I’ve been going through the news on the Chinese defaults story and it doesn’t read like an impending disaster is about to happen.
Reader Vlad has summed it up fairly well.
I mean, we’re talking about… 4bln? Who the heck cares about 4blns. NPLs at 50bln; still, puny for the whole sector.
China has been moving to speed up the process of dealing with non performing loans and have huge provisions set aside to deal with them. Company defaults have been on the increase and that is cause to worry, though without knowledge of the finer details we can’t tell if companies are defaulting due to economic reasons or more unscrupulous ones.
As Vlad points out, the numbers involved (around $4bn) are peanuts in the Chinese banking sector which posted H1 profits of over $76bn. Also Chinese authorities seem to be well on top of making sure banks have appropriate provisions to legislate for bad debts. Non performing loans amount to only 1% of total loans. Banks are asked to keep reserves of a minimum of 2.5% of total credit and there have been calls to raise that amount.
Reducing or writing off non performing loans is a natural feature to nearly all global economies but is a fairly new process in China, but hell, the US, UK and Europe have been creating toxic banks to palm off bad debt, and China is a long long way from that.
So it seems, at the moment, that China is going through some normal progression of its banking sector and I think the market has seen “China”, “banks” and “default” in the same sentence and gotten a little carried away with itself.
If the market has tumbled on just these headlines then it might pay well to have a re-read of the story and draw your own conclusions. I don’t think they’re as inflammatory as the market suggests.
I’m going to put my thoughts into actions and I’ve bought a very small position in GBP/JPY at 157.17 to catch any bounce. If the moves aren’t finished I’ll be happy to add to all the way down to the Feb support line. If we get there I’ll reassess the merits of the market and decide whether to look to place stops or continue building lower. Initially I’ll just have a “disaster” stop at just under 150.00
“Did someone say default?”
Thanks to Colin Reimer I could have saved myself a lot of typing by using his quote;
” The market bent over and took it up the arse, on rumours of old Chinese insignificant recycled banking news.”
Magic
