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Asian Insights and Developments

Posted by Larry Doyle on June 29, 2010 10:47 AM |

As markets are breaking down in America this morning, the waves of selling actually emanated in Asia. To that end, how do we get an unfiltered and unbiased perspective on economic and market related developments from that part of the world? Welcome to Sense on Cents.

A close personal relationship of mine works for Credit Suisse in China and provides the following commentary:

“An absolutely horrid day. Volume picked up as Shanghai broke the key 2,500 support level. Volume picked up in the afternoon after we broke 2,500 as panic selling entered the market. About 120 stocks finished limit down on the day, with many others moving more than 10% intra-day from day highs. If there is anything positive worth pointing out, it is that the cross-Straits trade agreement was signed, increasing cooperation in SE Asia, clearing one of the largest hurdles for regional economic development.

A number of stories were swirling in the market, but they are largely anecdotal, so I’ll leave them alone. I’ll say this,
investors continue to be concerned about the lack of liquidity (sighted both in local press as well as talked about by a
number of locals in recent days) as well as overhangs on the property sector, basic materials sector (gold fell hard
overnight), and the new corruption scandal developing in the airline industry.”

Wow. Nothing like a lack of liquidity, excess supply, and scandal to rock the global marketplace. If I did not know the calendar read 2010, I might think we were back in 2008 again. Thanks again to our ‘man on the ground’ in Asia for providing this wealth of sense on cents.

LD

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  • fred

    LD,

    Great stuff! I have long compared global growth prospects to a 3 legged stool: america, europe, asia. We need at least one strong leg to support a weak recovery thesis.

    The problem: arguably america and europe might benefit from reflationary policy but asia, China specifically, will not. how do we reflate and keep excess liquidity out of speculative markets such as stocks, bonds, commodities?

    The solution: global debt service must be reduced w/o inflating asset prices. Bond holders must take a hit so that debt restructuring can take place! Let’s stop protecting bondholders!

  • LD

    Fred,

    Bingo. Just as Roubini is highlighting this morning about the situation in Greece.

    The FT writes, Greece’s Best Option is an Orderly Default,

    It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece’s public debt is needed now.

    The austerity measures to which Greece signed up as a condition of its bail-out require a draconian fiscal adjustment of 10 per cent of gross domestic product. This would prolong the country’s recession and still leave it with a public debt-to-GDP ratio of 148 per cent by 2016. At this level, even a small shock is likely to trigger a further debt crisis. Sharp austerity may be needed – as agreed by the Group of 20 over the weekend – to stabilise debt-to-GDP ratios by 2016 in advanced economies; but for Greece such “stabilisation” would be at levels that are unsustainable.

    Fred, Thanks for the perpetual stream of sense on cents you provide!!






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