“Sanwa Holdings” – No Blank Check From China.
Sanwa Holdings: Investors hoping for a Chinese intervention in the European debt crisis are “delusional”. That’s the opinion of an equity research analyst at the boutique brokerage “Sanwa Holdings”.
“There have been rumblings in parts of the market that the Chinese could step in and buy up Italian and Greek bonds to help ease worries of a catastrophic default. It’s not an option; the Chinese aren’t stupid,” he continued.
China recently intimated that it would extend assistance to the Eurozone in return for being recognized as a market economy by the World Trade Organization.
China signalled in April that it could buy more debt from the euro zone’s weaker states. There are no precise figures, but China has said it has already bought billions of Euros of debt.
China has offered to buy Spanish, Portuguese, Greek and Italian debt in return for the dismantling of protectionist measures that prevent Chinese investments in European markets.
“The risk of a hard landing for the Chinese economy is increasing,” said Alexander Lee, a Hong Kong-based analyst at DBS Vickers. “The Japanese earthquake, a slow US economy, the Euro zone problems and a slowing Chinese economy are all building up on the banking sector.”
China’s central bank urged European governments to contain debt levels or risk worsening the region’s unfolding debt crisis.
China’s interest in a smooth resolution to the European debt troubles has been clear. Of its US$ 3 trillion or more in foreign exchange reserves, about a quarter are estimated to be invested in euro-denominated assets.
China’s foreign exchange reserves expanded by around US$ 200 billion in the first four months of the year, with three-quarters of the new inflow invested abroad in non-US dollar assets, the bank estimated.
“Sanwa Holdings” says that it would not expect the Chinese to buy up unlimited amounts of debt given the economic outlook for peripheral EU nations.
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