November 22, 2013

By Derek On November 21, 2013 Under Uncategorized

“Everyone has a plan ‘till they get punched in the mouth.” – Mike Tyson

JOY636

Using language that could only excite dead Marxists (“The market will play a decisive role in the economy.”), the initial communique post the much hyped Communist Party Third Plenum in Beijing told us little. That statement looked to be just belated recognition of the importance of the private sector in China – which having first exceeded 50% of GDP back in 2005 now accounts for 80% of urban employment and 90% of new job creation. Boooring. Expectations were raised, balloons filled and champagne poured. Was that it? The markets dropped. The peasants were crestfallen.

However, now with the release of the more complete Third Plenum Communique we have details to mull over and speculate (Gee, it still sucks to live in China but I wonder which stocks will win…). Money has rushed in to chase the obvious names (Sinopec, Mengniu, Hengan) most of which will not reap any economic benefit in the near future thus raising current valuations to close to unsustainable levels. (Shangri-la, Zoomlion and Hang Lung still look interesting).

While we may glean more information after the Central Economic Work Conference and the Urbanization Work Conference to be held in December, we can still take stock of what has been announced and what it might really mean. A caveat: while Beijing is taking great pains to demonstrate they are serious about reform whether implementation of the grand plan is “decisive” is another question. Regardless, none of the announced measures will impact macro-economic growth in a significant way in the near term. Successful execution of this broad agenda underpins healthier future economic and social growth and that is good, albeit patience will be required to reap the fruits of this effort. Immediate equity market over-reaction should be ignored.

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