Listen to the market: China’s economy grew by a seasonally adjusted annual rate of 12.2% in the first quarter from the fourth quarter of 2009 and yet China’s stock market move into correction territory yesterday with a 2% fall taking the decline so far this year to 11%. The big losers have been banks (especially yesterday) needing to raise tens of billions of dollars in new capital because of their 2009 loan splurge and rising bad debts from the government attempts to rein in the property bubble. So property companies also dropped again yesterday. The market hit its lowest point from since last October and is down with the likes of Athens.

The property sector is being crunched: The government’s crackdown is showing up first in the market. Chinese listed property company index has lost more than 20% this year as the central government tightens the screws on residential and commercial property and on bank lending and investment in both sectors. That’s a loss of more than $US40 billion in value. No wonder China Vanke, the country’s biggest developer, said first-quarter profit plunged 53% from the previous three months (but was up 46% from the depressed first quarter of 2009) because of the government measures tightening requirements for lending and obtaining loans on property. The shares fell and are now down 30% so far this year. Banks are falling for the same reason, and continuing rumours of new issues to raise well over $US100 billion in fresh share capital in China and offshore.

Kerry’s trifecta: Kerry Stokes got a trifecta up yesterday. The controversial Seven Network-WesTrac deal was given the green light by the Federal Court after Stephen Mayne’s late intervention had held it up over the weekend. Then his 20-odd% owned associate, West Australian newspapers revealed a profit rise in the March quarter (OK, the March quarter a year ago was poor). But a profit is a profit and Stokes and Seven Network (soon to be Seven Group Holdings) will grab the 14.4% rise in earnings to $22 million. The shares fell 4% on the news, but recovered a bit later in the day. Seven Network shares rose 4c to $7.72, still nearly a dollar under the $8.70 value imputed in the WesTrac deal by the Stokes camp. The Caterpillar discount is being applied.

Kerry’s Cat man. And, speaking of The Big Cat, the third leg of Kezza’s trifecta was in the US. Amid all those worries about the Caterpillar dealership deal with WesTrac and questions over its China performance, there was some good news and relatively not so good news for WesTrac. The first quarter figures from Caterpillar confirm why Kez and WesTrac are the pin-ups in Peoria. Sales of equipment in Asia (including India, China and Australia) jumped 40%, or $469 million (that’s half a billion Aussie dollars). Sales of engines fell $US94 million or 15% in the region, so there’s no spare parts or replacement business growth to speak of. “China accounted for most of the increase in sales as reported deliveries reached a record high,” Cat said. India had a “large” but unquantified lift in sales and Australia? Well, “sales increased slightly in Australia”, Caterpillar commented. So much for our boom.

But the Cat result wasn’t good: If you were Kerry Stokes you’d be on your best behaviour with the folk in HQ. Asia, especially China, is THE only growth area in the Cat empire. US machinery sales were down 15% on a year ago, and that was in the depths of the recession! Revenue dropped 11% to $US8.24 billion. Overall machine sales were down 1% on a year ago and would have been worse but for the strong performance in China. Be kind and smile often Kerry, the Cat men might want China back. Is this an un-recovery, or a Clayton’s rebound? It helps if you sack more than 7000 people as the Big Cat has done. That lowers costs and boosts profits. The approaching bust in Chinese property will put a dent in Cat’s business, and that means WesTrac will feel some pain.

Unwanted record: Japanese car production fell 10.4% in the March 31 financial year to 8.56 million, the first time output has been below 9 million vehicles for 31 years. Honda said its production fell 21.5%, Daihatsu, 12.7%. it was biggest ever yearly fall for both car makers. All of Japan’s top eight auto makers posted a year-on-year decline in exports with Honda seeing a 60% fall to 230,010 units and Mitsubishi Motors Corp a 36% drop. Overseas, though, all car groups except Honda and Daihatsu lifting output. All car companies saw a rise in March car output and sales, led by Toyota’s 115% jump.

Oh what a Toyota: Toyota said 2009 (March 31) global sales fell 1.4% to 7.291 million units, the second yearly fall in a row. Worldwide production rose 2.5% to 7.279 million units. China sales soared 34.6% to 759,000 units and that’s why Toyota did better than expected.

More US banks collapse: Seven US banks were closed by regulators late last week, taking the total number of bank failures for the year to 57. The seven banks are all based in Illinois will cost the federal deposit insurance fund $US974 million, according to the Federal Deposit Insurance Corp. Don’t tell investors, they might get scared.

Don’t mention the bankruptcy: In its statement yesterday about its purchase of the Australia and NZ businesses of US group, CIT, the Bank of Queensland was careful not to mention a recent unfortunate event at CIT. Its backgrounder described CIT as: “Founded in 1908 and headquartered in New York City, CIT (NYSE: CIT) is a bank holding company with more than $45 billion in finance and leasing assets that provides financial products and advisory services to small and middle market businesses. Operating in more than 50 countries across 30 industries, CIT provides an unparalleled combination of relationship, intellectual and financial capital to its customers worldwide. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and vendor finance.” No mention of the following fact: bankrupt in November 2009, released in late December recapitalised and profitable in the first quarter. Somehow Australia didn’t figure in CIT’s slimmer, post-bankruptcy future.

Peter Fray

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