Meet The New Boss: China

Brazilian exports to China surge ahead of those to the US

 

With Beijing's stimulus program kicking into gear it now feels as if the whole world has jumped on board the China-Bull bandwagon. The latest export data from Brazil will no doubt help convince even more buyers to pile in now AFTER a 42% YTD run.

 

Demand for Brazilian commodities helped total exports to the Ox exceed those to the US  for the first time in March. Data issued yesterday showed that Chinese exports topped those headed to the US again in April, with the gap almost doubling to just under $900 million.

 

Meet The New Boss: China  - braz1

 

Iron ore has led the charge -with China customs reporting a 46% Y/Y import increase to 52 million tons in March and Transport Ministry estimates for April coming in just under 54 million tons. For Brazilian producers, the convergence of Beijing's stimulus with decreasing capacity from exhausted domestic Chinese mines has been a bonanza.

 

From a currency perspective, the Real's performance on a Yuan basis has not diverged from the Australian dollar significantly enough to impact the near term competitive landscape; but  the way "O Cliente" is throwing money around suggest that, for now, there is plenty to go around. 

 

Meet The New Boss: China  - braz2

 

If you were reading our work in January you know that two of our primary themes for Q1 were the Chinese stimulus program driving their economy back into motion and commodity reflation as that momentum drove demand for basic materials to rebound. Now that "O Cliente" is firmly in the house, it seems that Brazilian exporters have provided indisputable confirmation of the second point.

 

One of the problems with predicting the stimulus impact going forward is the concentration factor: like a shot of adrenaline for a body without a pulse, the impact of stimulus needs to be massive and sudden to kick start the heart.  This sudden, jerky capital deployment could well lead to significant volatility in economic  data reports, making it dangerous to overreact to any single one.

 

We are long the Australian equity Market via the ETF EWA, and will look for opportunities to go long Brazilian equities via the ETF EWZ at a lower price. As the Chinese stimulus thesis is now consensus we will be taking risk management cues from price action, and will keep you posted on our thoughts.

 

Andrew Barber
Director
 


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