China Unbalancing As Recession Hits Services; Industrial Support Courts Disaster

From October 2015: Chinese Recession Ready to Move Into Services. Recessions typically begin in the higher stages of production, such as mining and manufacturing, and spread to the lower stages over time, with retail and consumer sectors hit last. The bigger question, which looks to be answered in the affirmative, is whether as manufacturer to the world, the slowdown in China's industrial sectors heralded a global recession. For now though, those hoping for a services led recovery in China are out of luck.

FT: China’s rebalancing paradox hits home

A recent pledge by government ministries to support industry extolled the sector as “the backbone of the real economy” and “the main battlefield for stabilising the economy”. Infrastructure and real estate — two key drivers of demand for industrial goods — were the biggest beneficiaries of January’s lending boom, which has reportedly continued into February, according to banking sources of FT Confidential Research, a unit of the Financial Times.

Such moves to support industry should not come as a surprise. China has no option but to resuscitate its industrial sector, as FTCR argued last year.

Why? Because China’s industrial-led slowdown is also leading to slower growth in consumer spending and service sector activity.

Here's a look at some companies that make popular brands of snacks, instant noodles and drinks:

No surprise. The FT article goes on to say the slowdown is hindering rebalancing instead of hastening it. This is due to the government still refusing to accept the pain caused by a real rebalancing. It is why I believe the ultimate end game is a massive devaluation in the yuan.

It will also drive the world closer to a trade war. The scenario laid out in The Logic of Strategy: Yuan Devaluation and the Road to Trade War is coming closer to reality with each passing day. The Trump campaign is a nationalist campaign and it heralds the end of existing trade deals. Trade agreements will be renegotiated or scrapped under a President Trump.

MUST LISTEN: Stephen Miller Makes Case Against Marco Rubio in Epic Rant. The key portions are where he talks about sovereignty and opposition to trade deals. Trump will either get better deals on NAFTA and with China, or NAFTA and the WTO will die, to thunderous applause in America.

What Will China's Mutual Funds Buy?

What Will China’s $1 Trillion Mutual Funds Buy In Hong Kong

Based on the latest quarterly data from mutual funds that use the QDII quota, Chinese mutual funds seem to like themes. They like healthcare, clean energy and brokers, as well as state-owned enterprises that have the reform theme. Tencent (700.Hong Kong), Ping An Insurance (2318.Hong Kong) and China Mobile (CHL) show up repeatedly in the top 10 active QDII equity funds.

Interestingly, Chinese mutual funds do not care for “unique” plays. Their top 10 holdings have no exposure to Macau.

Their holdings outside of Hong Kong are also interesting. The top holding of the 8.4 billion yuan ChinaAMC Global Equities is IMAX Corp. (IMAX) IMAX is very popular in China. The 8.8 billion yuan China Southern Global Equities have large exposures to WisdomTree Europe Hedged Equity Fund (HEDJ) and Deutsche X-Trackers MSCI Europe (DBEU). The 7 billion yuan CIFM Asia-Pacific Equities likes Samsung Electronics (SSNLF) and TSMC (TSM).

Brand names such as Want Want (0151), Chow Tai Fook (1929) and Mengniu (2319) and plenty more will also be of interest.

Chinese milk sucks

Chinese poison or contaminated milk stories are a dime a dozen. I have to assume that most of the milk is contaminated all the time, since about once every three to six months there's a story of contamination.

Mengniu Milk Reports Carcinogenic Contamination

Nice move for GR Vietnam - Watch List Update

I added GR Vietnam (0139.HK)to my watch list of Hong Kong and Mainland listed stocks because it provides exposure to the Vietnamese consumer market. Shares have popped in the past week though. It had been sitting around HK$0.05 to HK$0.06 for about three months, but it rose to HK$0.17 today. It's up 246% since I added it to my watch list on January 22.

Other shares are up as well due to an overall market rally. The best performers among my January 22 new additions was Ming Hing Water (added January 20; 0402.HK), up 7.69%; Sinoma (1893.HK, up 7.91%; China Dongxiang (3818.HK), up 16.35%; Lingbao Gold (3330.HK), up 43.37%; and Zijin Mining (2899.HK), up 21.50%. The worst performance came from Sinofert (0297.HK), down 3.16%; and Swire Pacific (added January 7; 0019.HK), a Marc Faber pick, down 18.08%.

There's still plenty of shares on my list down in a range from 30-60+%, especially in the materials sector.

China's stimulus package should deliver a boost to some infrastructure companies. I notice the chart on Shanghai Zhenhua Port Machinery <上海振华港机>(600320.SS) has had a nice steady rebound from November.

Mengniu (2319.HK), mentioned on this blog before, lost 10% on Wednesday and fell as much as 20% during the day. Caijing<财经> has two articles on the company: Chemical Additives in Mengniu Milk Prohibited and Dumex, Mengniu Dairy Products under Probe. Originally I thought they'd be able to pull out of the scandal, but the brand erosion may be approaching the point of no return.