OctaFX | OctaFX Forex Broker
Open trading account

Forex Flash: Rising signs of rising Chinese financial risks - Nomura

FXstreet.com (Barcelona) - Nomura economist Zhiwei Zhang believes that there have been recent signs of rising financial risks in China.

He begins by commenting that he expects policy to tighten looking forward, reducing GDP growth forecasts to 7.3% in H2, with recent signals reinforcing his view. Firstly, he sees that financial news reported yesterday that the China Banking Regulatory Commission issued guidelines to tighten controls on wealth management products (WMPs). He believes WMPs pose a main risk to the banks and financial sector in general, given their lack of transparency and links to risky assets in the above mentioned report.

Secondly, he sees that the largest solar panel company, Suntech, declared bankruptcy on 20 March. In 2012, Zhang notes that there were similar cases where large private companies were close to bankruptcy, but these companies were bailed out by local governments. These bailouts made investors believe credit risks in the economy were limited, as the government would not tolerate a high profile bankruptcy. This view may change following Suntech‟s bankruptcy and could lead to a re-pricing of credit risk. Credit growth through the shadow banking sector will likely be negatively affected. He believes that the default also shows that financial constraints faced by the local governments may be binding.

Finally, he writes, “The newly appointed Minister of Finance, Lou Jiwei, discussed concerns over local government debt in his first public speech. In the China Development Forum on 24 March, he said the government will determine the size of local government debt.” He understands that local governments resorted to unconventional financing measures in recent years, such as signing repurchase agreement with private companies to build infrastructure projects. Such measures suggest that local government contingent liabilities may be higher than the official statistics. Zhang believes Lou's comments suggest the new government may attempt to contain the rapid growth of local government debt. he finishes by writing, “We reiterate our view that policy will tighten and credit growth likely peaked in Q1. We continue to expect economic growth to slow beyond Q1.”

Forex Flash: Commodity pairs and EUR crosses broadly neutral - UBS

UBS Strategists Gareth Berry and Geoffrey Yu have taken a technical look at this mornings Commodity pairs and Euro crosses and note that there is a neutral bias.
Read more Previous

Forex: EUR/USD bouncing off lows, refocus on 1.2800

The optimism is coming back to the euro traders on Thursday, as Cypriot banks are getting ready to re-open their doors after the long bank holiday. Markets remain calm so far, as the likeliness of a bank run shrunk somewhat as of late...
Read more Next
Start livechat