Investments, Weekly Market Outlook

HONG KONG (MarketWatch) — While China’s first-quarter growth figures pleased some analysts enough to upgrade their forecasts, George Soros was not impressed. Doubling down on his earlier comments that a hard landing for China was inevitable, he now says China’s is facing a financial crisis similar to the U.S. in 2008.

While such warnings over debt-fueled growth have become increasingly regular — both S&P and Moody’s cut the sovereign credit outlook to negative in March — at the same time, China has proved remarkably adept at kicking the can down the road.

The voice of legendary investor Soros carries considerable weight — but are we really any nearer that crisis point?

The counter argument is that China is different due to its sheer size and the ability of a one-party government to exert unprecedented control over the economy. This would mean conventional analytical tools or assumptions have to be jettisoned. Hard landings, financial or currency crisis would never quite materialize as we expect.

Of course, similar “this time is different” arguments were expounded during the 2001 tech bubble and then again with the U.S. property market prior to the 2008 global financial crisis.

Perhaps once again it is not different, just the timing is out.

There certainly appears to be evidence of stress building, even if authorities continue to paper over any cracks.

One place to look would be interbank liquidity, given this was a key vulnerability during the global financial crisis. On the surface things are relatively benign, although this is in a large part due to huge central-bank intervention. This past week alone, the People’s Bank of China pumped 870 billion yuan into markets to ease a cash drain.

Another early reliable indicator is financial stress in bond markets. This column recently highlighted that China’s corporate bond market has looked like the new weakest link. After the year began with record domestic issuance, liquidity could now be drying up, with reports over 40 companies have canceled planned issuances since March.

Then there are sovereign bonds. Here, authorities will be hoping for a healthy appetite as a glut of bonds from local governments will be hitting the market this year.

The most obvious recent sign of building financial stress is in China’s currency markets.

China’s loosely pegged exchange rate USDCNH, +0.2461% has been under intense scrutiny as its foreign reserves shrink — now down $800 billion since the middle of 2014.

At the same time, China has been tinkering with moving to a more market-driven exchange rate and two mini-devaluations — one last August, and again at the beginning of this year — did not go well. Both lead to big selloffs in global markets and appeared to trigger further capital outflows.

This puts authorities in a bind as in order to defend its loose peg to the greenback, dollars have to be used up, draining liquidity from the domestic economy. And looser monetary policy can just lead to more capital exiting.

March appeared to see some stabilization in reserve depletion, yet there is still reason to be concerned the long-term trend is lower.

Indeed, some analysts argue that China is facing a steep depreciation in its currency, whether or not we get a financial crisis or economic hard landing due to continued imbalance in capital flows.

Last week investment house CLSA issued a report arguing China will have no choice but to let the yuan float freely by 2017. This epoch-like embrace of the market will lead to the yuan initially falling more than 25%, it predicts.

The pain point for China is its financial account, as surging capital outflows continue to dwarf the current account surplus.

There is no issue with China’s current account, which remains in surplus. For instance it posted a record $365.7 billion trade surplus with the U.S. last year.

CLSA says China’s current policy of a gradual depreciation or crawling peg cannot fix its financial account problem. In fact it can even make things worse, as it signals a one-way bet.

This backs Beijing into a corner. Faced with an inexorable depletion in foreign-exchange reserves, the only way to find balance is through a market-driven exchange rate. This would enable “price discovery,” based on anticipation of profit by buyers and sellers of the yuan.

The problem, however, is that this process can be brutal as the currency’s value is left to the market.

As usual, George Soros’s warning needs to be taken seriously. China’s size means it certainly is different. But this could also mean it faces a different, bigger credit unraveling or the next financial crisis.


Women Empowerment
The terms Women Empowerment refers to the increasing of the spiritual, social, political or economic strength of all women. It is frequently seen that the empowered in their capacities develop confidence.

Empowerment of women is conceivably the sum total of the points listed below or parallel capabilities:

  • Having the power of making decisions for self.
  • Having access to resources and information for proper decision making.
  • Having numerous options to choose from (instead of yes/no, either/or).
  • Ability of showing assertiveness while making decisions collectively.
  • Ability to think positively to bring about a change.
  • Ability of developing new skills for group power and self improvement
  • Ability of using democratic means to change perceptions of others.
  • Adopting changes and a growth process that are self initiated and never ending.
  • Overcoming stigma and staying focused on increasing positive self-image.

Today, women share equal status as men. More stress should be laid on empowering rural women and their development. A special focus should be on empowering girls and women, since it will lead to a change in the society which would be sustainable and will be in effect for ages to come.. A united approach must be followed while empowering women it is a social cause that requires stewardship and continuous attention from every individual.  Society needs to enhance its efforts for women empowerment and to boost the progress being made by women. It is society’s constitutional, moral and social responsibility to confirm women’s progress giving women equal opportunities and rights.

Women today are ruling over the world and making their mark in various fields with the dedication and hard work shown by them to excel in their area of expertise. Women are not treated as an object or slave, rather they have now become independent of unethical societal norms imposed on them. As a result, companies are hiring are women force in more numbers since they have shown excellence in dedication towards their work as well as striking a perfect balance between their social, personal and professional life.Female job seekers were not given much preference earlier but now they are preferred candidates for many jobs.


Weekly Market Outlook

Citigroup says 2016 may look like 2015 right now, but that will change.

At first blush, the rally in oil to start 2016 bears some resemblance to the rally at the start of last year, which ultimately ended in tears.

This time, though, analysts at Citigroup Inc. led by Seth Kleinman say the rally has legs.

“The extra year of low prices has finally derailed the supply resilience that defined markets last year,” writes Kleinman.

A big factor differentiating this year from last year is what the markets are expecting a few months from now. Kleinman and his team point out that 24-month West Texas Intermediate (WTI) futures are currently around $49 a barrel, versus the $65 a barrel seen in the second quarter of 2015. If the futures market doesn’t expect the price to rise, producers can’t lock in a profit like they might have at $65. If you can’t lock in a profit, you can’t produce as much and thus the supply should theoretically fall. This has led some analysts and economists to say the futures price is far more important than the current or spot price.

“To keep all capital sidelined and curtail investment in shale until the market has rebalanced, we believe prices need to stay lower for longer,” Jeff Currie, head of commodities research at Goldman Sachs Group Inc., wrote in early 2015. “As short cycle shale production is a 12-month investment proposition, producers typically hedge out 9 to 12 months…As a result, the market anchor is shifting to this ‘one-year-ahead’ swap which creates the level of investment to balance future physical markets. It is therefore this forward price that needs to remain below full-cycle costs to curtail investment, not the spot price.”

While U.S. supply was a big driver last year, it’s time to look at supply outside of America. The analysts note that U.S. production peaked last April, and supply outside the country is now significantly impacted by low prices. This is important because it’s much harder for other countries to get drills back online than in the U.S. Due to the nature of shale, once oil prices start to rise, U.S. producers can quickly ramp up production while other countries can’t. 

The list of countries with declining supplies has grown rapidly: Brazil, Mexico, Colombia, China, Azerbaijan and others. Total non-OPEC oil production (excluding the U.S.) fell year over year in February and March (-105,000 barrels/day and -142,000 barrels/day, respectively) after rising for the prior 33 months,” Kleinman and his team wrote. “This dynamic is particularly important, because unlike shale, these supply declines are much harder to reverse in the short- or even medium-term.”

 To be sure, the team at Citigroup doesn’t expect a massive rebound in oil prices either, due to risks such as Saudi Arabia’s continued unwillingness to budge on production: “Saudis are not looking to reduce oil production under the current market conditions and if anything are likelier to be putting more barrels on the market. This is probably the biggest bear risk to oil markets right now.”