September 29, 2014
China Investment Strategies US$1=RMB6.15
F E AT U R E AR T I CL E S • In the first Feature Article of this report, we discuss the discrepancy for China’s gold demand as reported by different organizations and we share our view on the issue. • The rest of the Feature Articles are reprints of our China Express reports between September 16 and September 25, in which we discussed China’s gold, nickel, and coking coal markets as well as macro issues such as PBOC’s latest liquidity injection and the HSBC Flash PMI for September.
AL S O IN T HI S R E PO R T • The chart section of this report is divided into three parts. The first part, “Commodities Markets,” offers price, supply, and demand data for a wide range of commodities including base metals, steel & iron ore, grains, chemicals, oil, coal, uranium, and pulp & paper products. • The second part, “Key Macro Trends,” covers major macroeconomic data such as key growth drivers, growth rates, growth indicators, inflation and monetary data, and data from China’s property and auto markets. • The third part, “Financial Markets,” illustrates key developments in China’s equity, currency, and bond markets. It also presents the absolute and relative performance of the 16 industrial sectors on China’s domestic equity markets.
Published by CNC Asset Management Ltd. Exclusively distributed by Scotia Capital Inc. For important disclosures, please see Appendix A.
Na Liu 刘 纳, CNC Asset Management Ltd. Email:
[email protected] Phone: 647-298-1411 www.cncam.ca (or www.chinaupdate.net)
CNC China Investment Strategies IMPORTANT NOTICE AND DISCLAIMER This publication has been prepared by an entity that is independent of and unaffiliated with The Bank of Nova Scotia and its subsidiaries and affiliates (individually or collectively, “Scotiabank”). For the time being, Scotia Capital Inc. is authorized by CNC to distribute this report on an exclusive basis. As such, unauthorized reproduction, distribution, transmission or publication without the prior written consent of Scotia Capital Inc. is strictly prohibited. This publication is intended for general information purposes only and should not be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein. The information, opinions, estimates, and projections contained herein are subject to change without notice. Scotiabank has not independently verified and does not make any representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Securities laws and regulations and the policies of Scotiabank that are applicable to Research Analysts may not be applicable to this publication and its author. The opinions and views expressed in this publication may differ from those of Scotiabank and any or all of its divisions and departments, including Research Departments. Information may be available to Scotiabank that is not reflected herein and it may engage in transactions in a manner inconsistent with the views discussed herein. Scotiabank may have positions, or be in the process of acquiring or disposing of positions, referred to in this publication. Scotiabank and any of its officers, directors and employees, may from time to time act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market-makers or advisors, brokers or commercial and/or investment bankers in relation to the securities, contracts or financial instruments discussed herein. Neither Scotiabank nor any of its officers, directors, partners, or employees accepts any liability for any direct or consequential loss arising from this publication or its contents. Any securities, contracts or financial instruments discussed herein may be unsuitable for some investors. Investors should independently evaluate any issuer, security, contract or financial instrument that may be discussed in this publication and consult with an investment professional prior to making an investment decision. To European Economic Area (EEA) Residents: In the EEA this document is distributed by Scotiabank Europe plc which is authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. The contents hereof are not intended for the use of and should not be issued or passed on to retail clients as defined by the PRA and FCA and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. For U.S. Investors: Any transactions by U.S. Institutional Investors in connection with a security referenced herein must be executed with a U.S. broker-dealer, including Scotia Capital (USA) Inc., an affiliate of Scotia Capital Inc.
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CNC China Investment Strategies
Feature Article The Mystery of China’s Gold Demand • Over the years, we, like most investors, track China’s gold demand by following the estimates made by the China Gold Association (CGA) and the World Gold Council (WGC). For instance, the China Gold Association said China’s total gold demand in 2013 was 1,176.4 tonnes and the World Gold Council said China’s total “consumer demand” was 1,065.8 tonnes. So, in 2013, China’s gold demand was slightly over 1,000 tonnes, we initially concluded. • This is why we were shocked by what the Shanghai Gold Exchange (SGE) told us earlier this year. Back in May, we participated in a Canadian institutional investors’ trip to China organized by Scotiabank. The Canadian delegation visited the Shanghai Gold Exchange and met with President of the SGE Transaction Department and other senior officials. The delegation was told by our Chinese host that China’s gold demand was about 2,200 tonnes in 2013, judged by the withdrawal amount from the SGE vaults. • Apparently, the SGE’s estimate of Chinese demand is much higher than the estimates made by CGA and WGC. If China’s actual gold demand is over 2,000 tonnes rather than slightly over 1,000 tonnes, then the gold market could be a lot tighter than thought. As such we asked a lot of questions to the SGE executives in the meeting and when we were back, we carefully reviewed the trading mechanism of the SGE in the past few months.
After all our work, as we wrote on September 25 (see the next Feature Article), we are now of the view that to understand China’s real physical gold demand, investors should simply look at the weekly withdrawals from Shanghai Gold Exchange vaults (Exhibit 1). The weekly withdrawal figures provide a much more accurate data series that reflects China’s aggregate wholesale demand in a timely way. This is because for tax purposes all gold imported into China and all gold produced within China must pass through the vaults once, and only once, before reaching jewellery makers, investors, industrial users, and consumers.
•
We hesitated over the past few months in publishing our findings from our May meeting with the SGE as these findings are non-mainstream. Now, as we are becoming more convinced, we want to share the following comments made by the SGE executives to the Canadian delegation.
•
• First, the withdrawal data reflects the actual gold wholesales in China. In 2013, the total gold withdrawal from the SGE vaults amounted to 2,196.96 tonnes. The President of SGE Transaction Department (The President) said: “This 2,200 tonnes of gold, after leaving our vaults, they entered thousands of Chinese households in the form of jewellery and investment purchases.” Exhibit 1: Weekly Withdrawals From Shanghai Gold Exchange Vaults (kg) 80,000
60,000
40,000
20,000
-
2014-31
2014-21
2014-11
2014-01
2013-41
2013-31
2013-21
2013-11
2013-01
2012-41
2012-31
2012-21
2012-11
3
2012-01
2011-41
2011-31
2011-21
2011-11
2011-01
2010-41
2010-31
2010-21
2010-11
2010-01
2009-41
2009-31
2009-21
2009-11
2009-1
Source: Shanghai Gold Exchange, CNC.
CNC China Investment Strategies • Second, none of the 2,200 tonnes of gold was bought by the Chinese central bank. The President said: “The PBOC does not buy gold through the SGE.” • Third, the financing deals do not exaggerate SGE’s assessment of China’s gold demand. This is because “the financing deals do not take place after the gold leaves the vaults.” • Fourth, in response to our question about the source of the 2,200 tonnes, he replied: “About 1,500 tonnes from imports, some 400 tonnes from domestic mine output, and the rest is recycled gold.” • And last, when we asked why the China Gold Association’s number is so low, the President said: “They mainly cover the gold sales through the gold shops. This is their main source of information. And their number is quite useful in that way. However, our system has broader coverage.” • So here is our current conclusion after several months of deliberation. We think the SGE withdrawal data is a fair representation of China’s wholesale gold demand. Again, this is because for tax purposes all gold imported into China and all gold produced within China must pass through the vaults once, and only once, before reaching jewellery makers, investors, industrial users, and consumers. • Lastly, we do note that in recent weeks, the withdrawal number is getting bigger (Exhibit 1). This might indicate the de-stocking process is coming to an end. We maintain our relatively cautious “market weight” call for the gold sector from a China perspective for the time being. In the meantime, we will closely monitor the weekly withdrawal data to decide whether we should turn more positive.
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CNC China Investment Strategies
Feature Article Measuring China’s Gold Demand • This article is a reprint of our China Express dated September 25, 2014.
Exhibit 1: Net Gold Imports from Hong Kong (Tonnes)
Overnight data shows that China’s net gold imports from Hong Kong remained low at 27.477 tonnes in August (Exhibit 1). This data point supports our view that China is still in a destocking stage for gold and our relatively cautious “market weight” call on gold from a China perspective. •
140 120 100 80 60 40 20 0
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
Aug-08
Dec-08
However, we do caution that investors should no longer regard China’s net imports from Hong Kong as an accurate proxy for China’s gold import demand. This is because gold is increasingly flowing into the Chinese market through Shanghai and even Beijing.
•
Source: Census and Statistics Department, HKSAR.
• To understand China’s real physical gold demand, investors should simply look at the weekly withdrawals from Shanghai Gold Exchange vaults (Exhibit 2). We visited the Shanghai Gold Exchange (SGE) in May and talked to the senior executives of the exchange. After reviewing the exchange’s trading mechanism, we are of the view that the weekly withdrawal figures provide a much more accurate data series that reflects China’s aggregate wholesale demand in a timely way. This is because for tax purposes all gold imported into China and all gold produced within China must pass through the vaults once, and only once, before reaching jewellery makers, investors, industrial users, and consumers.
Exhibit 2 presents the weekly withdrawals from SGE vaults by numbered week (each calendar year has 50 trading weeks). As the exhibit shows, in recent weeks China’s wholesale gold demand has actually picked up slightly. This is in contrast to the Hong Kong import data. Overall, by mid-September, China’s cumulative wholesale demand in 2014 was down 16.2% YOY. This decline is much milder than the Hong Kong import number implies. •
Exhibit 2: Weekly Withdrawals From Shanghai Gold Exchange Vaults (kg) 80,000
60,000
40,000
20,000
-
2014-31
2014-21
2014-11
2014-01
2013-41
2013-31
2013-21
2013-11
2013-01
2012-41
2012-31
2012-21
2012-11
5
2012-01
2011-41
2011-31
2011-21
2011-11
2011-01
2010-41
2010-31
2010-21
2010-11
2010-01
2009-41
2009-31
2009-21
2009-11
2009-1
Source: Shanghai Gold Exchange, CNC.
CNC China Investment Strategies
Feature Article August Methanol Data • This article is a reprint of our China Express dated September 24, 2014.
In August, China’s methanol output reached a record high of 3.58 million tonnes, up 46.4% YOY (red bars in Exhibit 1). This makes methanol a rare commodity among the commodities we follow that registered extremely robust output growth last month. In the first eight months of this year, total Chinese output reached 24.4 million tonnes, up 29.4% YOY.
Exhibit 1: Methanol Apparent Consumption 4,500,000
•
Methanol Apparent Consumption (tonne)
3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 -
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Output
Dec-12
Aug-12
Net Imports
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
• On the trade side, China imported 463,500 tonnes of methanol last month, down 26.8% YOY, while exports remained low at 37,100 tonnes. The blue bars in Exhibit 1 show China’s net imports of methanol.
4,000,000
Apparent Consumption
Source: GACC, NBS, CNC.
• We expect China’s domestic methanol output to remain high and gradually replace import demand. Beginning in January 2015, China will restrict the production, consumption, and import of coal with high impurity levels in a bid to fight smog. In a statement issued on September 15, the National Development and Reform Commission announced three new quality thresholds that will restrict the use of low-quality coal, with the most stringent requirement banning the use of coal with more than 16% ash and 1% sulphur content in key population centres such as Beijing, the Pearl River Delta, and the Yangtze River Delta. Although the new policy mainly targets thermal coal, it impacts the entire coal industry, including anthracite coal. Our study of the documents leads us to believe that the impact of the new policy might not be significant for China’s coal imports, but it should put more pressure on domestic coal producers to push toward downstream integration into chemical production.
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CNC China Investment Strategies
Feature Article HSBC Flash PMI
• The HSBC Flash PMI came in at 50.5 for September, higher than August’s 50.2 and economist consensus of 50.0. On the surface, this number should help mitigate the prevailing bearish sentiment toward the Chinese economy. However, for China-sensitive raw materials sectors, we do not regard this data point as bullish.
Exhibit 1: Average Weighted Steel Spot Price 5200
Steel Prices, Yuan/tonne
• This article is a reprint of our China Express dated September 23, 2014.
4800 4400 4000 3600 3200
09/22/14
06/14/14
03/06/14
11/26/13
08/18/13
05/10/13
01/30/13
10/22/12
07/14/12
04/05/12
12/27/11
09/18/11
06/10/11
Yesterday, Chinese Finance Minister Lou Jiwei was quoted as saying that Note: 50% Rebar, 30% HRC, 20% CRC. China will not dramatically alter its Source: Antaike, CNC. economic policy because of a single economic indicator. So, if the poor August macro indicators were not enough to trigger any significant policy stimulus, a sequential improvement in the PMI in September would likely only further delay it. For investors seeking more accommodative measures from the Chinese government, this small improvement in PMI survey does not help. •
• The same argument goes for other small improvements in macro data. Given how poor the August macro data were, we would not be surprised to see some improvements in the September data. If these improvements are not significant enough, then they would simply imply that economic growth in China is settling into and stabilizing at a lower level – there is no reason for the Chinese government to panic but there is equally no reason for commodity bulls to cheer. At the end of the day, at the current growth level, steel and iron ore prices are setting lows not seen since 2009 (Exhibit 1). • As such, we would become more positive on China-sensitive raw materials sectors only when at least one of the following three conditions is met: (1) China’s housing market shows concrete improvement; (2) solid evidence of higher activity level is apparent at the fall construction sites; or (3) global raw materials sectors continue to drop to a level that begins to price in long-term distressed commodity prices. When we say longterm distressed commodity prices, we mean that these prices have to be assumed as staying at depressed levels long enough to permanently destroy high-cost supplies.
To date in September, we have not seen evidence that the first two conditions have been met. Weekly home sales are stable but not robust, while demand for steel, cement, diesel, and heavy machinery remains lukewarm. As for the third condition, we leave it to investors to make sector-specific judgment calls. For the time being, we maintain our relatively cautious market weight call for the global raw materials and energy sectors from a China perspective, a call that we have steadfastly maintained since the summer months. •
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CNC China Investment Strategies
Feature Article Nickel and Coking Coal Exhibit 1: Refined Nickel Trade 30,000 Refined Nickel Trade (tonne)
This article is a reprint of our China Express dated September 22, 2014.
•
Overnight, China published detailed commodity trade data for August. We draw investors’ attention to data related to nickel and coking coal. •
0 -10,000
Aug-14
Apr-14
Dec-13
Exports
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Imports
Net Imports
Source: GACC.
7,200 6,400 5,600 4,800 4,000 3,200 2,400 1,600 800 -
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
•
8,000
Nov-10
Nickel Ore & Concentrate Imports (1,000 tonnes)
Exhibit 2: Nickel Ore and Concentrate Imports
Aug-10
Second, China’s coking coal imports dropped 39.0% YOY to only 3,835,359 tonnes last month (Exhibit 3). This trade pattern is disturbing because import demand is not responding to lower commodity prices. We remain cautious on the coking coal sector from a China perspective.
10,000
Apr-11
• First, China’s nickel trade data still do not support the bullish case. Refined nickel and alloy imports dropped 32.9% YOY last month to a mere 9,595 tonnes, while exports surged 227.4% YOY to 17,910 tonnes. This left China as a net exporter of refined nickel again – the second time in history (Exhibit 1). On the ore side, China imported 5.42 million tonnes of nickel ore, actually up 3.7% YOY, thanks to an 87.4% YOY surge in imports from the Philippines (Exhibit 2). We have been sceptical about the upside for nickel before year-end, mainly because of hidden inventories in China, and we remain cautious in the near term.
20,000
Source: GACC.
Exhibit 3: China’s Coking Coal Imports (Thousand Tonnes) 9,000 8,000
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Aug-10
8
Dec-10
With the iron ore price dropping below 7,000 6,000 US$80/tonne yesterday, a level not seen since 5,000 mid-2009, the lure of bottom-fishing is getting 4,000 stronger. However, Chinese rebar prices have 3,000 dropped to an even worse level. At RMB 2,965 2,000 per tonne, the average rebar price has not been 1,000 seen since 2006. We do not want to miss the inflection point; however, we maintain our view Source: GACC. that investors should wait for concrete positive signals from the housing market or the fall construction sites before turning positive on sectors related to steel inputs such as iron ore, coking coal, and nickel. •
CNC China Investment Strategies
Feature Article RMB500 Billion Liquidity Injection •
This article is a reprint of our China Express dated September 16, 2014.
• Local media just reported that the People’s Bank of China has provided RMB100 billion liquidity to each of China’s five largest banks, through PBOC’s Standing Lending Facility (SLF) with durations of three months. We offer three observations: • First, we calculate that the move equals a 45-basis points cut of the required reserve ratio (RRR) for three months. If the market assumes that this facility will be rolled over every three months, which we are not sure about, then the move can be viewed as a permanent RRR cut. In that case the only difference is that the move through SLF carries a higher financing cost for commercial banks, although the interest rate charged under the SLF facility was not disclosed. • Second, with this move, the near-term chance of an RRR cut is significantly reduced. It seems that the PBOC still does not want to use high-profile vehicles such as an RRR cut to inject liquidity. This is because an RRR cut or an interest rate cut signals a change in monetary policy. • And third, although the move helps restore confidence in the financial market for China-sensitive sectors, the real impact on the Chinese economy might not be significant. In the past few months, new loan growth was muted in China, mainly for two reasons: first, the borrowing cost was a bit too high for some borrowers; and second, the banks were reluctant to lend either due to a risk-averse attitude or due to the constraints of loandeposit ratio regulation. Therefore, we believe that if the Chinese government really wants to boost near-term growth, it should also cut interest rate. Our current suspicion is that at the current stage the government is still not prepared to cut benchmark interest rates – Premier Li simply wants to use the SLF injection to prevent any further erosion of confidence in the Chinese economy.
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CNC China Investment Strategies
Commodities Markets
10
CNC China Investment Strategies
China Commodities Index 170
160
150
140
130
120
29-Sep-14
28-Jul-14
26-May-14
24-Mar-14
20-Jan-14
18-Nov-13
16-Sep-13
15-Jul-13
13-May-13
11-Mar-13
7-Jan-13
5-Nov-12
3-Sep-12
2-Jul-12
30-Apr-12
27-Feb-12
26-Dec-11
24-Oct-11
22-Aug-11
20-Jun-11
18-Apr-11
Note: This fixed-weighted index tracks the price performance of a wide range of "cyclical" commodities in the local Chinese spot markets, including copper (12.5% weight), aluminum (12.5%), zinc (5%), re-bar (10%), HRC (7.5%), CRC (7.5%), iron ore (10%), coal (15%, export price), and ethylene (20%, FOB S. Korea). Source: CNC.
Baltic Dry Index 3,500 3,000 2,500 2,000 1,500 1,000 500 09/29/14
11
09/29/13
09/29/12
09/30/11
09/30/10 Source: Bloomberg.
CNC China Investment Strategies
Copper Average Copper Spot Price
Price Relative: Shanghai Spot vs. LME Cash
Shanghai Spot vs. LME Cash
1.30
68000 60000 52000 44000
1.20
1.10
09/29/14
06/21/14
03/13/14
Apr-13
12/03/13
05/17/13
08/25/13
02/06/13 Dec-12
10/29/12
07/21/12
04/12/12
01/03/12
06/17/11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
1.00
09/25/11
Spot Copper Price in Shanghai, Yuan/tonne
76000
Source: SHFE; LME.
Source: Shanghai Changjiang Non-ferrous Metals Market.
Copper Stocks in SHFE
Refined Copper Trade Refined Copper Trade (tonnes)
SHFE Copper Stocks (tonnes)
250,000 200,000 150,000 100,000 50,000
400,000 300,000 200,000
100,000 -
Refined Copper Apparent Consumption
Copper Concentrate Imports (Tonnes)
Refined Copper Apparent Consumption (tonnes)
Source: GACC.
1,000,000
Aug-14
Source: SHFE.
Apr-14
Exports
Dec-13
Imports
Aug-13
Aug-12
Apr-12
Dec-11
09/29/14
09/29/13
09/29/12
09/30/11
09/30/10
09/30/09
Aug-11
0
Net Imports
1,100,000
800,000
900,000 600,000
700,000
400,000 200,000
500,000 -
Aug-14
Apr-14
Dec-13
Aug-13
300,000
11.2% 22.6% -12.1% 27.1% 15.6%
6.1% 11,307,754
15.6%
Source: NBS; Customs; CNC.
12
Aug-14
4,930,270 2,359,970 193,143 2,166,827 7,097,097
Apr-14
-1.3%
20.2% -10.8% 57.1% -14.2% 9.6%
Dec-13
1,419,252
YOY
Aug-13
7.4% -4.3% -30.5% -0.8% 5.3%
Jan-Aug
Apr-13
680,128 234,462 19,787 214,675 894,803
YOY
Dec-12
MOM
Aug-12
Semi Production
Aug-14
Apr-12
Refined Copper Production Imports Exports Net Imports Apparent Consumption
Dec-11
Data Snapshot: Copper (tonnes)
Aug-11
Source: GACC.
Source: GACC; NBS.
Apr-11
Apparent Consumption
Dec-10
Aug-10
Net Imports
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Production
CNC China Investment Strategies
Aluminum Average Aluminum Spot Price
Price Relative: Shanghai Spot vs. LME Cash
17000 15000 13000 11000
1.40 1.30 1.20 1.10 1.00 0.90
160,000 80,000
320,000 240,000 160,000 80,000 0 -80,000 -160,000
Primary Apparent Consumption (tonnes)
Data Snapshot: Aluminum (tonnes)
1,800,000 1,400,000 1,000,000 600,000 200,000 -200,000
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Net Imports
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Production
Aug-14
Apparent Consumption
13
YOY
Alloy
Jan-Aug
YOY
Primary Aluminum Imports Exports Net Imports Production Apparent Consumption Semis Production
8,487 13,177 (4,690) 2,027,459 2,022,769 4,207,124
-39.8% 66.9% -175.6% 2.6% 2.0% 2.7%
-74.6% 29.5% -120.2% 8.8% 7.2% 19.9%
249,753 81,450 168,303 15,546,949 15,715,252 30,817,673
62.9% 25.4% 90.5% 7.6% 8.1% 19.3%
Alumina Imports Production Apparent Consumption
350,410 3,896,710 4,247,120
-24.4% -0.9% -3.4%
142.7% 1.9% 7.0%
3,578,133 30,597,935 34,176,068
76.6% 5.4% 10.0%
Source: NBS; Customs; CNC.
Source: GACC; NBS.
MOM
Aug-14
Primary Aluminum Apparent Consumption
Apr-14
Source: GACC.
Dec-13
Primary Aluminum
Source: SHFE.
2,200,000
Aug-13
Apr-13
Dec-12
Semis
Aug-12
Apr-12
09/29/14
09/29/13
09/29/12
09/30/11
09/30/10
Dec-11
0
400,000
Aug-11
Primary and Semis Trade (tonnes)
240,000
09/30/09
SHFE aluminum stocks (in tonnes)
320,000
09/29/14
400,000
06/21/14
480,000
03/13/14
560,000
12/03/13
Aluminum Net Exports
08/25/13
Aluminum Stocks in SHFE
05/17/13
Source: SHFE; LME.
02/06/13
Source: Shanghai Changjiang Non-ferrous Metals Market.
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
0.80
06/17/11
Price Ratio: Shanghai Spot/LME Cash
1.50
06/17/11
Spot Price in Shanghai, Yuan/tonne
19000
CNC China Investment Strategies
Nickel Price Relative: Shanghai Spot vs. LME Cash
Average Nickel Spot Price
Shanghai Spot vs. LME Cash
1.30
190000
150000
110000
1.10
1.00
20,000 10,000 0 -10,000
40,000 30,000 20,000 10,000 0 -10,000
4,800 4,000 3,200 2,400 1,600 800 -
50,000 0 -50,000 -100,000 -150,000 -200,000 -250,000 -300,000
Aug-14
14
Feb-14
Source: NBS; Customs; CNC.
Aug-13
-11.0% 130.8% -72.2% 35.0% 0.3%
Feb-13
103,306 80,758 22,548 228,445 250,993
YOY
Aug-12
-32.9% 227.4% -194.2% 38.1% -23.3%
Jan-Aug
Feb-12
9,595 -45.9% 17,910 1.5% (8,315) -11811.3% 33,967 7.7% 25,652 -18.8%
YOY
Aug-11
MOM
Feb-11
Aug-14
Aug-10
Data Snapshot: Nickel (tonnes)
Feb-10
Source: GACC.
Aug-09
Feb-09
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
Aug-10
Source: GACC.
Apparent Consumption
100,000
Aug-08
Stainless Steel Net Imports vs. 12-month Average (tonne
5,600
Aug-14
6,400
Apr-14
Stainless Steel Net Imports
Dec-13
Nickel Ore and Concentrate Imports
Aug-13
Source: GACC; NBS.
7,200
Apr-13
Net Imports
Source: GACC.
8,000
Dec-12
Aug-12
Production
Net Imports
Apr-12
Dec-11
Aug-11
Aug-14
Apr-14
Dec-13
Exports
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Imports
50,000
Apr-11
Refined Nickel Apparent Consumption (tonne)
Refined Nickel Apparent Consumption
30,000
Nickel Ore & Concentrate Imports (1,000 tonnes)
29-Sep-14
21-Jun-14
13-Mar-14
3-Dec-13
25-Aug-13
17-May-13
Refined Nickel Trade
Refined Nickel Imports Exports Net Imports Production Apparent Consumption
6-Feb-13
29-Oct-12
21-Jul-12
12-Apr-12
3-Jan-12
25-Sep-11
17-Jun-11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
Source: Shanghai Changjiang Non-ferrous Metals Market; LME.
Source: Shanghai Changjiang Non-ferrous Metals Market.
Refined Nickel Trade (tonne)
1.20
0.90
70000
06/17/11
Refined Nickel Spot Price in Shanghai (Yuan/tonne)
230000
CNC China Investment Strategies
Zinc Price Relative: SHFE Spot vs. LME Cash 6500 Zinc Spot Price Galvanized Steel Price
19000
6000
18000 5500
17000 16000
5000
15000 4500
14000 13000
4000
1.5 Relative Zinc Price: Shanghai vs. LME
20000
Galvanized Steel Spot Price (Yuan/tonne)
ZincSpot Price in Shanghai (Yuan/tonne)
Average Zinc Spot Price
1.4 1.3 1.2 1.1
100,000
400000
Refined Zinc Trade (tonnes)
Zinc Stocks in SHFE (in tonnes)
440000
360000 320000 280000 240000 200000
80,000 60,000 40,000 20,000
160000
-
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Oct-13
Aug-13
Jun-13
Exports
Apr-13
Feb-13
Imports
Source: SHFE.
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
Aug-11
Jun-11
120000
Net Imports
Source: GACC.
Refined Zinc Apparent Consumption Refined Zinc Apparent Consumption (tonnes)
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
Refined Zinc Trade
05/17/13
Zinc Stocks in SHFE
02/06/13
Source: SHFE; LME.
10/29/12
Source: Shanghai Changjiang Non-ferrous Metals Market.
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
1.0
Plated Steel Output (Tonnes)
650,000
5,000,000
550,000
4,000,000
450,000 350,000
3,000,000
250,000
2,000,000
150,000 50,000
1,000,000
(50,000)
Aug-14
Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11
Apr-14
Jun-14
Feb-14
Oct-13
Dec-13
Aug-13
Jun-13
Net Imports
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Production
Source: GACC; NBS.
-
Apparent Consumption
Source: GACC; NBS.
Data Snapshot: Zinc (tonnes) Refined Zinc Imports Exports Net Imports Production Apparent Consumption Coated Sheet Output
Aug-14
MOM
58,641 21,227 37,414 486,255 523,669
40.7% 111.2% 18.3% -5.6% -4.2%
4,366,998
2.6%
YOY 12.5% 2881.5% -27.2% 8.3% 4.7%
Jan-Aug
YOY
479,771 35,890 443,881 3,685,525 4,129,406
35.4% 1043.9% 26.4% 3.9% 5.9%
16.0% 32,672,290
13.1%
Source: NBS; Customs; CNC.
15
CNC China Investment Strategies
Gold Gold Price (Yuan per gram)
Shanghai Gold Premium (US$ per ounce) 60
400 360
40
320 20
280 240
-
200
9/29/2014
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
6/21/2014
3/13/2014
12/3/2013
8/25/2013
5/17/2013
2/6/2013
10/29/2012
7/21/2012
4/12/2012
1/3/2012
9/25/2011
6/17/2011
(20)
Source: Shanghai Gold Exchange. Note: Au9999.
Source: Shanghai Gold Exchange, Bloomberg. Note: Five-day MA.
Gold Price Versus Chinese CPI
Monthly Jewellery Sales (Billion yuan, %)
2000
35
10
1800
8
1600
6
1400
4
1200
2
1000
600
80
25
60
20
40
15
20
0
Gold Price (Left, US$/Ounce) CPI (Right, YOY %)
800
100 Retail Sales - Gold, Silver, & Jewelry (Billion Yuan, Left) YOY (%, Right)
30
10
0
-2
400
-4
-20
0
-40
Source: NBS, CNC.
Net Gold Imports from Hong Kong (Tonnes)
Data Snapshot: Gold Consumption (Tonnes)
140
Total Consumption Jewellery Bar Industrial Other Source: China Gold Association
120 100 80 60 40
H1/14 569.5 426.2 105.6 26.8 11.0
Aug-14
Source: Bloomberg, NBS, CNC.
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Aug-08
Aug-07
Aug-06
Aug-05
Aug-04
29-Sep-14
28-Dec-13
28-Mar-13
26-Jun-12
25-Sep-11
24-Dec-10
24-Mar-10
22-Jun-09
20-Sep-08
20-Dec-07
20-Mar-07
5
YOY -19.4% 11.0% -62.1% 11.3% -44.3%
20 0
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
Dec-08
Aug-08
Source: Census and Statistics Department, HKSAR.
Weekly Withdrawals From Shanghai Gold Exchange Vaults (kg) 80,000
60,000
40,000
20,000
-
2014-31
2014-21
2014-11
2014-01
2013-41
2013-31
2013-21
2013-11
2013-01
2012-41
2012-31
2012-21
2012-11
16
2012-01
2011-41
2011-31
2011-21
2011-11
2011-01
2010-41
2010-31
2010-21
2010-11
2010-01
2009-41
2009-31
2009-21
2009-11
2009-1
Source: Shanghai Gold Exchange, CNC.
CNC China Investment Strategies
Steel Iron Ore Prices
Average Weighted Steel Spot Price
200 180
4800
Iron Ore Prices, dollars/tonne
Steel Prices, Yuan/tonne
5200
4400 4000 3600 3200
160 140 120 100 80 60
2800
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
09/29/14
06/21/14
03/13/14
12/03/13
08/25/13
05/17/13
02/06/13
10/29/12
07/21/12
04/12/12
01/03/12
09/25/11
06/17/11
Source: Antaike, CNC. Note: 50% Rebar, 30% HRC, 20% CRC.
Source: Steel Business Briefing. Note: 62% Fines; Tianjin Spot.
Average Daily Crude Steel Output (million tonnes)
Iron Ore Imports
1.9
1.8
1.7
1.6
1.5
80 70 60 50 40 30 20
Source: GACC.
Finished Steel Products Trade
Steel Products Inventory (million tonnes)
Steel Products Net Imports in '000 tonnes
Source: CISA. Note: CISA Members Only.
10,000 Net Imports
8,000
Steel Imports
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Sep 11-20, 2014
Aug 1-10, 2014
Jun 21-31, 2014
May 11-20, 2014
Feb 21-28, 2014
Apr 1-10, 2014
Jan 11-20, 2014
Dec 1-10, 2013
Oct 21-31, 2013
Sep 11-20, 2013
Aug 1-10, 2013
Jun 21-30, 2013
Apr 1-10, 2013
May 11-20, 2013
Feb 21-30, 2013
Jan 11-20, 2013
Dec 1-10, 2012
Sep 11-20, 2012
Oct 21-31, 2012
10
Aug-09
Iron Ore Imports vs. 6-M Ave (mln tonnes)
90
22
Steel Exports
20
6,000 4,000
18
2,000
16
0 -2,000
14
-4,000
12
-6,000 10
Data Snapshot: Steel (thousand tonnes)
Iron Ore Port Inventory (million tonnes)
Iron Ore Imports Production Steel Products Imports Exports Net Exports Production Apparent Consumption
Aug
MOM
YOY
Jan-Aug
YOY
74,880 136,521
-9.3% -0.2%
8.5% 3.9%
614,380 986,041
16.9% 8.5%
1,170 7,760 6,590 94,970 88,380
-4.1% -3.7% -3.7% 0.2% 0.5%
-4.9% 26.4% 34.2% 2.4% 0.6%
9,640 56,830 47,190 742,100 694,910
4.4% 35.4% 44.1% 5.4% 3.5%
29-Sep-14
Source: Antaike.
21-Jun-14
Source: GACC.
13-Mar-14
3-Dec-13
25-Aug-13
17-May-13
6-Feb-13
29-Oct-12
21-Jul-12
12-Apr-12
3-Jan-12
25-Sep-11
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
Feb-10
Aug-09
17-Jun-11
-8,000
110 100 90 80 70 60 50 40
29-Sep-14
21-Jun-14
13-Mar-14
3-Dec-13
25-Aug-13
17-May-13
6-Feb-13
29-Oct-12
17
21-Jul-12
Source: Antaike.
12-Apr-12
3-Jan-12
25-Sep-11
17-Jun-11
Source: NBS; Customs; CNC.
CNC China Investment Strategies
Grain Spot Corn Price (Yuan/tonne, Dalian)
Spot Soybean Price (Yuan/tonne, Guangzhou) 5400
2700
4900
2500
4400
2300
3900
2100
Spot Corn Price (Yuan/tonne, Shanghai)
Pork Wholesale Price (Yuan/kilogram)
2800
29-Sep-14
Source: CNGOIC.
1-Jun-14
Source: CNGOIC.
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
29-Sep-14
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
3400
28 26
2600
24 22
2400
20 18
2200
29-Sep-14
Grain Supply/Demand Projection (000 tonnes) Wheat
3000 2800
Beginning Stocks
2600 2400 2200 2000 Chinese Corn Spot Price CBOT Corn (Yuan Equivalent)
1600
1-Jun-14
Source: Ministry of Commerce.
Corn Import Economics (Yuan/tonne)
1800
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
Source: CNGOIC.
15-Oct-11
17-Jun-11
29-Sep-14
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
16
77,460
13,240
Production Imports Total Supply
126,000 2,000 128,000
217,000 3,000 220,000
12,000 74,000 86,000
Domestic Use Exports Total Demand
124,000 1,000 125,000
220,000 100 220,100
84,950 300 85,250
29-Sep-14
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
Ending Stocks
3,000 63,270
(100) 77,360
Source: USDA. Note: 2014/2015 marketing year.
Source: CBOT, CNGOIC, CNC.
18
Soybean
60,270
Inventory Change
1400
Corn
750 13,990
CNC China Investment Strategies
Fertilizer Average Urea Ex-Factory Price (Yuan/tonne)
Urea Exports (Tonnes) 1,800,000
2500
1,600,000
2300
1,400,000 1,200,000
2100
1,000,000
1900
800,000 600,000
1700
400,000 200,000
1500 29-Sep-14
Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
-
Source: CNCIC.
Source: GACC.
Averge DAP Ex-Factory Price (Yuan/tonne)
DAP Trade (Tonnes) 1,200,000
3400
1,000,000
3200
800,000
3000
600,000 400,000
2800
200,000 2600
Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10
29-Sep-14
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
-
Source: CNCIC.
Source: GACC.
Average Potash Ex-Factory Price (Yuan/tonne)
MOP Imports (Tonnes) 1,000,000
3400
800,000
3000
600,000
2600 400,000
2200 200,000
1800
Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10
29-Sep-14
1-Jun-14
1-Feb-14
4-Oct-13
6-Jun-13
6-Feb-13
9-Oct-12
11-Jun-12
12-Feb-12
15-Oct-11
17-Jun-11
-
Source: GACC.
Source: CNCIC.
Data Snapshot: Fertilizer (Physical Tonnes) Aug-14
MOM
YOY
1,306,156
17.6%
-9.5%
6,589,242
62.0%
DAP Exports
801,282
181.7%
4.4%
2,358,193
30.0%
MOP Imports
705,043
3.5%
34.2%
5,253,231
15.6%
Urea Exports
Jan-Aug
YOY
Source: NBS; GACC.
19
CNC China Investment Strategies
Chemicals Methanol Spot Price (C&F China, USD/tonne)
Ethylene Spot Price
500
400
300
200
1200
900
600
300 09/29/14
09/29/13
09/29/12
09/30/11
09/30/10
29-Sep-14
29-Sep-13
29-Sep-12
30-Sep-11
30-Sep-10
30-Sep-09
30-Sep-08
09/30/09
100
1500
09/30/08
Ethylene Spot Price, US$/tonne FOB S. Korea
600
Source: Polymer.
Note: The price is a mainstream quotation on FOB South Korea basis. Source: Polymer.
Methanol Trade
Ethylene Production
Methanol Trade (tonne)
600,000 500,000 400,000 300,000 200,000 100,000 Aug-14
Apr-14
Imports
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Exports
60%
1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000
50% 40% 30% 20% 10% 0% -10% -20% -30%
Aug-14 Jun-14 Apr-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10
China's Ethylene Production (tonne)
700,000
Production
Net Imports
YOY Growth
Source: GACC.
Source: NBS.
Methanol Apparent Consumption
Polyethylene Price (LLDPE, Yuan/tonne)
4,500,000
17000
Methanol Apparent Consumption (tonne)
4,000,000
15000
3,500,000 3,000,000
13000
2,500,000
11000
2,000,000
9000
1,500,000 1,000,000
7000 500,000
5000
09/29/14
09/29/13
09/29/12
20
09/30/11
Source: DCE.
09/30/10
Apparent Consumption
Source: GACC, NBS, CNC.
09/30/09
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Output
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Net Imports
09/30/08
-
CNC China Investment Strategies
Oil Oil Product Prices (Yuan/Liter)
Apparent Consumption of Refined Oil Products
8.4 8.2 8.0 7.8 7.6 7.4
#93 Gasoline
7.2
#0 Diesel
7.0
9/29/2014
6/29/2014
3/29/2014
12/29/2013
9/29/2013
6/29/2013
3/29/2013
12/29/2012
9/29/2012
2% 0%
6.0
-2%
5.0
-4%
4.0
-6%
Apparent Consumption
Source: NBS; GACC.
Net Imports of Crude Oil and Refined Oil Products
Monthly Crude Run
7.0
YOY Growth
11.0
6.0
China's Crude Run, mmbbl/d
China's Total Oil Net Imports, mmbbl/d
Note: State Guidance Retail Price Set by NDRC for Beijing.
Aug-14
6/29/2012
4%
7.0
Feb-14
3/29/2012
6%
8.0
Aug-13
9/29/2011
8%
Feb-13
12/29/2011
10%
9.0
Aug-12
6/29/2011
12%
10.0
Feb-12
6.8
11.0
Aug-11
Refined Oil Apparent Consumption, mmbbl/d
8.6
5.0 4.0 3.0 2.0 1.0 0.0
12% 10%
10.0
8%
9.0
6% 4%
8.0
2%
7.0
0% -2%
6.0
-4%
5.0
YOY
17.5% -100.0% 18.7% 0.9% 10.7%
YOY
6,052 8 6,045 4,169 10,214
8.4% -79.4% 9.0% 0.1% 5.2%
36.0% 18.2% -55.6% 0.8% 1.4%
-1.6% 9.6% -350.0% 4.4% 3.7%
592 576 16 9,869 9,885
-28.3% -0.5% -93.5% 3.6% 1.1%
Note: 1 tonne = 7.32 barrels. Source: Preliminary customs data; NBS; CNC.
21
YOY Growth
Aug-14
597 645 (47) 9,773 9,726
Jan-Aug
6.0% N/A 6.0% 0.9% 3.8%
MOM
Feb-14
Oil Products (kbbl/d) Imports Exports Net Imports Production Apparent Consumption
Aug
Aug-13
Data Snapshot: Crude and Refined Oil
5,948 5,948 4,130 10,078
Feb-13 Crude Run
Source: NBS.
Source: GACC.
Crude Oil (kbbl/d) Imports Exports Net Imports Production Apparent Consumption
Aug-12
Crude Oil
Feb-12
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
Feb-10
Aug-09
Refined Oil
-6%
Aug-11
(1.0)
CNC China Investment Strategies
Coal
Coke Price, US$/tonne FOB Chinese Ports
Export Price of Coke (US$/tonne)
China’s Coking Coal Imports (Thousand Tonnes) 9,000
450
8,000
400
7,000 350
6,000 5,000
300
4,000
250
3,000 200
2,000 1,000
150
09/29/14
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Source: GACC.
TThermal Coal Price (Yuan/tonne) 900
Apr-11
Note: FOB Tianjin. Source: Antaike.
Dec-10
Aug-10
09/29/13
09/29/12
09/30/11
09/30/10
-
Total Coal Trade (Million Tonnes)
Price of Shanxi Quality Blends (Yuan/tonne)
31
m illion tonnes
27
800
23 19
700
15 11
600
7 500
3 Price of Shanxi Quality Blends (Yuan/tonne)
(1)
400
Aug-14
Apr-14
Dec-13
Aug-13
Apr-13
Dec-12
Aug-12
Net Imports
Note: Price quoted at Qinhuangdao Port. Source: SX Coal.
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
29-Sep-14
29-May-14
29-Jan-14
29-Sep-13
29-May-13
29-Jan-13
29-Sep-12
29-May-12
29-Jan-12
29-Sep-11
29-May-11
29-Jan-11
29-Sep-10
29-May-10
29-Jan-10
29-Sep-09
(5)
Imports
Exports
Source: GACC.
China’s Coke Exports (Thousand Tonnes)
Coking Coal Price (Yuan/tonne) T
T
1,200
Coke Exports, in thousand tonnes
1600 1400 1200 1000 800 600
1,000 800 600 400 200
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
Note: Yinchuan / Pingdingshan Average. Source: Steelhome.
Feb-10
Aug-09
09/29/14
09/29/13
09/29/12
09/30/11
09/30/10
-
Source: GACC.
Coal Inventory at Ten Chinese Ports (Million tonnes)
Data Snapshot (Thousand Tonnes)
T
T
36
Aug-14
MOM
YOY
3,835 70 3,765
-24.0% 61.7% -24.8%
-39.0% -31.5% -39.1%
39,846 554 39,292
-16.1% -29.8% -15.9%
Coke Exports Production Apparent Consumption
661 39,920 39,259
31.3% -0.8% -1.2%
79.0% 1.4% 0.7%
5,090 314,290 309,200
111.0% -0.3% -1.2%
Total Coal Imports Exports Net Imports
15,174 450 14,724
-15.0% 43.9% -16.0%
-32.0% -12.2% -32.4%
156,595 3,922 152,672
-9.6% -27.2% -9.2%
Coking Coal Imports Exports Net Imports
32 28 24 20 16 12
9/29/14
7/11/14
4/22/14
2/1/14
11/13/13
8/25/13
6/6/13
3/18/13
12/28/12
10/9/12
7/21/12
Source: NBS, GACC.
Source: Port Authority of Qinhuangdao.
22
Jan-Aug
YOY
CNC China Investment Strategies
Pulp, Lumber, and Logs Imports of Paper Pulp
Pulp Price (BHKP, Yuan/tonne)
1,700
4100
3900
3700
1,300 1,100 900 700 500 300
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
Aug-10
May-10
Feb-10
Nov-09
29-Sep-14
18-Aug-14
7-Jul-14
26-May-14
14-Apr-14
3-Mar-14
20-Jan-14
9-Dec-13
28-Oct-13
16-Sep-13
5-Aug-13
3500
1,500
Aug-09
Monthly vs. 12-Month Average (thousand tonnes)
4300
Source: GACC.
Source: FOEX.
Lumber Imports (Million Cubic Meters)
Log Imports (Million Cubic Meters)
3.0
5.5 5.0
2.5
4.5 4.0
2.0
3.5 3.0
1.5
2.5 1.0
2.0 1.5
Aug-14
Feb-14
Aug-13
Feb-13
23
Aug-12
Source: GACC, CNC.
Feb-12
Aug-11
Source: GACC, CNC.
Feb-11
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
Aug-10
0.5
CNC China Investment Strategies
Uranium China’s Nuclear Plant Timelines Capacity (GW)
Time
Reactors
0.3
Qinshan Phase 1 #1
February 1994 May 1994 April 2002
0.984 0.984 0.65
Da Ya Wan #1 Da Ya Wan #2 Qinshan Phase 2 #1
May 2002 December 2002 January 2003 November 2003 March 2004
0.99 0.7 0.99 0.7 0.65
Ling Ao Phase 1 #1 Qinshan Phase 3 #1 Ling Ao Phase 1 #2 Qinshan Phase 3 #2 Qinshan Phase 2 #2
May 2007
1.06
Tianwan #1
August 2007
1.06
Tianwan #2
July 2010
1.08
October 2010
0.65
August 2011
1.08
2012
0.65
2013
1
April 1991
2013 2014 2015 2016 2016 2013 2013 2014 2015 2013 2014 2015 2016 2017 2017 2013 2013 2015 2015 2013 2014 2013 2014 2014 2015 2014 2015 2014 2015 2015 2016 2015 2015 2015 2016-2020 Total
Ling Ao Phase 2 #1 (Guangdong); Construction Started in December 2005; Trial Operation Started on July 22, 2010. Qinshan Phase 2 Expansion #1 (Zhejiang); Commercial Operation Started in October, 2010 Ling Ao Phase 2 #2 (Guangdong); Construction Started in May 2006: Operation Started in August, 2011 Qinshan Phase 2 Expansion #2 (Zhejiang); Construction Started in January 2007; Operation Started in April, 2012 Hongyanhe (Liaoning); Construction Started in August 2007; Commercial Operation Started in February 2013 Hongyanhe (Liaoning); Construction Started in April 2008 Hongyanhe (Liaoning); Construction Started in March 2009 Hongyanhe (Liaoning); Construction Started in August 2009 Hongyanhe (Liaoning); Construction Started in July 2010 Hongyanhe (Liaoning); Construction Started in July 2010 Ningde (Fujian); Construction Started in February 2008 Ningde (Fujian); Construction Started in November 2008 Ningde (Fujian); Construction Started in January 2010 Ningde (Fujian); Construction Started in July 2010 Fuqing (Fujian); Construction Started in November 2008 Fuqing (Fujian); Construction Started in June 2009 Fuqing (Fujian); Construction Started in January 2011 Fuqing (Fujian); Construction Will Start in 2011 Fuqing (Fujian); Construction Will Start in 2011 Fuqing (Fujian); Construction Will Start in 2011 Yangjiang (Guangdong); Construction Started in December 2008 Yangjiang (Guangdong); Construction Started in August 2009 Yangjiang (Guangdong); Construction Started in March 2010 Yangjiang (Guangdong); Construction Started in July 2010 Fangjiashan (Zhejiang); Construction Started in December 2008 Fangjiashan (Zhejiang); Construction Started in July 2009 Sanmen(Zhejiang); Construction Started on April 2009 Sanmen(Zhejiang); Construction Started on December 2009 Haiyang (Shandong); Construction Started in October 2009 Haiyang (Shandong); Construction Started in June 2010 Taishan (Guangdong); Construction Started in October 2009 Taishan (Guangdong); Construction Started in April 2010 Changjiang (Hainan); Construction Started in April 2010 Changjiang (Hainan); Construction Started in April 2010 Fangchen (Guangxi); Construction Started in July 2010 Fangchen (Guangxi); Construction Started in July 2010 Tianwan Phase 2 (Jiangsu); Construction to Start in October 2010 Tianwan Phase 2 (Jiangsu); Construction to Start in October 2010 Xianning (Hubei); Construction to Start in 2011.
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1.6 1.6 0.65 0.65 1 1 1 1 2 35 13.528
35.5
35
Total Capacity: 80 GW in 2020. Government Target (Announced Oct 2012): 58 GW in 2020
Source: Chinese media Reports, CNC.
24
CNC China Investment Strategies
Key Macro Trends
25
65 60
50 50
45 45
35 40
Aug-14 May-14 Feb-14
Aug-14 May-14 Feb-14 Nov-13 Aug-13
Aggregate Social Financing (Billion Yuan)
May-13
Nov-12
Feb-13
Nov-11 Aug-11 May-11 Feb-11 Nov-10 Aug-10 May-10 Feb-10
New Yuan Loans and M2 Money Supply
Nov-13
Nov-11 Aug-11 May-11 Feb-11 Nov-10 Aug-10 May-10
Aug-14
Feb-14
Aug-13
Feb-13
Aug-12
Feb-12
Aug-11
Feb-11
Aug-10
Feb-10
Aug-09
Feb-09
26
Aug-09
Aug-08
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Source: People’s Bank of China (PBOC).
Nov-09
Source: NBS.
Aug-13
35 25
May-09
Source: NBS.
May-13
39
37 30
Feb-09
Aug-08
500
200
Feb-13
41 35
Feb-10
30 35
Nov-08
1800
Nov-12
45
Aug-12
51
May-12
43 40
Nov-09
PMI – Raw Materials Inventory
Aug-12
47 45
Aug-09
PMI – New Export Orders
May-12
49 50
May-09
Source: NBS.
Feb-12
53
55
Feb-09
Source: NBS.
Feb-12
55 60
Nov-08
1000 600
Aug-14 May-14
800 20
Feb-14 Nov-13 Aug-13 May-13 Feb-13 Nov-12
1500 1000
0
0
10
2000 1200 25
Source: People’s Bank of China (PBOC).
M2 Growth
Loan Increase (Decrease)
Aug-12 May-12 Feb-12 Nov-11 Aug-11 May-11 Feb-11 Nov-10 Aug-10 May-10 Feb-10 Nov-09 Aug-09 May-09 Feb-09 Nov-08 Aug-08
400 15
2500 1600 30
3000 2000 35
New Yuan Loan, Bln Yuan
PMI – New Orders Purchasing Manager’s Index
Aug-08
Aug-14 May-14 Feb-14 Nov-13 Aug-13 May-13 Feb-13 Nov-12 Aug-12 May-12 Feb-12 Nov-11 Aug-11 May-11 Feb-11 Nov-10 Aug-10 May-10 Feb-10 Nov-09 Aug-09 May-09 Feb-09 Nov-08 Aug-08
1400
M2 YOY % Growth
CNC China Investment Strategies
Growth Drivers
55
60
55
40
28 40
18 30
3
6%
8
4%
2%
7
0%
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
27
1982
Source: NBS.
Source: NBS.
1980
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
1978
6
Aug-14
8%
9
Aug-13
10
Aug-12
10%
11
Aug-14
Industrial Production (YOY, %)
Aug-13
Trade
Aug-12
Source: NBS.
Aug-11
Source: NBS.
Aug-11
12%
12
Aug-10
14%
13
Aug-09
GDP (Yearly, YOY, %) GDP (Quarterly, YOY, %)
Aug-08
Source: NBS. Source: GACC.
Aug-10
5 -15
Aug-07
Aug-06
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
0 -35 -45%
10 -5 -5%
Aug-09
5 15%
Aug-08
10
% 25 55
Aug-07
25
Trade Balance, Bln USD
Retail Sales (YOY, %) Fixed Asset Investment (YOY, %)
Aug-06
-25 -25%
15 15 35%
Aug-05
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Export Growth 75%
Aug-08
Aug-07
Aug-06
Aug-05
45 Import Growth Trade Balance
20 35 55%
Import and Export Growth
CNC China Investment Strategies
Growth Rates
23
20
13
8
16%
CNC China Investment Strategies
Growth Indicators Electricity Output
Freight Traffic – Railway (Million Tonnes)
550
35%
360
25
340
20
30%
500
25% 450
320
20% 400 350
15%
300
10%
280
5%
300
15 10 5
260
0%
0
240
250
China Freight Traffic- Railway (Million Tonnes, Left)
-5% 200
Electricity Output (Billion Kwh, Left)
220
-10%
YOY Growth (%, Right)
-10
Cement Output 110%
240
50%
Monthly Crude Steel Output (Million Tonnes, Left) YOY Growth (%, Right)
Aug-14
Crude Steel Output
Aug-13
Source: NBS, CNC.
Aug-12
Aug-11
Aug-10
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Source: NBS.
80
-5
YOY (%, Right)
200
-15%
Aug-09
150
Monthly Cement Output (Million Tonnes, Left) 40%
70
YOY Growth (%, Right)
220
90%
200
70%
30%
180
60 20%
50%
160 30%
50
140
10%
10%
120
40 0%
-10%
100 30
-10%
20
-20%
80
-30%
60
-50%
Monthly Vehicle Sales (Units)
Monthly Car Sales (Units)
2,500,000
60% Units YOY Change (%)
30%
1,200,000
10%
0
40%
1,400,000
20%
500,000
50%
1,600,000
30%
1,000,000
Units - Car Sales YOY Change (%)
1,800,000
40%
1,500,000
60%
2,000,000
50%
2,000,000
Aug-14
Source: NBS.
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Source: NBS, CNC.
20%
1,000,000 10%
800,000
-10%
600,000
-20%
400,000
-30%
200,000
-20%
-40%
0
-30%
0% -10%
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
28
May-11
Source: CAAM
Feb-11
Source: CAAM.
Nov-10
Aug-10
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
Aug-10
0%
CNC China Investment Strategies
Inflation & Monetary Cycle What Is China Exporting – Inflation or Deflation?
CPI & PPI (YOY, %) 15
U.S. Import Price Index All Commodities from China
PPI CPI
10
106.5 104.5
5 102.5
0 100.5
-5
98.5
-10
Source: U.S. Bureau of Labour Statistics.
Reserve Ratio
Interest Rate % 9
%
Aug-14
Source: NBS.
23
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Aug-08
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Aug-08
Sep-07
Sep-06
Sep-05
Sep-04
96.5
U.S. Prime Lending Rate China's Benchmark Lending Rate
19
7
15
11 5
7
3
China’s Holding of U.S. Treasuries 55%
1,400
1,200
50%
1,000
45%
800 40% 600 35%
400
30%
China's Holding of U.S. Treasuries (bln Dollars)
200
% of China's FX Reserve 25%
-
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
29
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Source: PBOC, U.S. Department of Treasury.
29-Sep-14
Source: CITIGroup, PBOC.
Source: CITIGroup, PBOC
29-Sep-13
29-Sep-12
30-Sep-11
30-Sep-10
30-Sep-09
30-Sep-08
1-Oct-07
1-Oct-06
1-Oct-05
1-Oct-04
29-Sep-14
29-Sep-13
29-Sep-12
30-Sep-11
30-Sep-10
30-Sep-09
30-Sep-08
1-Oct-07
1-Oct-06
1-Oct-05
1-Oct-04
3
CNC China Investment Strategies
Property Market New Floor Space Under Construction (YOY, %)
Fixed Asset Investment – Residential
60% RMB m n
Real estate inv estment (residential) - LHS
YoY % grow th
45%
50%
40%
40%
35%
30%
30%
20%
500,000
25%
10%
400,000
20%
0%
15%
-10%
800,000 700,000 600,000
300,000
10%
200,000
-20%
5%
Aug-14
Apr-14
Jun-14
Nov-13
Jan/Feb 14
Jul-13
Sep-13
Mar-13
May-13
Oct-12
Dec-12
Aug-12
Apr-12
Jun-12
Nov-11
Jan/Feb 12
Jul-11
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Sep-11
Steel Apparent Consumption Growth (3M MA)
-40%
Aug-09
Mar-11
Area Under Construction Growth (3M MA)
-30%
0%
May-11
100,000
Source: NBS.
Source: NBS.
New Area Started
Average New Home Price – 100 Cities (Yuan/sqm)
250
11,400
250%
New Starts (Left, Million Square Metres) YOY Growth (Right, %)
11,100
200%
200
10,800 150%
10,500
150
10,200
100%
9,900
100 50% 50
9,600
0%
9,300 9,000
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10 Oct-10 Aug-10
-50%
0
Source: NBS.
Source: CREIS.
Primary Home Sales in Top Cities (Units)
Floor Space Sold 250
30,000
120.0%
Areas Sold (Left, Million Square Metres) YOY Growth (Right, %)
100.0%
200
25,000
80.0% 20,000
60.0%
150
15,000
40.0% 100
20.0%
10,000
0.0%
50
5,000
-20.0% -
9/28/2014
7/28/2014
5/28/2014
30
3/28/2014
Source: Soufun. Note: Top ten cities.
1/28/2014
11/28/2013
9/28/2013
7/28/2013
Aug-14
Aug-13
Aug-12
Aug-11
Aug-10
Aug-09
Source: NBS.
5/28/2013
-40.0%
3/28/2013
0
CNC China Investment Strategies
Financial Markets
31
CNC China Investment Strategies
Key Financial Markets Equity Market – Shanghai Composite Index
Equity Market – Hang Seng China Enterprises Index 12,500
2,600
11,500
2,400
10,500 2,200 9,500 2,000
8,500 7,500
1,800
09/29/14
6/21/2014
9/29/2014
10.5 1 Month Shibor
0.40 16.4
06/11/14
0.50
3/13/2014
16.6
02/21/14
Interest Rate – 1-Month Shibor
12/3/2013
Currency Market (U.S. cents per Yuan)
11/03/13
Source: Bloomberg.
07/16/13
03/28/13
12/08/12
08/20/12
05/02/12
01/13/12
09/25/11
09/29/14
06/11/14
02/21/14
11/03/13
07/16/13
03/28/13
12/08/12
08/20/12
05/02/12
01/13/12
09/25/11
Source: Bloomberg.
8.5
0.30 0.20
16.2
6.5
0.10 -
16
4.5
(0.10) (0.20)
15.8
(0.40)
0.5 8/25/2013
5/17/2013
2/6/2013
10/29/2012
7/21/2012
4/12/2012
(0.50) 9/29/14
8/30/14
7/31/14
7/1/14
6/1/14
5/2/14
4/2/14
3/3/14
2/1/14
1/2/14
12/3/13
11/3/13
10/4/13
1/3/2012
Spot (US cents per Yuan, Left)
15.6
2.5
(0.30)
Spread (Right) 12-Month NDF (Left)
Source: Bloomberg.
Source: Chinabond.
Yield Curve – CNY Interest Rate Swap
PBOC Open Market Operation (Net Input, Billion)
5.0
500 400
4.5
300 200 100
4.0
0 -100
3.5
-200 -300
3.0
9/29/2014
-400
4/2/2014
-500
9/29/2014
8/10/2014
6/21/2014
5/2/2014
3/13/2014
1/22/2014
12/3/2013
32
10/14/2013
Source: PBOC.
Source: ChinaBond.
8/25/2013
10 Years
9 Years
8 Years
7 Years
6 Years
5 Years
4 Years
3 Years
2 Years
1 Year
9 Months
6 Months
3 Months
7/6/2013
5/17/2013
2.5
CNC China Investment Strategies
Market Correlation Shanghai Versus S&P 500 3500
SHCOMP
2100
S&P500
1900
3100
1700 2700 1500 2300 1300 1900
1500 18-Apr-11
1100
15-Oct-11
12-Apr-12
09-Oct-12
07-Apr-13
04-Oct-13
02-Apr-14
900 29-Sep-14
Source: CNC.
Shanghai Versus Goldman Sachs Commodities Index 3500
SHCOMP
GSCI
800 750
3100
700 650
2700
600 2300
550 500
1900
450 1500 18-Apr-11
15-Oct-11
12-Apr-12
09-Oct-12
Source: CNC.
33
07-Apr-13
04-Oct-13
02-Apr-14
400 29-Sep-14
CNC China Investment Strategies
Equity Market Drivers Real Interest Rate
Liquidity 45
7000
7000
M1 Shanghai Index
40
6000
6000
5000
5000
25
4000
4000
20
3000
3000
2000
2000
1000
1000
35 30
15 10 5
4
Real Interest Rate
3 2 1 0 -1 -2 -3 -4
0
-5
2700
300
29-Sep-14
Policy and Monetary Cycle
11-Jun-13
Sentiment
22-Feb-12
Source: Bloomberg.
4-Nov-10
Source: PBOC, Bloomberg.
17-Jul-09
29-Mar-08
10-Dec-06
22-Aug-05
4-May-04
29-Sep-14
11-Jun-13
22-Feb-12
4-Nov-10
17-Jul-09
29-Mar-08
10-Dec-06
22-Aug-05
4-May-04
15-Jan-03
27-Sep-01
27-Sep-01
0
15-Jan-03
0
5
Shanghai Index
Shanghai Index
7000
27
2500
250
2300
200
2100
150
1900
100
1700
50
1500
0
6000
22
5000 17
4000 3000
12
2000 7
1000
29-Sep-14
0
2
29-Sep-14
1-Year Yuan Expectation (%)
11-Jun-13
7000
15%
Shanghai Composit Index
6000
22-Feb-12
7000
4-Nov-10
Valuation
17-Jul-09
Expectation of Yuan Appreciation
29-Mar-08
Source: PBOC.
10-Dec-06
Source: Shanghai Stock Exchange, Bloomberg.
22-Aug-05
4-May-04
China Stock Market New Account
15-Jan-03
27-Sep-01
21-Jun-14
13-Mar-14
3-Dec-13
25-Aug-13
17-May-13
6-Feb-13
29-Oct-12
21-Jul-12
12-Apr-12
3-Jan-12
SHCOMP Index
Stock Market New Account (000)
SHCOMP Index
Bank Reserve Ratio
80
Shanghai Index
6000
10%
5000
70
Trailing P/E
60
5000 5%
4000
50
4000
40
3000
3000
0%
2000
30
2000
20
-5%
1000
1000
0
-10%
10 0
29-Sep-14
11-Jun-13
22-Feb-12
4-Nov-10
17-Jul-09
34
29-Mar-08
Source: Bloomberg, CNC.
10-Dec-06
22-Aug-05
4-May-04
Source: Bloomberg, CNC.
15-Jan-03
27-Sep-01
29-Sep-14
3-Dec-13
6-Feb-13
12-Apr-12
17-Jun-11
21-Aug-10
25-Oct-09
29-Dec-08
4-Mar-08
9-May-07
13-Jul-06
0
CNC China Investment Strategies
Relative Performance – Absolute & Relative Basic Materials
Basic Materials Absolute Performance
Relative Performance
1500
2600
Relative Performance to SHCOMP
0.50
2200 2000
900
1800 600 300
1600
SHCOMP
Basic Materials Industry
2400 1200
1400 Basic Materials Industry SHCOMP
1200
0
1000
01-Jan-12
19-Jul-12
04-Feb-13
23-Aug-13
11-Mar-14
0.45
0.40
0.35
0.30
27-Sep-14
1-Jan-12
19-Jul-12
4-Feb-13
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Iron & Steel
Iron & Steel
T
Absolute Performance 2600
Relative Performance to SHCOMP
2000 600
1800 1600 1400
Iron & Steel Industry
1200
SHCOMP 04-Feb-13
SHCOMP
Iron & Steel Industry
2200
19-Jul-12
23-Aug-13
11-Mar-14
01-Jan-12
19-Jul-12
11-Mar-14
27-Sep-14
11-Mar-14
27-Sep-14
Relative Performance
Absolute Performance 0.50
2600
Relative Performance to SHCOMP
2400 900
2200 2000
600
1800 1600 1400
Oil & Gas Industry SHCOMP 19-Jul-12
04-Feb-13
SHCOMP
Oil & Gas Industry
23-Aug-13
T
1200
0.45
0.40
1200
23-Aug-13
11-Mar-14
0.35 01-Jan-12
1000 27-Sep-14
19-Jul-12
Coal & Alternative Energy T
Absolute Performance
Relative Performance
1200
2600
0.50
Relative Performance to SHCOMP
2400 900
2000 600
1800 1600
300
SHCOMP
2200
1400 Coal & Alternative Energy Industry SHCOMP
1200
0
1000 04-Feb-13
23-Aug-13
Coal & Alternative Energy
T
19-Jul-12
04-Feb-13
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Coal & Alternative Energy Industry
04-Feb-13
Oil & Gas
Oil & Gas
01-Jan-12
27-Sep-14
0.40
Source: CNC, Bloomberg.
T
0 01-Jan-12
11-Mar-14
0.45
0.35
1000 27-Sep-14
Source: CNC, Bloomberg.
300
27-Sep-14
0.50
2400 900
0 01-Jan-12
11-Mar-14
Relative Performance
1200
300
23-Aug-13
23-Aug-13
11-Mar-14
0.40
0.30
0.20
27-Sep-14
01-Jan-12
Source: CNC, Bloomberg.
19-Jul-12
Source: CNC, Bloomberg.
35
04-Feb-13
23-Aug-13
CNC China Investment Strategies
Construction
Construction Absolute Performance
Relative Performance 2600
0.55
Relative Performance to SHCOMP
1500
2400 2200 2000
900
1800 600 300 0
1600
SHCOMP
Construction Industry
1200
1400 Construction Industry
1200
SHCOMP 19-Jul-12
01-Jan-12
1000 04-Feb-13
23-Aug-13
11-Mar-14
0.50
0.45
0.40
27-Sep-14
01-Jan-12
19-Jul-12
04-Feb-13
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Industrial & Manufacturing
Industrial & Manufacturing
T
Absolute Performance
Relative Performance to SHCOMP
2400 1200
2200 2000
900
1800 600
1600 1400
Industrial & Manufacturing Industry SHCOMP 19-Jul-12
04-Feb-13
23-Aug-13
1200
11-Mar-14
19-Jul-12
23-Aug-13
11-Mar-14
27-Sep-14
Relative Performance 2600
Relative Performance to SHCOMP
0.65
2400 1200
2200 2000
900
1800 600
1600
SHCOMP
Real Estate Industry
04-Feb-13
Real Estate Absolute Performance
1400 Real Estate Industry SHCOMP
1200
0
1000 19-Jul-12
04-Feb-13
23-Aug-13
11-Mar-14
0.60 0.55 0.50 0.45 0.40
27-Sep-14
1-Jan-12
Source: CNC, Bloomberg.
19-Jul-12
Transportation
23-Aug-13
Transportation T
Absolute Performance
Relative Performance
1500
0.55 Relative Performance to SHCOMP
2600 2400
1200
2000
900
1800 600
1600 1400
Transportation Industry
1200
SHCOMP 04-Feb-13
SHCOMP
2200
19-Jul-12
4-Feb-13
Source: CNC, Bloomberg.
T
Transportation Industry
27-Sep-14
0.40
T
1500
0 01-Jan-12
11-Mar-14
0.45
01-Jan-12
Real Estate
300
27-Sep-14
0.50
Source: CNC, Bloomberg.
T
01-Jan-12
11-Mar-14
0.55
0.35
1000 27-Sep-14
Source: CNC, Bloomberg.
300
27-Sep-14
0.60
SHCOMP
Industrial & Manufacturing Industry
2600
0 01-Jan-12
11-Mar-14
Relative Performance
1500
300
23-Aug-13
23-Aug-13
11-Mar-14
0.50
0.45
0.40
0.35
1000 27-Sep-14
01-Jan-12
Source: CNC, Bloomberg.
19-Jul-12
Source: CNC, Bloomberg.
36
04-Feb-13
23-Aug-13
CNC China Investment Strategies
Banks
Banks Absolute Performance
Relative Performance
1500
2600
0.55
2200 2000
900
1800 600
1600
SHCOMP
Banks Industry
Relative Performance to SHCOMP
2400 1200
1400
300
Banks Industry SHCOMP
1200
0
1000
01-Jan-12
19-Jul-12
04-Feb-13
23-Aug-13
11-Mar-14
0.50
0.45
0.40
27-Sep-14
01-Jan-12
19-Jul-12
04-Feb-13
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Insurance
Insurance
T
Absolute Performance 2600
Relative Performance to SHCOMP
2000 1800
600
1600
SHCOMP
Insurance Industry
2200
900
1400 Insurance Industry SHCOMP
1200
0
1000 19-Jul-12
04-Feb-13
23-Aug-13
11-Mar-14
19-Jul-12
Relative Performance to SHCOMP
2400 2200
1200
2000
SHCOMP
Investing Services Industry
11-Mar-14
27-Sep-14
0.70
900
1800 1600
600
1400
Investing Services Industry SHCOMP
1200
23-Aug-13
11-Mar-14
0.65 0.60 0.55 0.50 0.45 0.40
1000 27-Sep-14
01-Jan-12
Source: CNC, Bloomberg.
19-Jul-12
04-Feb-13
23-Aug-13
Source: CNC, Bloomberg.
Utilities
Utilities
T
T
Absolute Performance
Relative Performance
1500
0.60 Relative Performance to SHCOMP
2600 2400
1200
2200 2000
900
1800 600
1600
SHCOMP
Utilities Industry
27-Sep-14
Relative Performance 2600
1500
1400 Utilities Industry SHCOMP
1200
0 01-Jan-12
23-Aug-13
Investment Services
Absolute Performance
300
04-Feb-13
T
1800
04-Feb-13
11-Mar-14
0.45
01-Jan-12
Investment Services
19-Jul-12
27-Sep-14
0.50
Source: CNC, Bloomberg.
T
0 01-Jan-12
11-Mar-14
0.55
0.40
27-Sep-14
Source: CNC, Bloomberg.
300
27-Sep-14
0.60
2400 1200
01-Jan-12
11-Mar-14
Relative Performance
1500
300
23-Aug-13
04-Feb-13
23-Aug-13
11-Mar-14
0.50
0.45
0.40
1000 19-Jul-12
0.55
01-Jan-12
27-Sep-14
19-Jul-12
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
37
04-Feb-13
23-Aug-13
CNC China Investment Strategies
Consumer Products
Consumer Products
Absolute Performance
Relative Performance
1500
2600
Relative Performance to SHCOMP
0.55
2400 2200 2000
900
1800 600
1600
SHCOMP
Basic Materials Index
1200
1400
300
Consumer Products Industry SHCOMP
0 01-Jan-12
19-Jul-12
04-Feb-13
1200
23-Aug-13
11-Mar-14
0.50
0.45
0.40
1000 27-Sep-14
01-Jan-12
19-Jul-12
04-Feb-13
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Consumer Services
Consumer Services
T
Absolute Performance 2600
Relative Performance to SHCOMP
2000 1800
600
1600
SHCOMP
Consumer Services Industry
2200
900
1400
300 Consumer Services Industry SHCOMP 19-Jul-12
04-Feb-13
1200 1000 23-Aug-13
11-Mar-14
01-Jan-12
19-Jul-12
27-Sep-14
11-Mar-14
27-Sep-14
Relative Performance 0.75
Relative Performance to SHCOMP
2600 2400
1600
2200 2000
1200
1800 800
1600
SHCOMP
Health Care Industry
23-Aug-13
Health Care Absolute Performance
1400 Health Care Industry SHCOMP
1200
0 04-Feb-13
23-Aug-13
11-Mar-14
0.65
0.55
0.45
0.35
1000 19-Jul-12
01-Jan-12
27-Sep-14
IT & Telecom
23-Aug-13
IT & Telecom
T
T
Absolute Performance
Relative Performance
1800
2600
0.70
Relative Performance to SHCOMP
2400
1500
2000
900
1800 1600
600
SHCOMP
2200 1200
1400
Telecomm & IT Industry SHCOMP 19-Jul-12
04-Feb-13
19-Jul-12
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
Telecomm & IT Industry
04-Feb-13
T
2000
0 01-Jan-12
11-Mar-14
0.40
Source: CNC, Bloomberg.
Health Care
300
27-Sep-14
0.45
0.35
T
01-Jan-12
11-Mar-14
0.50
27-Sep-14
Source: CNC, Bloomberg.
400
27-Sep-14
0.55
2400 1200
0
11-Mar-14
Relative Performance
1500
01-Jan-12
23-Aug-13
04-Feb-13
1200
23-Aug-13
11-Mar-14
0.60
0.50
0.40
0.30
1000 27-Sep-14
01-Jan-12
19-Jul-12
Source: CNC, Bloomberg.
Source: CNC, Bloomberg.
38
04-Feb-13
23-Aug-13
CNC China Investment Strategies
Appendix Comparing Apples to Apples on China’s Debt • This Appendix is a re-print of a Feature Article in our China Investment Strategies report dated April 8, 2014. It is included in this report for marketing purpose. • Apparently China permabears are holding their breath these days, waiting for their “told-you-so” glory. As the Chinese reformers started to introduce two-way trade for the yuan and began to allow defaults in the bond market, the Minsky moment for China must be imminent, they say. When crunching the numbers and finding that China’s total government debt is not unreasonably high as a percentage of GDP, their advice is not to forget other debt in China, particularly corporate debt. Adding together all debt in the economy, the debt-toGDP ratio for China could be well over 200% – this is clearly unsustainable, they say. • Our clients are understandably concerned. Routinely we are requested to comment on articles and newsletters that predict implosion scenarios for the Chinese economy. In fact, we ourselves share deep concerns about China’s debt issue – the growth rate of debt over the past few years is not sustainable and a deleveraging process is inevitable, in our view. During the deleveraging process, the structural growth of the economy is set to slow down. However, we do not expect to see a sudden collapse of the Chinese economy through an imminent Minsky moment. The reason is simple – the overall debt level in China is actually not that high. • When the permabears pitch their story about China’s debt burden, they rarely compare apples to apples. They usually add up all debt in China to calculate its debt-to-GDP ratio and then compare that with the public debt-to-GDP ratios in other economies. Exhibit 1 below shows an apples-to-apples comparison of China’s debt burden in all four categories versus some mature economies. The China number is taken from a detailed study from the China Academy of Social Sciences. This number is fairly accurate, in our view, and it is in line with market consensus. For instance, in early April, Bloomberg surveyed 11 leading economists about China’s overall debt-to-GDP ratio; the average estimate is 225% as of end of 2013. For other economies, we use the results of a comparable study by McKinsey & Company published in 2012. The McKinsey results actually underestimated the debt level for certain economies. For instance, if the liabilities of Fannie Mae and Freddie Mac are included, the U.S. total debt-to-GDP ratio would be 360%, not 279% as presented in the table. • That said, as Exhibit 1 shows, from a static perspective, the gross debt level in China, at 215.7% of GDP as of December 2012, is not exceptionally lofty. The data implies that, before we worry about a systemic implosion in China due to its “heavy” debt, we should worry about the U.S., Canada, the U.K., Japan, and Ireland. Netting out the debt, net assets in China exceeded RMB 300 trillion in 2011, almost three times China’s gross indebtedness. Exhibt 1: Debt-to-GDP Ratios for Selected Countries (Percentage of GDP)
China
Household
Non-Financial Corporations
Financial Institutions
Government
Total
31.1
113.5
17.6
53.5
215.7
Note as of Dec 2012; Source: CASS
Canada
91
53
63
69
276
as of Q2/2011; Source McKinsey
U.S.
87
72
40
80
279
as of Q2/2011; Source McKinsey
U.K.
98
109
219
81
507
as of Q2/2011; Source McKinsey
Japan
67
99
120
226
512
as of Q2/2011; Source McKinsey
Ireland
124
194
259
85
662
as of Q2/2011; Source McKinsey
Source: China Academy of Social Sciences; McKinsey & Company. Note: If asset-backed securities are included, the U.S. number would be 360%.
39
CNC China Investment Strategies • Some investors would argue that China should not be compared with mature economies. Instead, it should be compared with the total indebtedness in key developing countries. We disagree. The key difference between China and some key developing countries such as India is very pronounced in that China’s debt is predominantly domestic. In other words, China has been borrowing in a currency it can print, while some other developing countries routinely borrow in a currency called the greenback, which they cannot print. China has twin surplus in its balance of payments, its external debt is low, and its foreign exchange reserve is formidable. In a highly extreme situation that would require a systemic bailout, China’s Ministry of Finance could raise funds to bail out the banking system simply by issuing bonds to the People’s Bank of China – yes, this is called quantitative easing. If QE has not proven a disaster in the U.S., it stands to reason that China could undertake its own experiment when needed. • Overall debt levels aside, a detailed look at Exhibit 1 actually shows where China’s strength and weakness lie. For instance, despite all the discussion about local government debt, China’s total government debt (local plus central) is actually the lowest among major economies. And China’s households are good savers too. The real issue for China is non-financial corporate debt. • China’s high corporate debt is a direct result of its failure to launch an effective equity market, in our view. As we know, companies have two main channels to receive funding – debt financing or equity financing. Unfortunately, the Chinese equity market has been an ineffective source of financing for companies, and as a result corporate China has had to rely on bank loans and bond issuance. In fact, in the not-too-remote history, bank loans were as high as 80% of China’s aggregate social financing. In recent years, other types of financing have developed, from the bond market to shadow banking. However, equity financing is still lacking. In fact, this phenomenon – high corporate debt – is not unique to China. Before their financial markets became more mature and diversified, most of today’s mature economies went through a similar stage in their histories. The same issue, the immaturity of equity and bond markets, also explains the high M2 money supply in China, another issue repeatedly warned of by the permabears. • In fact, the apples-to-apples comparison of China’s debt exposures in different categories versus more mature economies illuminates the direction of China’s financial reforms. First, to foster a consumer economy, it should help households to leverage up. When consumers feel safe about their retirement and medical care, they will be more likely to use their credit cards. Second, to help corporate China deleverage, China should foster a more mature and effective equity market and increase equity financing’s share of total social financing. On this point, the latest IPO reform is a good start. And lastly, as to government debt, the overall level is fine, in our view; however, we believe the central government should leverage up its balance sheet so that local governments can deleverage. This requires the central government to shoulder more spending obligations. Fortunately, all the three areas are targeted in the reform package announced after the 3rd Plenum of the Party last November.
40
CNC China Investment Strategies APPENDIX A – IMPORTANT DISCLOSURES This report is prepared and published by CNC Asset Management Ltd. (CNC). CNC is independent of and unaffiliated with The Bank of Nova Scotia and its subsidiaries and affiliates (individually or collectively, “Scotiabank”). For the time being, Scotia Capital Inc. is authorized by CNC to distribute this report on an exclusive basis. The views expressed in this report represent the views of CNC, and do not represent the views of Scotiabank. Scotiabank has no right to exercise any control over CNC’s business and operation, and CNC retains full autonomy on how, where, and when CNC conducts its business, expands its operation, manages its investments, solicits its potential clients, uses sub-contractors, and produces its products including this report. Therefore, this report is prepared without any knowledge of Scotiabank's security positions and transactions, as well as Scotiabank's compliance procedures. The policies and procedures of Scotiabank do not apply to this publication and its author. CNC takes full regulatory, compliance, and financial risks for preparing and publishing this report. This report only discusses geographic markets and industry or commodity sectors, and it does not assess individual issuers. Therefore, it is not an equity research report. Consequently this report is not governed by rules applicable to the publication and distribution of research reports, including relevant restrictions or disclosures required to be included in research reports. Information, opinions, estimates, projections, statements and other materials contained herein are provided as of the date hereof, intended for information purposes only, and are subject to change without notice. In addition, the opinions and statements contained herein are based on information taken from sources believed to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness, or timeliness. CNC takes no responsibility for any errors and omissions which may be contained herein, and accepts no liability whatsoever for any loss arising from any use of or reliance on such information. No part of this report constitutes a recommendation that any particular investment or investment strategy is suitable for any specific person. This report is not intended as investment advice tailored to the particular circumstances, investment objectives, and risk tolerances of any entity or individual. CNC does not continuously follow any investment vehicles or any issuers even if mentioned in this report. Accordingly, readers of this report must regard the report as providing stand-alone analysis as of the date of publication and should not expect continuing analysis or additional reports on any topics of the report. This report should not be construed as investment advice/recommendation or as a solicitation for or an offer to buy or sell any securities or other financial instruments. If this report discusses any industry or commodity sectors, it should be noted that the views on industry or commodity sectors do not always align with CNC’s views on individual equities related to the industry or commodity sectors. For example, this report might express positive views on a particular commodity, but CNC, its directors, officers, employees, clients, or its managed accounts/funds may be bearish on a single issuer whose value generally rises and falls with the value of the commodity. 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Although this report may be bullish (or bearish) on a particular industry or commodity sector in general, CNC, its directors, officers, employees, clients, or its managed accounts/funds may still determine that a particular issuer’s securities are overpriced (or underpriced) and may determine to sell (or buy) securities of that issuer. The readers of this report should understand that CNC, its directors, officers, employees, clients, or managed accounts/funds may be buying or selling securities that might appear contrary to the views expressed in this report. All rights reserved. Unauthorized reproduction, distribution, transmission or publication of this report without the prior express written consent of CNC is strictly prohibited. If you believe that this report was sent to you in error, please forward a message to that effect as soon as practicable to
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41
