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Dry bulk investors' eyes and ears are on the Chinese government

Dry bulk investors' eyes and ears are on the Chinese government (Part 1 of 8)

Analysts say China’s exports aren’t as bad after adjustments

Weighed down by data

Industrial stocks were weighed down on concerns that China’s fundamentals were deteriorating. As the dry bulk shipping industry, which hauls iron ore, coal, grains and other dry bulks across water, largely depends on China, the industry sold off along with the Guggenheim Shipping ETF (SEA). These include DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM).

China Trade ExportEnlarge Graph

Exports fall sharply

On the surface, China’s exports data were bad. Export values fell 18% from a year ago, to $114.09 billion, which was much lower than market expectations of 6.8% year-over-year growth in exports. January and February’s combined data, a preferred measure used to adjust for the Lunar New Year holiday that takes place at varying days throughout January and February of each year, fell 1.6%. In contrast, exports grew 24% last year for the combined data. While January and February’s combined data doesn’t sound rosy either, several economists noted making a direct comparison between this year and last year’s data won’t give investors a clear picture of China’s fundamentals.

Capital inflow

Export figures were inflated in early 2013 because people used fake trade deals to get around strict capital controls and sneak money into the country before regulators cracked down on these activities. According to a Wall Street Journal article, exporters “were looking to take advantage of a strengthening yuan currency, which climbed nearly 3% last year.”

Renminbi to US Dollar Exchange RateEnlarge Graph

With interest rates high in China and the renminbi (yuan) appreciating, traders can make profits by exchanging dollar into renminbi, invest in government bonds, and cash out in the future when the renminbi is even higher, making some handsome profits. But the recent volatility and weakness in the renminbi, orchestrated by the central bank, has deterred speculative capital inflow “disguised as trade” into China, according to several analysts and economists.

Adjusting for all these differences, export figures are likely closer to around 8%, said an economist at Bank of America-Merrill Lynch in Hong Kong.

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