Thursday, January 27, 2011

Financial Review 2010: where had all the Hot Money gone

As mentioned in our first article Big Day of Mr China, one of the purposes of our site is to dictate the rapidly changing economy in China.

We believe it is necessary to review what particular 2010 news did have significant impacts on China financial markets in Shanghai and Hong Kong. Our choices, however, are not only limited to local China news but also include important international news.

We want to make this article resourceful for our readers especially for those who could only afford spending time to focus on their own local market news in 2010.

Here are the key events in business and financial news for the year 2010:

Jan. 8:(1) China State Council approved margin trading and short selling in stock markets.
(2) The document for a pilot plan to allow mainland individuals to buy Hong Kong shares was officially obsoleted.
Jan. 19:(1) Goldman Sachs was accused of assisting Greece to lie about the true state of its deficit.
(2) Japan Airline went bankrupt.
Jan. 21:Obama proposed regulations limiting the ability of banks or financial institutions to engage in proprietary trading operations, hedge funds or private equity funds.
Feb. 3:Japanese automaker Toyota announced that Prius hybrid had flaws in its braking system. The Toyota's massive recalls led to an US new auto sales rally afterwards in March 2010 as Toyota and its competitors, such as Ford and General Motors, were all forced by the market to offer subsidized leases, interest-free financing or zero-percent loans.
Feb. 5:Poor auction results of Portugal and Spain government bonds.
Feb. 19:US suddenly raised interest rate of Fed's discount window by 0.25% to 0.75%.
March 2:(1) US Department of Justice investigated certain hedge funds if they jointly manipulated the Euro through short-selling in foreign exchange markets.
At the year-end, the magnitude of losses against other currencies crowned the Euro as the worst-performing major currency in 2010.
(2) Australia continued to raise interest rate to 4%. Remark: Australia already kicked off an interest rate upcycle earlier on October 6, 2009 to contain inflationary risk.
March 7:North Korea abandoned nuclear disarmament and Korean War Armistice Agreement.
March 9:China stated that Gold should not be a major component of its foreign exchange reserves, for fear of pushing the price up and discouraging local private Gold consumptions.
In 2010, however, Gold finished at $1421 per ounce, a +30% YoY gain and also a new yearly historical high, but still far behind many other metals including Palladium (gained +97% YoY), Silver (gained +84% YoY), and even Copper (gained +34% YoY) etc.
March 17:Japan increased its size of quantitative easing package to Yen (JPY) 20 trillion.
March 19:India suddenly restarted raising interest rates, the first time since the 2008 global financial tsunami.
March 21:Obama's health care reform bill passed.
March 28:Brazil restarted raising interest rates, the first time since the 2008 global financial tsunami.
April 12:China reported a trade deficit in March 2010, the first time in recent 6 years.
April 14:(1) China Qinghai YuShu Earthquake.
(2) Iceland Eyjafjallajökull volcano erupted and ejected widespread volcanic ash that might damage aircraft engines. The eruption paralysed the aviation industry in Europe and induced the biggest air traffic disruption since World War II.
April 16:(1) China launched its first-ever stock index futures, based on the CSI-300 Index which tracks the Shanghai and Shenzhen markets.
(2) US Securities and Exchange Commission (SEC) filed a civil lawsuit against Goldman Sachs over a fraudulent housing deal. The SEC claimed that Goldman Sachs created and sold a mortgage investment that was secretly intended to fail.
April 27:Greece credit rating was downgraded to junk status by Standard & Poor's (S&P) amidst fears of default by the Greece government.
May 1:Shanghai World Expo began, with a record number of 246 countries and international organizations held exhibits there until Oct. 31, 2010.
May 2:European Union (EU) and International Monetary Fund (IMF) agreed to contribute EUR 80 billion and EUR 30 billion respectively within 3-year, thus made up a total of EUR 110 billion bailout fund for Greece at annual lending rate of 5%.
May 3:(1) United Airlines and Continental Airlines announced their merger, with United's purchase of Continental, to become the world's largest airline.
(2) The European Central Bank (ECB) suspended its minimum threshold for Greece debt "until further notice", meaning the bonds will remain eligible as collateral even with junk status.
May 6:The Dow Jones Industrial Average (DJIA) experienced a "Flash Crash", as it suddenly plummeted 998.5 points, its biggest intraday point drop ever, at the afternoon low.
May 10:EU and IMF came up to contribute EUR 500 billion and EUR 250 billion respectively, thus created a total of EUR 750 billion bailout fund as a financial safety net for Euro-zone countries to fight against the European sovereign debt crisis, after France threatened to ditch the Euro.
The ECB also decided to buy Euro-zone government bonds for the first time ever in second-hand market from banks. Trichet pledged that additional liquidity injected into the financial system would be re-absorbed, probably by getting banks to offset liquidity in fixed-term deposits at national central banks.
May 12:Morgan Stanley was under criminal investigation for using Collateralized Debt Obligations (CDOs) to bet against clients.
May 19:Germany banned the naked short-selling of Euro-zone government bonds, their Credit Default Swaps (CDS) and the shares of German top 10 financial institutions until March 31, 2011.
May 21:US Senate passed financial regulatory reform bill, the well-known "Dodd-Frank Wall Street Reform and Consumer Protection Act", which was then made effective on July 21, 2010.
May 26:Apple, as the iPods, iPhones and iPads maker headed by co-founder Steve Jobs, surpassed Microsoft to become the world's most valuable technology company. Microsoft, as the creator of DOS and Windows software founded by Bill Gates, dominated the technology industry before that for more than 20 years.
May 28:Taiwanese Hon Hai Precision Industry Co. ( that owns FoxConn (, the world's largest contracted electronics supplier and the China-based assembler of Apple's iPhones, iPads and iPods, announced to increase the average wage of FoxConn's factory workers by 20% after 10th suicides in 2010 at its Shenzhen factory. This triggered a widespread wage hikes afterwards among many other factories in China and also signaled that the era of cheap Chinese labor was over.
June 1:Canada restarted raising interest rates, the first time since the 2008 global financial tsunami.
June 2:Iran announced to switch its Euro foreign exchange reserves to USD and Gold.
June 4:Hungary Credit-Default Swap (CDS) rose as Hungarian officials likened their budget deficit to that of Greece.
June 10:New Zealand restarted raising interest rates, the first time since the 2008 global financial tsunami.
June 11:China reported that CPI in May rose to +3.1% YoY, breached the government target of +3% level.
June 21:Renminbi (RMB) resumed pegging to a basket of currencies. Before that, RMB was pegged to USD since the financial crisis in July 2008.
June 22:(1) UK announced a 5-year Emergency Budget Plan for deficit reduction.
(2) China extended the RMB trade settlement pilot program to cover 20 pilot mainland cities and provinces for trade settlement with all countries worldwide.
June 29:(1) The mainland China and Taiwan signed a historic Economic Cooperation Framework Agreement (ECFA), the most important economic agreement to reduce cross-strait trade barriers and tariffs since the 1949 Chinese Civil War.
(2) The LIBOR spiked as ECB stopped offering loans for more than 3-month after expiry of the 12-month Long-Term Refinancing Operation.
July 7:The first-ever non-PRC corporate RMB offshore bond, also called "dim sum" bond, was launched.
July 13:Greece successfully restarted auction of government bonds after bailout in May 2010.
July 19:To further promote the development of offshore RMB business in Hong Kong, China signed a supplementary clearing memorandum to agree there would no longer be restriction on banks in Hong Kong in establishing RMB accounts for and offering related RMB-denominated credit and investment products to all categories of customers including corporate and institutional customers.
Hong Kong offshore RMB deposits then grew rapidly and hit RMB 280 billion as of November 2010.
July 21:Ben Bernanke described US economic outlook as "unusually uncertain".
July 26:EU stress test revealed 7 out of 91 major European banks failed to maintain a minimum 6% Tier-1 capital ratio.
Aug. 5:Crop futures spiked as Russia suffered from a serious drought and decided to ban its grain and flour exports temporarily until December 31, 2010.
At the year-end, corn surged +51.8% YoY, wheat +46.7% YoY and soybeans +34.1% YoY at the close in 2010.
Aug. 10:US Federal Reserve decided to re-invest principal from current holdings of agency debt and Mortgage-Backed Securities (MBS) by restarting purchase of the longer-term government bonds.
Aug. 15:In 2010 Q2, China surpassed Japan to become the world's second largest economy behind the US.
For the whole year, China GDP expanded +10.3% YoY in 2010, a sign of more overheated economy compared with a +8.7% YoY expansion in 2009. See also our 2011 GDP target.
Aug. 27:(1) Ben Bernanke confirmed to facilitate another rescue if the US slowing economy were to deteriorate significantly and signs of deflation were to flare.
(2) Japan further increased its size of quantitative easing package to JPY 30 trillion.
Sept. 6:Obama proposed an USD 50 billion transportation investments to rebuild roads, restore airport runways, lay and maintain railways within 6 years.
Sept. 13:International regulators gave banks until July 2019 to fully comply with the new Basel III rules.
Sept. 14:Bank of Japan (BoJ) intervened USD/JPY for the first time in more than 6 years at 82.87 level amidst rapid Yen appreciation, but allowing no re-absorption of the additional liquidity injected into the financial system.
Despite of printing additional money, at the year-end JPY held firm as the best-performing major currency in 2010.
Sept. 25:US House of Representatives passed legislation that would allow the US to levy tariffs on Chinese goods based on exchange-rate concerns. Read more about our 2011 Trade Balance target.
For the whole year, China trade surplus totaled USD 183.1 billion in 2010, went down by -6.6% YoY from USD 196.1 billion in 2009.
Oct. 5:Japan resumed the "Zero Interest Rate Policy" the first time in recent 4 years, by cutting domestic interest rate to between 0% to 0.1%. Japan also further increased its size of quantitative easing package to JPY 35 trillion.
Oct. 18:Chinese government approved the directions for its 12th 5-year plan.
Oct. 19:People's Bank of China (PBoC) restarted raising interest rates by 0.25%, the first time for almost 3 years. Read more about our 2011 CPI target.
Nov. 1:India resumed raw cotton exports, but restricted to the exportable surplus of 55 lakh bales amid the soaring cotton prices.
Nov. 3:US Federal Reserve resorted to the second round of quantitative easing (QE2) to print an additional USD 600 billion through June 2011 against slow US economic recovery, continued unemployment and domestic deflation. Read more about our Inflation Warning.
At the year-end, US Dollar Index gained +1.4% YoY and the real yield of 10-year US Treasury note went down by -32% YoY to 1.00% at the close in 2010.
Nov. 17:China premier Wen Jiabao confirmed the direction of harsh administrative tightening measures, including temporary price controls when necessary, and had cracked down on hoarding and speculation to prevent price hikes. Read more about our article: No more loose monetary policy.
Nov. 18:Japanese companies reported that China restarted pace of Rare-Earth Elements (RREs) exports to Japan, which was once restricted and thus causing prices of RREs to soar after Japan arrested the captain of Chinese fishing vessel on Sept. 7, 2010 near Diaoyutai Islands. RREs are indispensable for the Japanese production of automotive parts and many other high-technology items.
Nov. 20:Hong Kong Government had started charging an extra Special Stamp Duty (SSD) up to 15% for individual who resales any local property flat within a 2-year period in order to curb speculative activities in the property market. Read more about our article: Special stamp duty signals the end of high-land-price policy in HK.
Nov. 22:Ireland was forced by the market to accept a rescue package of EUR 85 billion at annual lending rate of 5.8% from EU and IMF.
Nov. 23:North and South Korea fired artillery shells across their tense western sea border.
Dec. 1:(1) US rescinded its earlier decision that it would allow the oil exploration of Easter Gulf Coast and along the Atlantic Coast, after the British BP's massive oil spillage in the Gulf of Mexico since April 20, 2010.
In 2010, crude oil finished at $91.38 per barrel, a +15% YoY gain.
(2) US Federal Reserve disclosed detailed information about transactions conducted to stabilize markets in the panic of 2008 financial crisis. It turned out those emergency loans were paid to big financial firms including Citigroup, Morgan Stanley, Goldman Sachs, Swiss UBS AG, British Barclays PLC, Germany Commerzbank AG, major industrial giants including General Electric, Toyota Motor, other famous firms including McDonalds, BlackRock, Fidelity Investments, and even to foreign central banks, including the European Central Bank (ECB) and the Bank of England (BoE).
Dec. 3:China decided that it would switch its monetary policy stance from moderately loose to prudent, in order to tackle rising inflation and keep economic growth at sustainable pace. Read more about our article: No more loose monetary policy.
Dec. 8:Vale SA, the Brazilian mining giant, launched the first-ever Hong Kong Depositary Receipts (HDRs).
Dec. 10:Mainland China Accounting and Auditing Standards and mainland audit firms were accepted by the Hong Kong Stock Exchanges (HKEx).
Dec. 11:China reported that CPI in November continued to climb up rapidly to +5.1% YoY. Read more about our articles: Real deposit rate exceeded -2%.
For the whole year, China CPI rose +3.3% YoY in 2010, compared with a -0.7% YoY fall in 2009, according to the National Bureau of Statistics.
Dec. 15:(1) Obama compromised with Republicans to extend Bush-era tax cuts for 2 more years.
(2) Direct RMB trading started overseas in Russia. Read more about our article: Direct RMB trading in Russia.
See also: Chinese Bank declares RMB Business War around the World.
Dec. 16:Standard & Poor's (S&P's) upgraded Hong Kong's long-term local-currency and foreign-currency credit ratings to the highest possible AAA (Triple-A), the highest level ever achieved by the city.
Dec. 23:Goldman Sachs was forced by US political pressure to change its bonus plan to encourage employees to focus more on long-term company performance. The new plan can also let the firm to take back money if an employee takes too much risk. The extensive risk controls bring the new bonus plan in line with the Dodd-Frank Act, which calls on regulators to block any bonus program that encourages inappropriate short-term risk-taking at large firms.
Dec. 25:People's Bank of China (PBoC) raised interest rates again by 0.25%, the second time in 2010. Read more about our article: More interest rate hikes against inflation in 2011.
Dec. 31:(1) Facebook surpassed Google as the most popular site on the internet in 2010.
(2) Australia Queensland flooding escalated amidst a record high monthly rainfall in December 2010.

In short, 2011 was a year of divergence, or some people may also want to call it "de-coupling". While developed countries especially the US, Europe and Japan sputtered along for 2010, economic momentum of many emerging markets still remained strong.

For commodities, the bull market continued in 2010, spurred by the widely-spread hot money worldwide as the US, Japan and UK continued to pump up to trillion of dollars into the global markets through their monetary easing policies.

So, for 2010 equity markets, where had all the hot money gone?

Now, let us also review and wrap up the performances of stock markets around the world in 2010:

Argentina MERVAL:+52%
Indonesia Jakarta Composite:+46%
Thailand SET:+41%
Philippines PSE Composite:+38%
Chile IPSA:+38%
Pakistan KSE 100:+28%
South Korea KOSPI:+22%
Mexico IPC:+20%
India Sensex:+17%
Germany DAX:+16%
Canada TSX Composite:+14%
USA S&P 500:+13%
Singapore Straits Times:+10%
Taiwan TAIEX:+9.6%
Britain FTSE 100:+9%
Hong Kong HSI:+5%
Brazil Bovespa:+1%
Australia All Ordinaries:-2.6%
Japan Nikkei 225:-3%
Ireland ISEQ:-3%
France CAC:-3.3%
Shanghai SSE Composite:-14%
Spain IBEX:-17%
Greece ASE:-36%

Global stock markets continued to rebound in 2010, with a number of emerging markets achieved very good performances amidst massive inflows of hot money for better investment yields.

Shanghai SSE Composite Index seems to be a major exception, not only because China's current foreign exchange management still controls capital account but there also have many other reasons which we will thoughtfully explain later in this website.

Last but not least, we hope you can see some trends out there and this annual Financial Review can also bring you some insights for your own investment plan in 2011.

Next article (for 2011): Financial Markets Review 2011: Insights for 2012


Post a Comment

Popular Articles in this Week (Top 10)

Not What You Want?

Try More Search in Our Website Here...