Letter: China: Cracks Under The Surface

New York, October 31, 2016

Dear Friends and Colleagues,

I will start this Letter with three paragraphs on China, and then turn to a quick update on how Exante Data is moving forward.

On the surface, China looks to be in good shape. GDP growth has been robust and (suspiciously) stable at 6.7% year-on-year for the last three quarters. The Shanghai Stock index is trading around a six month high.  And volatility in the currency market, as measured by USDCNH currency options, have dropped to the lowest in more than a year; signaling that market participants are anticipating stable FX market conditions in China in the months ahead. So far so good.

But under the surface, things look different. At Exante Data one of our key focus areas is Chinese capital flow. Last week, our proprietary real-time indicators detected intervention (CNY buying/USD selling) of $19.5bn. We have not seen such a large imbalance in the FX market since the first week of January, when markets were in a state of panic. In other words, there are notable cracks emerging under the surface: the fairly orderly depreciation of the Chinese currency over the last few weeks has been achieved only in the face of an aggressive currency intervention by the Chinese central bank.

There are no official data on currency intervention available for China, and there is certainly no easy way to get real-time information. It is this information gap we are trying to fill. Eventually, however, the cracks will reach the surface. The monthly FX reserves data (out around November 6) is a closely watched proxy of currency intervention. We expect a dramatic drop of around $80bn. This could be a wake-up call. A drop of that magnitude will be nearly as dramatic as the falls around January 2016 and August 2015, when there were severe tensions in Chinese markets.

China is extremely interesting right now. But I will leave it at that, and turn to our business.

First, we are happy to announce that Ankit Sahni has joined Exante Data to head our research efforts around intelligent data and smart analytics. Ankit joins from Prologue Capital, where he was head of strategy for the US. Ankit has a degree in Electrical Engineering from the Indian Institute of Technology in Delhi, and an MBA from the Indian Institute of Management in Bangalore.

Second, we are working hard on a number of proprietary data projects. In addition to our China Flow Analytics which includes our real-time tracking of CNY intervention (if you are interested in an early look, plug in your details here), we are integrating a number of analytical tools to create a comprehensive Factor Matrix to support systematic FX forecasting.  We look forward to launching this set of tools in 2017.

Jens Nordvig
Founder and CEO
Exante Data LLC

Exante Data © 2019. All rights reserved. Personal Data Usage Policy

This site is provided for informational purposes only.  The information included in this site should not be used as the sole basis for making a decision as to whether or not to invest in any particular security. In making an investment decision, you must rely on your own examination of the securities and the terms of the offering. You should not construe the contents of these materials as legal, tax, investment or other advice, or a recommendation to purchase or sell any particular security.

The information included in this site is based upon information reasonably available to Exante as of the date noted herein. Furthermore, the information included in this site has been obtained from sources that Exante believes to be reliable; however, these sources cannot be guaranteed as to their accuracy or completeness. Information contained in this site does not purport to be complete, nor does Exante undertake any duty to update the information set forth herein. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information contained herein, by Exante, its members, partners or employees, and no liability is accepted by such persons for the accuracy or completeness of any such information.

This site contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of certain investment strategy. All are subject to various factors, including, but not limited to, general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting the operations of the companies identified herein, any or all of which could cause actual results to differ materially from projected results.

Get more information about Exante Data