(MENAFN- Khaleej Times)Even as china's president meets the capo di tutti capi in Seattle its manufacturing PMI falls to 47 a post-Lehman low with new export orders in a slump. I found it significant that the offshore yuan fell 200 pips to 6.4346 after the PMI. This proves my core argument outlined a month ago.
The Middle Kingdom will respond to its economic decline and financial market carnage with massive credit creation exactly as it did in 1989 (Tiananmen) 1997 (Asian flu) and 2008 (subprime/Lehman). King Dollar gutted the competitiveness of Chinese exporters since mid-2014. The Politburo and the PBOC cannot allow this to happen again. Expect the yuan's decline to accelerate to 6.56 by year-end 2015 and 7.20 by end-2016. Like the Fed in 2008 or the ECB in 2014 the Chinese central bank has recalibrated policy to "lender of the last resort" mode. The most obvious macro trade from the China PMI is to short Brent crude as history's biggest most energy intensive economy slows down. This is no idea for widows orphans or those who do not understand contango/rollover risk in the crude oil futures market but 50 per cent plus Brent volatility is a licence to print money-selling high-delta ICE Brent calls if a trader is convinced that the primary trend is bearish as I am. I would not be surprised if Brent crude falls to $40 by December 2015. I once invested in the Singapore dollar as a proxy for a rising Chinese yuan after July 2005. Now the macro trade de jour is to sell the Malaysian ringgit on China data shock. Malaysia is both South-east Asia's largest oil/LNG exporter a tin/rubber/palm oil exporter now mired in its worst political crisis since former PM Mahathir jailed Anwer Ibrahim in 1998. The Malaysian ringgit has plummeted 19 per cent against the US dollar even though its current account surplus is four per cent of GDP. A weak China terms of trade shocks and competitive devaluations in Asia mean Malaysia cannot "export" its path to higher growth via a cheaper ringgit. The MDP sovereign wealth scandal has now escalated into an international money laundering investigation. The respected Bank Negara Governor Zeti Akhtar Aziz will retire soon. I see no reason why the Malaysian ringgit will not test Asian flu lows near 4.80 against the US dollar. India has Asia's lowest trade exposure to China at only five per cent of exports. Yet India is vulnerable to a global capital exodus from emerging markets since it was the consensus overweight by 500-800 basis points ever since the BJP vanquished Congress in the May 2014 general election on the eve of an epic plunge in crude oil a $50 billion gift to the Indian current account. As offshore capital fled Dalal Street since August the Indian rupee has depreciated five per cent to 66 against the US dollar as the Sensex dropped 12 per cent. While Indian exports will not be immune to slower global growth and the iffy monsoon did not goose rural demand capex/infrastructure is robust and can lead to a reacceleration in Indian GDP growth to 7.5 per cent. India is not only the fastest-growing major economy in the emerging markets but has minimal external debt unlike Turkey Brazil or South Africa. Inflation has fallen below four per cent Modi promises to slash the public deficit black hole and the current account deficit has narrowed since the August 2013 taper tantrum/rupee crisis. In my macro crystal ball I see the Reserve Bank of India cut its 7.25 per cent repo rate on September 2015. This makes me hugely bullish G-Sec debt and Indian bank shares as my arguments on the bullish case on ICICI Bank demonstrates. Note that India's reserves have risen while China lost $600 billion a testament to the vast wealth of the global NRI diaspora. This is the signal to buy Indian rupee against the yen the won and the ringgit as central banks print money in Tokyo Seoul and Kuala Lumpur. The Canadian dollar has hit new lows below 1.3325 despite positive data surprises. The reprieve from no September FOMC rate hike did not last. Hilary Clinton's opposition to the Keystone pipeline is another loonie negative data point while Ontario/Quebec's debt louds are scary in an economy in technical recession. I had recommended shorting the Canadian dollar last summer at 1.06 for a 1.35 target by year-end. Canada now trades at 1.3350. This macro trade idea continues to print money as the cognoscenti go loonie-hunting on Planet Forex!
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.