China’s Inward Investment Inversions
Chinese stocks stayed lethargic after authorities blamed the European crisis for a 35 percent decline in FDI to $65 billion through July. The setback came on the heels of flat export growth and presumed hot money outflows sending the capital account into deficit, and an EMPEA report charting a two-thirds fall in first half private equity fund-raising to $4 billion. A dozen funds were closed accounting for less than one-quarter the total for the period versus the first half in 2011. Yuan-denominated vehicles were shunned as depreciation against the dollar set in and “challenging exit and regulation” could drive Asia strategy more regionally, the group commented. Emerging Europe picked up the slack with a $2.5 billion haul concentrated in Poland and Turkey, as the global total hit $17 billion through June compared with almost $40 billion for all of last year. Asian markets continue to absorb 40 percent of deals, but volume jumped double digits in Brazil and the MENA and Sub-Sahara Africa regions. Smaller transactions were preferred as the $100-million plus segment was off one-third. Five of the fifteen biggest ones were in the private investment in public equity (PIPE) category which has gained prominence. Beijing, after raising the qualified foreign investor quota to $80 billion on the Shanghai exchange and relaxing applicant experience and size criteria, has fast-tracked approvals, and the securities commission has moved to lower taxes and delist inactive shares to further lure buyers. However the index is flat with the average company p/e ratio just over 10 on a 2 percent industrial profit plunge through June. Retail account openings are off sharply as representatives circulated an on-line petition to indefinitely suspend IPOs which have poorly performed. Banks have noticeably lagged and are trading at single-digit valuations as monthly credit allocation eases and non-performing portfolios rise. To meet the 11.5 percent of assets capital adequacy threshold, the state-controlled giants still must mobilize equity and Bank of Communications, with the Finance Ministry and Social Security Fund as major shareholders, proceeded in August with a select institutional investor placement.
2012 GDP growth is now put in the 8 percent range with the PMI reading poised at 50 as the proxy electricity generation number has barely budged. New residential property under construction was down almost 15 percent through July, and retail sales gains flagged. Hopes for a resumed infrastructure push to sustain momentum into the October Communist Party leadership switch were buoyed with planning agency go-ahead for 1500 projects including again in the debt-laden railway system. The separate residential housing campaign has not met targets, and provinces have launched their own building programs to backstop central schemes that may not materialize. Bank reserve requirement cuts have stalled even as inflation dips below 2 percent on agitated investor expectations.
