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Will FXI and the CAF do well if inflation tames in China?

Will FXI and the CAF do well if inflation tames in China?

August 22, 2011 (Chinavestor) One of the advantages of being a China think tank is that investor tend to ask us the right questions, helping us to focus on issued that are important.  One of them is worth a short brain storming for the benefit of the general China stock investor community. Here is the question: "Do you have any perspective that if the next inflation number shows a sizeable move downward that the govt might hint at relaxing? They are putting their foot down pretty hard and they cannot risk overshooting, especially with the rest of the world looking as bad as it is. Your thoughts?"

The answer is that investors have to pay attention to the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) and the Morgan Stanley China A-Share Fund (NYSE:CAF), among other ETFs. Here is why.

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Knowledge base

The problems are above all political!

The problems are above all political!August, 2011 (Erwan Mahe)

The Fed's decision

To start off, I would just like to make a point about the Fed's announcement yesterday evening that it would keep short-term interest rates at 0% to 0.25% until, at least, June 2013.

While it is very risky to give a prognosis of events in the current situation, but, with the Liquidity Trap and O% Lower Bound constituting a constant thread in their Thaler's Corner texts since mid-2007, I can resist the temptation of reprinting an extract from last Wednesday's Thaler's on this subject:

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Knowledge base

China in monetary denial

China in monetary denial
April 18, 2011 (Erwan Mahe) I'm leaving the PIGS nation topic for tomorrow, when I hope to offer some much needed cool-headed analysis is a sea of hot-headed commentary.

Inflation in China; the solution is not administrative buy monetary (interest rates and currency)

China decided this weekend to increase the reserve requirement ratio of commercial banks by 0.50 points to 20.50%. This move helped drag down world stock indices today, which really didn't need the "help", especially in Europe.

Bear in mind that reserve requirements stood at just 8% in 2006! With the exception of the big scare of Q4 2008, when it was briefly reduced one percentage point, this ratio has been rising ever since. As you can see in the graph below, it rose to as high as 16.50% and 15.50%.

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Knowledge base

Timeo Chinese et dona ferentes

Timeo Chinese et dona ferentes
January, 2011 (Erwan Mahe) "I am afraid of the Chinese, even when they come bearing gifts" Paraphrasing Homer's quote from the Odyssey ('Timeo Danes et dona ferentes', "I fear the Greeks, even when they come bearing gifts"), with respect to Ulysses's famous Trojan Horse ruse, I decided to headline this phrase, not to rehash the European debt crisis initiated by Greece, but to highlight China's extreme opportunism, as it tries to play the role of Europe's saviour with its promises to purchase Spanish and Portuguese government debt.
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Knowledge base

Significant Rare Earths Discovery Made In Central China

Significant Rare Earths Discovery Made In Central China

October 7, 2010 (Chinavestor) China, already home to the biggest deposits of rare earth minerals in the world, is set to add to that stash after announcing a significant rare earths discovery in in central China's Hubei Province. Rare earth minerals are used in a variety of high-tech products such as iPhones, laptops and hybrid cars.

The newly-found deposit sits at the foot of Mt. Laoyin in Longba Township of Zhuxi County, in Shiyan City, according to the Xinhua news agency. Zhushan, another county in Shiyan, has also been home to 12 rare earths discoveries. Local geologists are studying the most recent find to determine exactly what minerals can be extracted.

The rare earths designation is given to 17 chemical elements inlcuding dysprosium, terbium, thulium, lutetium and yttrium. China produces about 90% of the world's rare earth minerals. The Inner Mongolia Autonomous Region in north China has the largest reserves of rare earths in the country, or about 75%, according to Xinhua.

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