Dragon that begins on Monday.

The Hang Seng is set to remain in a funk through the first-half of the year, according to Philip Chow, who in his day job covers the transportation sector for CLSA, but on Wednesday donned the mantle of feng shui master.

"The euro zone crisis scared the rabbit into its hole last year," said Chow, referring to the Year of the Rabbit which ends next Monday, according to the lunar calendar followed in China.

Last year's feng shui forecast scored 2 "spot-on" versus 5 "dead wrong" predictions, according to CLSA's own assessment, as a second-half slump across global financial markets appeared to be at odds with the gods.

For the Year of the Rabbit, the Hang Seng Index is poised to lose nearly 18 percent.

For the Year of the Dragon, which ends in early February 2013, there's unlikely to be much respite till the market's levels of desperation peak between May and July, said Chow, adding that then the picture will brighten.

"Overall, we're still looking at a happy ending," Chow predicted.

In terms of sector picks, Chow's colleague Emily Lam, a member of CLSA's Hong Kong and China institutional sales team, said feng shui dictates that water-related sectors such as shippers and water utilities are in for a good year.

Investors placing bets on the energy sector, in particular oil and gas, are likely to end the year disappointed.

Another top pick for the year is the Macau gaming sector.

But investors were warned that their odds would be as good, or as bad, as they are in one of Macau's glitzy casinos.

"Dragons breathe fire. So avoid getting burnt," said Lam.

One unique characterstic that differentiates the dragon from other animals featured in the Chinese zodiac is that no one, with due apologies to Chinese emperors, St. George and the like, has ever seen a dragon.

"In Chinese mythology, the appearance of a dragon marks a transition of power, or a turning point," said Chow.

In tune with that prediction, Vice-President Xi Jinping is widely expected to take over as general secretary of the Chinese Communist Party, a step towards eventual appointment as president in the world's second-largest economy.

"Based on his charts, there's not much to puzzle: What you see is what you get," said CLSA in the report.

Expect him to keep stability as the main focus.

"He didn't rise by rocking any boats. Nothing wrong with a spot of smooth sailing," said CLSA.

Its light-hearted look at Hong Kong's financial markets, now in its 18th year, was hosted at the Shanghai-esque China Club, in the old Bank of China headquarters in the city.

http://www.reuters.com/article/2012/01/18/clsa-fengshui-idUSL3E8CI4TD201...

el stevedore
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at least we're in for a happy

at least we're in for a happy ending.

johnahoon
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CLSA Feng Shui Index 2012

CLSA Feng Shui Index 2012 can be downloaded from the CLSA website: www.clsa.com

jimslulu
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Thank You.

i am thinking this transition of power you mention will be timed with opening up the government control throttle to speed the economy in a party transition year(?).

Such things as loan growth acceleration? Reduced oil production taxation and a reduction in personal income taxes?---incentivizing energy production; cutting bank reserve requirements; delaying the implementation of the Basel more strict bank regulations? Even approving of local governmental regulations on extending the maturity of bad debt?

All of these "accelerations" have happened since September 2010. All of these are important growth drivers for an economy. Because of this, I see a rosy year or two for the Chinese people. Yes or No?

Though I distrust Chinese equities at present, all of this kind of "help" should goad growth and provide a tailwind to the Chinese economy. Now, if i could only pick honest Chinese companies, I would re-invest some of my money there..

Could you please comment on topics like, perhaps, expansion? I really find little use in dragons and the Chinese zodiac. I do welcome Chinese growth, which I am betting on. This will complement the whole of the World Economy. Best Of Trading./jimo

johnahoon
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CLSA Feng Shui 2012

CLSA Feng Shui 2012 prediction for the stock markets to drop after February 3rd. 2 weakest months are June & July. Stock markets will start to rebound after August 6th & continue to move up until December 6th.

el stevedore
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why feb.3?

why feb.3?

johnahoon
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Download the CLSA Feng Shui

Download the CLSA Feng Shui Index 2012 pdf file at www.clsa.com
Open the file & read pages 2, 4 & 5. If the words are too small enlarge the page 150% or 200%.
If the dragon head is pointing down or the dragon head is below the water level means the stock markets could be weak. If the dragon head is pointing up or the dragon head is above the water level means the stock markets could be rebounding.

jimslulu
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Johnahoon

You really believe that stuff? You allow some entity to take over your mental skills? And, to the day?/jimo

johnahoon
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Just take it as a guide.

Just take it as a guide. Anyway the prediction was for the stock markets to drop after 3rd February. Stock markets in the US, Europe & Asia have been going up strongly this month & should be due for a correction soon.

el stevedore
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did you establish a short

did you establish a short position today? i wonder if the dragon will be right tomorrow.

kaibo888 (not verified)
That's funny

I am pissing myself laughing reading this ... if the dragon has its' head under water the poor bugger will drown. He won't be all right tomorrow!

Chinese diaspora are more inclined to believe in those superstitions nowadays but mainland Chinese have largely rationalized it all out. But if it works for you that's great. Some diaspora in casinos follow little gremlins as well. They believe in that kind of stuff. It is said that is why the conspirators chose the Chinese to be the great levelers - they believed in the supernatural but the communist years drove it mostly underground and education has finished it off almost.

johnahoon
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It is those people from CLSA

It is those people from CLSA Hongkong who wrote this feng shui report.

Global markets are in a way inter linked with each other. If the US markets dropped sharply, the European & Asian markets will follow by dropping sharply. If the European markets dropped sharply, the US markets & Asian markets will follow by dropping sharply. Anything can happen in these markets. Sometimes 1 negative news is enough to trigger a market correction.

Noticed that the US, European & Asian markets have been rallying since early January 2012. There is a possibility of a pull back or correction soon as these markets are becoming overbought.

el stevedore
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so are you shorting the

so are you shorting the market?

kaibo888 (not verified)
This might be interesting

Especially as my mates Jimo and Stevo are in on the act here, and as this is a Chinese oriented post, the link below is a good read:

http://www.kitco.com/ind/Chang/feb022012.html

It comes via Kitco and is being quoted these days by Jon Nadler. I see some merit in what Chang says but also some possible shortsightedness. As Jimo has stated, Chinese growth is a positive for all markets. In Chain, property prices are being regulated, the economy is being cooled to protect from overheating, inflation is a global concern and is largely being affected by the benchmark reserve currency and the QE perpetual engineering etc. Social engineering is a major concern but managing change in 30 years of opening up is a gradual process and will be effected with successes and equally so problems that during periods seem terminal. That is an overview of sorts of this commentary.

Chang uses as examples:
1) over-investment in infrastructure and industrial capacity

China has no doubt made provision for future growth. In the city where I am the infrastructure is certainly advanced for the current population level and current industrialized level in some respects. It perhaps lacks centralized quality infrastructure in educational institutions for primary and secondary students and in likewise facilities for aged care and medical fields. The healthcare and education facilities are second-rate nationwide; even bordering on third world status in some hospitals I have been in. I can't say the same for new development zones and in some aspects of university facilities. They are grand on scale but perhaps under-equipped in some sectors. I have witnessed first hand first tier universities that are well equipped but have been informed by some students their particular universities are under-equipped.

Industrial capacity is certainly over invested in. In our case, HETDA (Hefei Economic & Technical Development Area) is grand and magnificent on a massive scale. It is fast becoming a world class estate and has a new canal being linked via the Chang Jiang River. That in itself compensates for 'future' potential but it has massive competition to face from other highly competitive jurisdictions. It is vast and future infrastructure is prepping the attractive development to promote their investment abroad and domestically. But I can't help but notice the vast acreage of factory space that is not even utilized. It seems to be over-capitalized for sure. It seems an imbalance is evident that industry gets such a boost but things such as aged care and healthcare facilities get 'noted' but largely passed over as a family problem. The latter social engineering problems are fast becoming a national issue and a global issue that at present have few immediate solutions.

On industrial capacity; in 2006 I recall reading an article stating the iron and steel industry. It stated that of the 70 new steel mills that had been constructed, only 10% would be viable by world standards. The other 63 operated by lower or decreased wages and relatively unsafe and less costly work practices. They were also subsidized by state funded injections. That was quite some time ago and since then, I recall that following the 2008 downturn the central govt. surveyed the industry and identified the over-capitalization in the market and set a new policy to streamline operations to dissolve the excess and promote the profitable mills. It seems to me that the current admin here is far from daft as Chang might suggest as every action has a reciprocal target.

2) an accumulation of local government debt

Not being privy to the figures here, but being a party to streaming information from all levels on the street, it seems that the ship is leaking. The central admin does an awesome job to contain such a vast land with 'multiplicit' (Ulysses) governance. We were all made aware of the unsolicited loans scandal that began to surface last year and the problems it may cause central governance in the future.

A similar problem occurred under Maoist reign, when the instituted program the 'Great leap Forward' failed. Fearing the heavy hand of governance, many local governors at the time 'falsified' reports to the central authorities and before it became known in reality the damage had been done.

In like manner, it seems that unsolicited loans and possible corruption at provincial level is still causing havoc for the authorities. It was reported that the former financial official of the province where I reside was executed some years ago for corruption at the highest level. It is a damn pity the USA and global governance can't try and execute the bastards who are engineering this global depression. They are above the law and are doing a great disservice to the nations. On that note I think Chang is biased and off key somewhat.

3) a consequent buildup of questionable loans in the banking system

No research - no comment

4) a slowing of growth

Painted as a disaster waiting to happen is the fact that the 'cooling down' in the current trend is engineered to avert the problems associated with soaring property prices and over speculative property investors. We can roll into this the battle against inflation. When the 'tools' to cool the economy down have run their race the pressure will be eased which in effect is a much smarter option than the central banks in the Euro Zone and the US have waged. In effect, although disconcerting and possibly damaging some sectors, the fact that the policy is marking time as being effective to achieve an aim should never be overlooked. It is a delicate balance and currently precariously positioned it seems. However reports issued today expect the policy to remain until the fourth quarter at a minimum. I applaud the action although it affects other sectors.

5 & 6) a precarious property bubble and persistent inflation.

It is without question problems exist here but nevertheless I have searched far and wide on the property scenario because I am a speculator and have invested. Fortunes can be made but fortunes can be lost as we know. I hope I am one of the lucky ones.

This is a great article and not one of the only ones I have observed which state why the Chinese situation is not the same as Japan or the USA.
BubbleOmics 101: China Does Not Have a Residential Property Bubble
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=21644

We have to be aware that guys like Chang, and to a greater extent Jon Nadler, who negates China's market potential on an almost daily basis these days, are 'parroting' what they think they might know as being a fact! I don't know for sure but I am not so emphatic.

The big question I have is that with a reported 85 million uninhabited apartments across China, if there is a global depression (in my mind a foregone conclusion in the affirmative) then as many investors try to dump property back on the market there could be a massive swing down in prices. That will impact in a potentially negative way for sure. That is a like-risk we all face in this world as nothing is certain except death. We gamble - we win some we lose some perhaps.

We can also glean info from the old article below which does not draw conclusions alongside Japan. I personally think there is a leveling of the economic growth here not a reversal - certainly not yet.

http://www.economist.com/node/15270708

In order to be balanced, here is a negating article that can be considered.

http://au.finance.yahoo.com/news/Chinas-Real-Estate-investopedia-5402565...

And another ...

http://pul.se/Why-Chinas-So-Called-Attempt-To-Cool-Its-Real-Estate-Bubbl...

In summary, I weigh up Chang's article with some merit but let me throw this in. It states an 'outflow of foreign reserves.'

First, that is periodical and is to be expected but it is possible a rat is in the works as well. I am of the opinion that some of this outflow has gone into gold, some of it has gone into propping up international central banks in the Euro zone and possibly the US or IMF etc. Of course some of it has been sucked out as a normal discourse of the ebbs and flows of economic cycles.

This is purely a speculative view; but for so much to go out undetected is to suggest that the Chinese central bank has lost control. Somehow I strongly doubt this scenario. In fact Chang suggests the 'party is now the economy.' So what is Chang suggesting, the whole party is about to defect to foreign countries taking the spoils with them? Does he honestly think that the movement of large cash reserves is going to be published abroad in times of an economic war? I think not to both scenarios.

Your honour, I rest my case!

Happy days guys and gals.

jimslulu
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Look at China's Strengths and Weaknesses

One of their strengths, is their ability to control more quickly from their "Central Committee" versus our laboring over virtually any major direction for our economy. Sometimes for years. Meantime, those guys, right or wrong (I think 3 Gorges Dam is an example of wrong), quickly point out a plan for tomorrow, and go for it.

If you look at their present expansion as a percentage of GDP, I don't consider them either smoking hot or weak. Doing a nice job. ---Infrastructure, it's all about infrastructure. This doesn't happen overnight, really it takes years to achieve---a deeply infrastructured country like the states, this is one of out competitive edges. To grow the Chinese infrastructure, it will take time. ---Probably not as long as Australia, a deeply flawed infrastructure country with huge potential and a penchant for green everything, which i view as a negative. I don't think Australia's leaders have a clue, copying our early efforts at green, but they are so weakly infrastructured, they will lack that competitive edge China offers, all because they, China, are willing to take that chance; to be wrong.

Chinese corruption is certainly a weakness. I think they are on par with Mexico or perhaps Brazil. A huge weakness, this lack of trust between 2 parties.

This guy is wrong. China is right on course, growing and developing. Their progress is not measured in their failures which is certain to continue, but in achievements. They have a loooong way to go. At some future date, not nearly there yet---look at Japan after WWII, that development there, what/how occurred---China will become more consumer oriented. This will take years.

Feeding the masses---wars have happened throughout history over food. This is one of China's huge weaknesses. Their land mass for growing is extremely limited. Food, grains especially, are going to have to be imported to satisfy the Chinese move of their people to middle class./jimo

kaibo888 (not verified)
Very classy

Very classy reply Jimo. Can't argue at all with that post. It is spot on! I think Mr Chang is about selling a controversial book. Can't argue with that either; we all have to make bank and survive.

China's arable land is less than 5% - food safety and quality is a serious concern at times. In 7 years up here though I have only had food poisoning once and the likely culprit was seafood at a dodgy restaurant. It was a severe case and lasted for days; but as SARS was still around (early 2005) as a potential, I refused to get medical treatment.

Australia lacks capital but yes, the leaders have little idea. The foolish 'pollies' sold our coal reserves to the Chinese for a mere 460 million. They should have sold it to the state and reaped the profit or made a profit in future. The Chinese are building ports, railways, townsites, just about everything infrastructure wise in Oz. Bob Brown is the 'gay' leader of the Greens and they hold the balance of power. Nothing against his sexual preferences but his rhetoric is a damn shame.

I love working on the big unionised jobs back home though, the money and conditions on resource jobs is second to none. My city of Perth is one of the most expensive cities in the world. I saw properties for sale in Washington today on a business report and Perth would blow those prices out of the water. Shit if it weren't for the crap govt in the US I might make a move. Nah, just joking! Canada would be more to my liking but nowhere could pay me more than Western Australia.

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