Wednesday, 17 February 2016

Stocks rise in US and China as latter sees record credit amid rising bad loans

Stocks were mostly up on Tuesday.

The S&P 500 rose 1.6 percent while the MSCI Asia Pacific Index gained 0.9 percent, boosted by a 3.3 percent jump in the Shanghai Composite Index.

European stocks lagged though. The STOXX Europe 600 fell 0.4 percent.

Oil was also weaker on Tuesday. Brent crude sank 3.6 percent while West Texas Intermediate fell 1.4 percent.

The large jump in stocks in China was driven by news of strong credit growth. The People’s Bank of China reported on Tuesday that new credit surged to a record in January.

However, analysts were less enthusiastic about the credit growth. From Bloomberg:

The increase in China’s debt relative to gross domestic product could pressure the country’s credit rating, Standard & Poor’s said on Tuesday, less than a week after the cost to insure Chinese bonds against default rose to a four-year high. Credit growth is storing up “big problems” in the economy that will weigh on the yuan and stocks, said George Magnus, an economic adviser to UBS Group AG. Mizuho Bank Ltd. warned that the risk of bad loans is rising and Marketfield Asset Management said China’s central bank may be losing its regulatory grip on credit growth.

Indeed, another report from China showed that soured loans at Chinese commercial banks rose to the highest level since June 2006 at the end of last year.

Christopher Langner at Bloomberg wrote that the debt problem in China has already reached the proportions of the US subprime mortgage debacle.

"This is a game that can't continue forever, particularly if credit is being foisted on to an already over-leveraged and slowing economy," he wrote. "At some point, the music will stop and there will have to be a reckoning."

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