A Surprising Way to Participate in Today's Tech Boom
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
If I assked you to name the biggest online shopping day of the year, what would you guess? Black Friday? Cyber Monday? Free Shipping Day in mid-December?
Even though Cyber Monday sales were spectacular this year, as online sales surged 20 percent and beat Black Friday receipts, the day didn’t top November 11, Singles’ Day in China. Singles’ Day is a day of celebration for people who are single and has become popular among the young in China.
China saw so many online purchases on this day that sales exceeded Black Friday and Cyber Monday online purchases in the U.S. In fact, sales on Singles’ Day were nearly double that on Black Friday and Cyber Monday. According to BCA Research, transactions processed through Alibaba totaled $5.75 billion on 11/11. Online sales on Black Friday and Cyber Monday together were only about $3 billion.
click to enlarge
Online transactions have grown so quickly in China over the past few years, the country may have surpassed the U.S. in becoming the largest e-commerce market in the world. The spectacular growth also “defies the widely held consensus of China’s perceived ‘weak’ consumption,” says BCA.
The Asian country has become one of the best consumption stories out there, and looking over the next few years, local technology companies are almost certain to benefit.
So while many U.S. investors are getting excited about the growing number of initial public offerings in the tech sector, they would be remiss if they didn’t look beyond Silicon Valley.
After all, the world has drastically changed since the last tech boom. Back then, China’s share of world GDP growth was in the single digits; now its share is close to 20 percent. Former state-run economies, such as China and Russia, are embracing an entrepreneurial spirit and markets are continuing to open up.
We’re especially excited about the opportunities that will likely develop from China’s removal of the hukou system that determines residency status and urbanization trends. In addition, as China changes its one-child policy, Internet companies may likely see an even larger increase of users in the years ahead.
Do They “Google” in China?
Americans may “Google” for directions, recipes or stock prices, post to Twitter, and shop online at Amazon or eBay, but outside the U.S., different tech leaders are finding lucrative and innovative ways to shape online experiences, grow revenue, and gain market share.
Baidu, for example, is the search engine leader in China with an 81 percent market share, significantly overshadowing Google, which has only a 12 percent revenue share, according to CLSA. The research firm anticipates Baidu will “sustain 35-40 percent revenue growth,” due to its monetization in search advertising, mobile games and mobile videos.
Competition is heating up though. When U.S. Global analyst Xian Liang visited his family in Shanghai this year, he noticed the Internet search page automatically populated to Qihoo (pronounced “chee-hoo”). Qihoo, which has only about 15 to 20 percent traffic share in China right now, bundles its own search engine along with its Internet security software. After installing the anti-virus software, the search engine becomes the default. The company is using this strategy to gain market share against heavy competitors such as Baidu and Google.
When purchasing goods online, most residents of China head to Alibaba, which processes about 80 percent of China’s total online retail businesses. It has a unique model with Amazon- and eBay-like features and hosts sites for small businesses. Its volume of sales is so massive, Alibaba may overtake Wal-Mart as the world’s largest retail network by 2016, according to CNBC.
As an “undisputed market leader,” Alibaba enjoys revenues that are growing 60 to 70 percent year-over-year, says CLSA. Yahoo! has benefited from its 24 percent stake in Alibaba, and next year, investors could get in on the action if the company goes public.
Michael Ding, portfolio manager of the China Region Fund (USCOX), likes Tencent Holdings, whose subsidiaries provide mass media, Internet and phone services, social media and online advertising. According to CLSA, Tencent is “best positioned for mobile,” due to its app called WeChat.
Users of Tencent’s phone applications may not be all too familiar with an app called SnapChat, but they are feverishly downloading a new app called WeChat. WeChat is a mobile social networking application that allows real time multi-party voice messaging and location sharing, boasting 236 million monthly active users.
Tech in Asia reported that Tencent is now set to open a WeChat office in the Philippines, saying that WeChat “became the most downloaded free app” in the country since June.
click to enlarge
Exploring Russia 2.0
Another area of the emerging world benefiting from the growing wealth of the consumer is Russia. In our recent webcast, Tim Steinle, portfolio manager of the Emerging Europe Fund, talked about investing in “Russia 2.0” companies. Whereas familiar Russian companies, such as Gazprom and Lukoil, tend to be large and state-owned, we prefer dynamic, independent, shareholder-driven companies.
For example, Mail.Ru is an Internet company focused on social networks and gaming. Yandex is the dominant Internet portal in Russia in direct competition with Google.ru, the Russian operation of Google. Both companies have been outstanding performers compared to overall Russian stocks in 2013.
Wishing You a Happy Holiday!
During this holiday season, we would like to wish you and your family peace, joy and lots of laughter. We hope the new year brings you health, wealth and happiness.
- Major market indices finished higher this week. The Dow Jones Industrial Average rose 2.96 percent. The S&P 500 Stock Index also gained 2.42 percent, while the Nasdaq Composite advanced 2.59 percent. The Russell 2000 small capitalization index rocketed ahead by 3.56 percent this week.
- The Hang Seng Composite fell 1.91 percent; Taiwan gained 0.38 percent while the KOSPI rose 1.04 percent. The 10-year Treasury bond yield rose 2 basis points this week to 2.89 percent.
Domestic Equity Market
The S&P 500 Index rose this week in a broad-based rally. The Federal Reserve somewhat surprised the market by reducing its monthly quantitative easing program by $10 billion to $75 billion. The market has had plenty of time to digest the potential ramifications and responded with a resounding show of support. The taper in combination with a budget deal in Washington eliminated some uncertainty and cleared the way for a rally. Cyclical areas of the market led the way as expectations are for global economic acceleration.
click to enlarge
- The industrials sector was the best performer this week, led by Textron which rose by more than 18 percent. On Friday, the stock rose by more than 14 percent as it was reported that the company was close to purchasing plane maker Beechcraft for $1.4 billion.
- The materials sector experienced broad-based strength with nearly every stock in the index higher for the week. Dow Chemical, Alcoa and Eastman Chemical were among the leaders, all rising by more than four percent.
- LSI was the best performer in the S&P 500 this week, rising 38.18 percent. The company agreed to be bought by Avago for $6.6 billion, which was a 41 percent premium to the company’s closing price last Friday.
- All market sectors were higher this week, but traditionally defensive areas such as utilities, consumer staples and telecom services lagged.
- Ford was down 7 percent this week as the company expects 2014 profits to be roughly $1 billion below 2013 levels. Drivers of the lower profit forecast include increased product launches, weakness in Europe and South America along with capital investments in plant construction.
- Jabil Circuit was the worst performer in the S&P 500 this week, falling 15.47 percent. The company announced earnings that missed Wall Street estimates and predicted sales would decline in the current quarter in two of three business units. Speculation was Jabil was suffering from a slowdown in production of Apple iPhones, but that was not explicitly confirmed by the company.
- The current macro environment continues to be positive as economic data remains robust enough to give investors confidence in an economic recovery, but not too strong as to force the Fed to aggressively change course in the near term.
- Money flows are likely to find their way into domestic U.S. equities and out of bonds and emerging markets.
- The improving economic situation could possibly drive equity prices well into 2014.
- A market consolidation could occur in the near term after such strong performance.
- Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is large.
- A lot of potentially good news is priced into the market and the economy will need to deliver to maintain the positive momentum.
The Economy and Bond Market
Treasury bond yields were mixed this week even as the Fed somewhat surprised the market by announcing that tapering would begin in January. The Fed will reduce the amount of quantitative easing by $10 billion per month to $75 billion. The intermediate portion of the yield curve saw the bulk of the adjustment with 5 to 7 year Treasury yields rising by 10 to 14 basis points. In an interesting twist, the long end of the curve rallied, with 30-year treasuries falling by 4 basis points. The Fed has been talking about tapering for six months, so the market has had plenty of time to digest the potential implications.
click to enlarge
- Industrial production rose 1.1 percent as cold weather in many parts of the country drove utility output higher. This was the strongest reading in a year.
- November housing starts jumped 23 percent to 1.09 million units, well ahead of expectations.
- The consumer price index was unchanged in November and on a year-over-year basis fell slightly to 1.2 percent. With no inflation pressure, the Fed feels comfortable with a slow exit from quantitative easing.
- Existing home sales fell 4.3 percent in November, the third straight monthly decline. Low inventory and higher mortgage rates were cited as drivers.
- Initial jobless claims jumped to 379,000 for the week of December 14. The four-week moving average is now clearly trending higher.
- The American Institute of Architect’s Billing Index in November fell to 49.8 from 51.6 in October. This is a widely followed index for commercial construction activity.
- Despite recent conflicting commentary, the Fed continues to remain committed to an overall accommodative policy and is unlikely to raise interest rates in 2014.
- Key global central bankers remain in easing mode such as the ECB, Bank of England and the Bank of Japan.
- There are many moving parts to the taper decision and while the Fed began the process this week, it is very possible that tapering could be delayed if economic data slows.
- Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.
- Trade and/or currency “wars” cannot be ruled out which may cause unintended consequences and volatility in the financial markets.
- The recent bond market sell-off may be a “shot across the bow” as the markets reassess the changing macro dynamics.
For the week, spot gold closed at $1,203.30, down $35.50 per ounce, or 2.87 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, declined 2.70 percent. The U.S. Trade-Weighted Dollar Index gained 0.43 percent for the week.
- Virginia Mines closed at a new 52-week high today, a remarkable feat for any gold company in a bear gold market. TerraX Minerals, partially owned by Virginia Mines, completed a new private placement to finance drilling at Northbelt, which encompasses 3,562 hectares on the prolific Yellowknife belt, 15 km north of the city of Yellowknife, and covers 13 km of strike on the northern extension of the geology that contained the Giant (7.6 million ounce) and Con (5.5 million ounce) gold mines. Earlier this week, Ralph Aldis, portfolio manager for the World Precious Minerals Fund, highlighted Virginia Mines in an interview with The Gold Report provided his opinion that the company has an unmatched exploration upside and is a “junior miner that will let you sleep at night.”
click to enlarge
- Klondex Mines reported gold assays at its Fire Creek gold deposit in Nevada from surface drilling. The drilling suggests possible extensions of the current mineral resource model. Grades from surface drilling range from 16.3 grams per tonne to 5.1 grams per tonne gold. The intercepts support the view that the Fire Creek project is significantly underexplored.
- Comstock Mining announced the positive restructuring of four mining lode claims in the company’s Dayton Resource. The transaction eliminates $2 million of debt and cancels all future royalties payable with respect to the relevant mining claims in exchange for the issuance of one million shares of the company’s common stock. The transaction strengthens the company’s balance sheet by extinguishing debt, increasing free cash flow, and enhancing future shareholder value by eliminating the 3 percent net smelter return (NSR).
- Gold slid more than 2 percent on Thursday to its lowest since late June after the U.S. Federal Reserve took a baby step away from its ultra-loose monetary policy. Gold trading in the next few days will be essential to determining the longer term market reaction to the news. Commerzbank, in a note to investors, commented that “if the gold price should succeed in forming a stable and long-term bottom at above $1,220 per troy ounce, investor interest is likely to pick up again – after all, the considerable uncertainty over QE3 is gone, meaning that the spectre of 'tapering' has lost its ability to scare the gold market.” Meanwhile, physical gold buyers waiting in the wings for a bargain-hunting opportunity in China, the world’s largest bullion market, have decidedly become buyers as evidenced by a 10-week high spike in volumes at the Shanghai Gold Exchange this Friday.
- Two weeks after Barrick Gold announced a shakeup of its board, two of the company’s independent directors announced their resignations. In addition, the company said two additional directors would not stand for reelection. The sudden news indicates a high level of dysfunction within the board of the world’s largest gold miner. It has been known that Canada’s biggest pension funds pushed for the company to elect new independent directors, yet the timing of the reorganization leaves much to be desired, with the company taking too long to effect the changed demanded by shareholders.
- China launched its third gold-backed exchange-traded fund (ETF), but, like its predecessors, the fund struggled to garner assets as investors in the world's biggest bullion-using country show a preference for the physical metal. The E Fund Gold ETF began trading on Monday, and according to state media, it raised approximately $82.5 million. Reuters interviewed local analysts who believe the muted response to “paper” gold in China shows that investors there prefer owning physical gold assets.
- BCA Research in its weekly Commodity & Energy Strategy report showed that despite the tapering announcement, it will be difficult to see an acceleration of gold bearishness over the medium-term. According to the report, the fact that the Fed wants to put space between tapering and rate hikes means that real yields and the dollar are unlikely to rise significantly. Similarly, the “lopsidedly bearish” positioning in the gold market is likely to support a rebound rather a continuation of the negative trend with the four-week moving average of bullish sentiment at a twelve-year low, net speculative long positioning at a nine-year low, and ETF holdings at a three-year low.
- Primero Mining agreed to purchase Canada’s Brigus Gold for about $208 million in a stock transaction. The price represents an approximate 45 percent premium over the trailing 20-day average price for Brigus. The premiums offered in other recent transactions reveal the deeply oversold levels of junior miners: Asanko Gold is to acquire PMI Gold at a 79 percent premium, and both B2Gold’s acquisition of Volta, and Centamin’s acquisition of Ampella Mining were done at premiums over 100 percent of their respective trading prices. As evidenced by the recent mergers and acquisitions activity; we continue to be of the opinion that the cheapest resources are listed, and that a new wave of M&A activity may be imminent.
- Mandalay Resources announced the purchase of the Challacollo project in Chile from Silver Standard. Challacollo hosts indicated mineral resources of 3.4 million tonnes with an average grade of 170.6 grams per tonne silver for 18.6 million ounces of contained silver and an inferred mineral resources of 23.6 million ounces of contained silver. The purchase price of $16.5 million in cash and shares roughly values the in-situ producing ounces at $0.50 per ounce, which is fairly cheap. It is pleasing to see that Mandalay management was able to make an accretive acquisition in Chile, especially given the success they have had with Cerro Bayo.
- With gold nearing its June lows, it is likely reserve write-downs imply further charges at year end, says Deutsche Bank. Having seen the recent price action, it is timely to review the underlying assumptions in determining their gold and silver reserves sensitivity. Deutsche Bank is not optimistic, as average gold and silver assumptions are tracking about 15 percent and 35 percent, respectively, above today's spot rates and indicate the possibility for further multibillion dollar write-downs on the horizon. Past conference calls have offered an idea into the sensitivity of reserves. Newmont management stated in its first quarter 2013 call that a $100 per ounce decrease in gold price assumed would lead to a 7.6 percent decline in reserves, while Goldcorp’s fourth quarter 2012 call discussed a $150 per ounce decrease would cause reserves to fall 6 percent.
- In recent weeks, there have been concerns among market participants and regulators that the process for establishing the price of gold may lend itself to insider trading and other forms of unfair dealing. According to Rosa M. Abrantes-Metz, an adjunct associate professor at New York University’s Stern School of Business and a director in the antitrust, securities and financial regulation practices of Global Economics Group, a consulting company based in New York, there may be evidence of price manipulation going on. Her study shows that in commodity analyst Dimitri Speck’s book “The Gold Cartel,” the author finds that the spot price of gold tends to drop sharply around the London evening fixing (10 a.m. New York time). A similar, if less pronounced, drop in price occurs around the London morning fixing. For both commodities there were, on average, no comparable price changes at any other time of the d ay. According to Abrantes-Metz, these patterns are consistent with manipulation in both markets.
- According to Simon Weeks of Scotia Mocatta, despite overnight trading being quiet just ahead of the Fed taper announcement on Wednesday, ETF inventories continued to sail into record redemptions. Total Global ETFs holdings are currently losing 82,000 ounces per calendar day which is nearly double the rate seen in October and November.
Energy and Natural Resources Market
click to enlarge
- The International Energy Agency raised its 2014 global oil demand growth estimate by 240,000 barrels per day to 92.4 million barrels per day to reflect signs of accelerating demand growth in OECD countries.
- The price of natural gas surged again this week on cold weather throughout much of the nation. Natural gas closed at a two-year high of $4.41 per Mmbtu or 8 percent higher than last week.
- The Baltic Dry Freight shipping index, a measure of global economic activity and an indicator of demand for steel and iron ore, climbed to its highest level in three years.
- The Energy Information Administration said U.S. crude oil production reached 8.075 million barrels a day in the week ended December 6, the highest level since October 1988.
- Spot hard-coking coal peaked at $171 a ton in February and has averaged $153.41 this year, according to data from Energy Publishing. However, spot prices have dropped 7 percent since September to $140.70 as supply continues to outpace global demand.
- Coal India, the nation’s biggest producer, fell the most in more than eight weeks after it was fined 17.7 billion rupees ($288 million) for abusing its dominant market position. The Competition Commission of India found the miner and its units had “undisputed dominance” in supply of power station coal and had unfair supply agreements with some power producers, according to a statement from the federal Ministry of Corporate Affairs. The antitrust body ordered Coal India to modify the agreements.
- Global nickel demand is expected to grow 4.5 percent in 2014 to 1.85 million metric tons while supply is estimated to increase 3 percent to a record 1.97 million tons, with new projects coming on stream and existing operations ramping up output, according to International Nickel Study Group.
- Exxon Mobil, the nation's largest energy producer, is calling for the U.S. to lift restrictions on exporting domestic oil that date back to the Arab oil embargo of 1973. The Irving, Texas, company's public support for crude exports comes as it forecasts decades of abundant supplies of petroleum in the U.S. and elsewhere as well as increasing global demand for oil, according to its annual energy outlook set to be released on Thursday. "We are not dealing with an era of scarcity, we are dealing with a situation of abundance," Ken Cohen, Exxon's vice president of public and government affairs, said in an interview. "We need to rethink the regulatory scheme and the statutory scheme on the books."
- Mexico’s lower house passed an energy bill that ends Petroleos Mexicanos’s 75-year oil monopoly in a bid to attract foreign investment and boost growth. Lawmakers approved the bill in general terms in a 354-134 vote late yesterday and continue to discuss minority-party challenges to specific articles. If these are rejected, the initiative will be sent to Mexico’s states, where it’s likely to receive approval from more than half of the legislatures, the threshold for changing the constitution. The bill, passed by the Senate two days ago, would change Mexico’s charter to permit companies such as Exxon Mobil and Chevron to drill for oil for the first time since 1938. It would allow production sharing and licenses for outside companies that will also be able to log crude reserves for accounting purposes. Supporters say it will boost economic growth, while opponents say it will funnel the nation’s resource wealth to fore ign investors.
- Freeport Indonesia warns of production cuts and layoffs if the government bans ore exports from January 2014. Freeport estimates output at its Grasberg mine would decline by 60 percent in 2014, comprising a cut of 900m lbs of copper and 1.7m oz of gold along with a layoff of about half of its 15,000 employees in Indonesia.
- U.K.-based global risk analytics firm Maplecroft said that 2013 saw “a significant increase in conflict, terrorism and regime instability” in the Middle East and North Africa region, with no improvement in sight. The analysts said that conflict-torn Syria had deteriorated the most in its global ranking of political risk, falling 42 places in the past four years to become the second riskiest nation in the world. Egypt fell 12 places in the past year amid the post-coup violence and increased terrorist activity in the Sinai Peninsula, ranking as an extreme risk nation for the first time at fifteenth on the list.
- A slew of good macroeconomic data came out of the European Union this week. Markit’s Flash Eurozone Composite PMI rose more than expected to 52.1, hitting its second highest level in 31 months. Similarly, German investor confidence hit a seven-year high. The survey climbed to its highest level since April 2006, surging to 62 from 54.6 in November and topping consensus of 55. The current situation number also increased, as did sentiment for the eurozone.
- Hungary’s economic sentiment index jumped to the highest level in more than 11 years as businesses and consumers became less pessimistic about their prospects. The index rose to the highest level since October 2002, according to the GKI research institute in Budapest. The news follows a string of positive macroeconomic numbers coming from the Eastern European nation, as Prime Minister Viktor Orban, who leads in all opinion polls ahead of elections next year, is working to accelerate growth as the economy emerges from its second recession in four years.
- The People’s Bank of China (PBOC) pumped RMB200 billion into selected banks Thursday after the Shanghai Interbank Offered Rate (Shibor) spiked the most since a record cash crunch in June, which confirmed that PBOC will help if needed.
- China will promote a mixed ownership economy by diversifying the shareholding structure of state-owned enterprises (SOEs), China Daily says. If this report is true, the government will be able to monetize state-owned assets to pay debts.
- China is to accept applications for over-the-counter (OTC) trading by the end of this year, China Securities Journal reports. The China Securities Regulatory Commission also issued guidelines for IPO, preferred shares, and OTC market expansion, all of which will benefit brokerage business.
- Malaysia November CPI ticked up to 2.9 percent, in line with market consensus, and eased 0.3 percent month-over-month.
- Outflows from emerging market equity funds accelerated this week. According to HSBC, outflows jumped to the highest level in 16 weeks. Barring Asia ex-Japan funds that saw negligible inflows, all other emerging market regional equity funds faced redemptions. By country dedicated funds, South Korean funds received substantial inflows, while Taiwanese, Brazilian and Mexican funds saw considerable outflows.
- Greek stocks have remained under strong pressure on the Athens Stock Exchange since last Friday, when news releases said the government tabled an amendment for the taxation of stock market profits. As a result, investors have been shedding stocks to realize gains ahead of the expected introduction date.
- With interest rate liberalization in China, financial market rates will continue to rise in 2014, which will reflect in a rising 7-day repurchase rate from 4.2 percent now to 4.5 percent, driving up Shibor and short-term rate fluctuations. Demand deposits will be priced at yields on 1-month or 3-month wealth management products, meaning substantial increases in commercial banks' overall funding costs. Government bond rates will likely rise again, with the target interest rate on 10-year bonds between 4.8 percent and 5 percent, followed by wider credit spreads that drive up credit bond yields. The medium- to long-term composite loan interest rate, which is closely related to company earnings and manufacturers' profitability, would likely increase from 7.7 percent to 8 percent.
- HSBC December China flash PMI was 50.5, lower than the market consensus of 50.9, showing the economy is expanding at a slower speed than the market had expected in December. In a separate report, China power demand growth slowed from 9.5 percent in October to 8.5 percent in November, confirming the growth momentum of the economy is easing.
- The Shanghai stock market SHCOMP Index was down for nine consecutive days since Tuesday last week. Also, fifty companies may complete IPO procedures in China in January, China Securities Journal reported, which would be negative to market liquidity.
- The Indonesia Rupiah had touched a post-global financial crisis low of IDR12,650.00, and should continue to be volatile after the U.S. Fed starts tapering.
- Thailand’s political problems relapse and the country is experiencing rising uncertainty.
- BCA Research acknowledged in its Daily Insights that the 2013 recovery in European valuations from deeply oversold levels has left less low-hanging fruit for 2014. However, BCA insists it is time to pick individual stock markets that offer an attractive structural valuation to risk trade-off, such as Austria. Even though European cyclically-adjusted price earnings multiples versus the world index have vanished, the valuation discount of select markets relative to the periphery is more compelling.
- Bank of America Merrill Lynch suggests owning Russia makes sense in a post-tapering world. According to the Bank's analysts, in a world where the great constraint to emerging markets has been tapering fears, we're finally on the cusp of delivering some clarity to the great uncertainty that has held emerging markets back from the great rotation. In their view, Russia is tapering-insensitive and offers excellent risk reward for an eventual return to favor of emerging markets. Most recently, Russia has responded to periods of global emerging market revival more than oil price trends, yet bearish structural sentiment is reflected in low positioning and valuations that argue for positioning for an eventual emerging market revival via discounted Russia today.
click to enlarge
- As shown in the chart below, online commerce in China is rising exponentially. Single day e-commerce sales were much higher than Black Friday e-commerce sales in the U.S. The e-commerce sector in China is in the mid-cycle boom, which should continue to drive the revenue and earnings of companies that are engaged in monetizing internet traffic.
click to enlarge
- BofA Merrill Lynch’s double upgrade of Turkish stocks from underweight to overweight earlier in the week fell on deaf ears as the Turkish lira tumbled to a record against the dollar as Prime Minister Recep Tayyip Erdogan’s government purged police leadership in a fight back against a probe into official corruption. The government dismissed 14 department chiefs at the national police today, in addition to some 50 yesterday, according to a Bloomberg HT report. The dismissals came after police detained dozens, including the head of a state bank and the sons of three cabinet ministers, in an inquiry into graft. The Turkish currency has dropped 15 percent against the dollar this year, with the central bank attempting to control the related pass-through effect to inflation which already missed the 5 percent target this year.
- China’s financial system is reliant on liquidity injection by the PBOC. When the PBOC stopped reverse repurchase operations recently, the seven-day Shibor jumped to a six–month high of 8.5 percent by Thursday, a very expensive interbank lending rate both in absolute and relative term. The rate came down to 7.6 percent on Friday after the PBOC resumed liquidity injection. There is consensus in the market that although interest rate liberalization will make it efficient for capital allocation and the tightening bias will help deleverage the economy, it will push rising interest rates and the cost of capital in 2014.
© US Global Investors