Week in FX Asia – China’s WMP Count Down

Their problems are mounting and becoming more visible – from China’s perspective that’s a big deal. Data this week shows that private debt/GDP ratio has managed to soar by +50 percentage points in just four-years. This pace has markedly outstripped other Emerging economies. In fact, it’s bigger than the US and Euro region combined in the six-years prior to start of sub-prime debt problems. From an economic perspective a rapid rise in a country’s private debt/GDP ratio tends to be followed by economic weakness and balance sheet vulnerabilities among their banks. It’s no wonder that the antipodean currencies have lost -10% in the past month. China is their largest trading partner!

The current market focus is on China’s wealth management products. Observers are wondering if we are about to hear echoes of a Lehmann collapse. Back then, the market lost confidence in sub-prime mortgages being used as collateral. Why only keep that stateside? There’s supposedly CNY1.5t of these WMP’s maturing by the end of the month. The market concerns of China’s money markets being shut is that financial institution will have issues in repaying them. Any payment problems will only lead to a loss of faith and investors shying away from products and the WMP matrix will collapse. The PBoC could provide liquidity – however their intention is to punish financial institutions with shoddy lending practices. There is a fine line, when you lose market confidence everything will spiral out of control. The scale could be multiples of the bad that has already transpired this week.

• Emerging Market Sell Off After Fed Announcement
• China Central Bank Hits At Shadow Banking by Limiting Liquidity
• Bank of Japan Governor Tries to Calm Markets
• Asian Stocks Lower, continuing decline from US
• HSBC China PMI Hits 9 Month Low
• China Factory Activity Keeps Falling in May
• Indian Rupee Falls to All Time Low Versus USD
• Emerging Markets losing Allure
• Asian Stocks Higher as Nikkei Lead Rise
• Merkel Criticizes Japanese Monetary Policy
• China Housing Rises at the Fastest Pace this Year
• Japanese Starting to Buy Homes on Fears of Rising Rates
• Reserve Bank of India Holds Rates Warns of Inflation
• Nikkei Rises as Asia Eyes Fed
• Japan Banks Sell 11 Percent of their Government Bond Holdings in April
• Record Weakness in Rupee not translating to higher Corporate Profits

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