Pinpoint Funds Beat Peers With China Stocks, Bonds. The power of China's command economy

From Bloomberg:

Pinpoint Investment Advisor Ltd., a hedge fund manager of $560 million, returned as much as four times its Asian peers this year through July with profits from a rebound in Chinese stocks and debt securities.

The $70 million Pinpoint Opportunities Fund, which gained 85 percent in the period, invested about half its assets in convertible and high-yield bonds, including those of Chinese property developers, said Duanmu Yongshan, Pinpoint’s Hong Kong- based chief marketing officer. The $300 million Pinpoint China Fund returned nearly 51 percent in the period, he said.

Stock-focused hedge funds, the hardest hit in Asia amid last year’s market slump, are leading the recovery in 2009. The Eurekahedge Asia Long/Short Equities Hedge Fund Index returned 19 percent this year through July, the best-performing strategy among eight tracked by the Singapore-based data provider. The index fell 22 in 2008, the worst since at least 2000.

“We think fundamentals will play an increasingly more important role relative to liquidity for the second half,” said Duanmu in an interview on Aug. 24.

The China Fund, which targets companies with a market value of more than $2 billion in Greater China, bet on a recovery in Chinese property and banking stocks it bought, he said. He declined to name specific companies.

One thing we can learn when we look over this fantastic bull run (although I believe the market still will retract.) is that most people underestimated the power of China's ability to get its banks to lend. When China says its going to do something. The speed of which it can achieve that goal is unbelievable. US has been trying to get its banks to lend for the last year plus and still to no avail.

China Loan Growth

Templeton Investment's view on possible hyperinflation

Excerpt from Barrons:

Some economists fear excessive stimulus will lead to hyperinflation in coming years. Does this worry you?

Although the size of the stimulus programs and injections of liquidity around the world are cause for concern, and commodity prices have moved sharply higher. Excess capacity still exists in many industries. This, combined with high unemployment rates, should act to contain inflation for the foreseeable future.

I'm going to agree with this, and to add to this we are still going to see a decrease in prices for the housing portion of inflation. This will suppress the cost of living. But low inflation or deflation doesn't mean that commodity prices will be low as well. Their prices can act on their own individual demand and supply situations.

Capacity is a tricky thing as well. Certain industries that haven't really gone through a big growth cycle might not have excess capacity. Any industry related to housing probably has lots of excess capacity. Perhaps tech might not have so much excess capacity as their boom years happened in pre-2000 and they probably have worked a lot of it off.

So, this is my point, when looking at inflation from this kind of a "surgical" perspective, due to all this liquidity sloshing around, we will see certain industries and commodities outperform relative to others.

This outperformance will not necessarily be due to growth of the industry or demand for the commodity, but relative lack of capacity to produce more combined with the excess liquidity being channeled there.

Checking out US CPI data

First, I'd like to note that energy and transport prices have more or less settled. But transport can be viewed as a derivative of energy prices since the main cost in transport is energy. So basically, energy prices have seemed to stop dropping. It's a good thing, so we will have inflation in the future right? I mean, it looks like all commodity related prices have hit bottom. It's seems so to me.

Wrong! Look at housing! that hasn't dropped at all! It's dropped the least of all the categories for the last 3 months. Last I checked, prices of houses in the US have dropped some 50%. The prices Americans spend on housing/rent will surely follow once people realize that there are other places out there that rent a lot cheaper than their current mortgages and rentals. Housing seems to be like a semi truck, slow to move but once moving, it will be very hard to stop.

May CPI up 2.4%

From The Edge:

The Consumer Price Index (CPI) for May 2009 registered a 2.4% increase year-on-year from 109.1 to 111.7, said the Department of Statistics Malaysia.

On a month-on-month basis, the index rose 0.2%, it said.

In a statement June 17, the department said the CPI for January to May increased by 3.3% to 111.7 compared to 108.1 in the same period last year.

"The index for food and non-alcoholic beverages for the month of May 2009 compared to the same month in 2008 showed an increase of 5.2%, while the index for non-food registered change by 1%," it said.

Inflation would seem to be showing up in Malaysia despite the recession. Can BNM afford to keep interest rates low? With food being such a large part of the overall basket of goods, we should keep an eye on it more so than developed countries.

Gross NPLs may hit 9%, says RAM

From The Edge:

RAM Rating Services Bhd expects the banking sector’s gross non-performing loans (NPLs) ratio to reach 9% this year at the worst-case scenario amid the global financial turmoil, said its head of financial institution ratings Promod Dass.

Currently, the sector’s gross NPL ratio stands at 4.1%, and net NPL ratio is at 2.2%, complemented by the financial institutions’ strong capitalisation and the industry’s risk-weighted capital-adequacy ratio (RWCAR) and Tier-1 capital-adequacy ratio at a respective 12.6% and 10.5%.

“Net NPL involves a lot of other calculations. Perhaps net NPL would be half of the gross NPL, but we will stick to gross NPL as it is the key indicator,” Dass said at the release of RAM Rating’s Banking Bulletin here yesterday.

RAM Rating said there had been a gradual shift from corporate to retail lending, as banks had been focusing mainly on residential property loans and lending to small and medium-sized enterprises (SMEs).

The major concern here is, will retail lending hold up? Will the consumer buckle under these conditions? Looking at the way jobs have been disappearing in Malaysia, I think not.