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China may Offload its US Bond Holdings

February 12, 2016

By Asad Rizvi @asadcmka

China and Oil producing countries will be seriously considering offloading good part of its large US Bond holdings or may not prefer further rollover at maturity. They all including Russia has a strong case of liquidity requirement. Current 10-year US Bond yield is too low and has the potential for sharp bounce back from 1.40-60 levels to gain another 100 basis point.
Investors and Fund Managers should not ignore the fact that in last 18-months, Global Market has been deprived of nearly USD 2 Trillion of hard cash due to oil prices collapse.
China’s Fx Reserves, which is reported to have fallen by $ 512.66 Billion in 2015 dropping to USD 3.33 Trillion to defending its currency. Proportion of Fx Reserves fall suggest that 33 pct fall was caused due to change in currency and asset price valuation and remaining 67 pct fall was caused by trade and investment transactions.
China earlier announced that as of September it has short term debt holding of USD 1.02 Trillion. Hence, China has a strong case to act and should something quickly.
Latest data is more alarming, as it indicates that Global Investors have pulled USD735 Billion of which USD 676 Billion was withdrawal from China.
I know this post is difficult to digest. Every country is blaming China’s economic slowdown as major cause global economic unrest ignoring Euro-zone, US, Japan and others.
But it was China’s Economic vision of 1970’s that helped double digit growth for nearly 20-years, which was somehow pulling the Global Engine. Rest of the world was survived as China played the role of Vendor financer.
China is still comfortably growing above 5 pct. In terms of inequality comparison of past 20-years with Developed Economies, China has done far better than all. Urban versus Rural gap is found all over the globe. It can only be narrowed, but will never meet end as it is natural. Attaining poverty rate of nearly 10 pct is enough to shut the critics.
The Global misery is surging of debt that will continue to rise due to faulty global policy, which is tailor made to protect rich shareholders.
Quantitative Easing (QE) and low interest is a futile temporary time gaining exercise and therefore is meaningless because it is not growth oriented. The real purpose of QE is to create and finance debt at the time of maturity and is meant for Bank Capitalization.
Imagine the total size of annual world Military spending is nearly USD 2-Trillion and with world getting deprived of another USD 2-Trillion Cash due to oil price slide, how can world economy survive.
Unless Global Economies spend their money in sizable amounts for real sector growth, to improve job condition, to increase exports and to increase Revenue, how can economy grow?
Hence, in boarder terms if we assess the overall economic condition and economic needs, then as per FED November 2015 data, Total Major Foreign Holders of Treasury Securities is USD 6.126 Trillion of which China has the largest share of investment of USD 1.265 Trillion with Japan behind investing USD 1.145 Trillion, Oil Exporters share is USD 289 Billion and Russian holding was USD 88 Billion.
Therefore, on all probability market should keep a close watch at the Grand Total, as continuation on current economic condition may pose bigger threat in months and years to come.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction)

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