IDC indochine mining limited

chinese money supply and mining sector

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    Hey Fellas

    While we wait for IndoChine to release their milestone company making announcements, its important we go back to basic economics and financial market analysis to see where our shares are headed in the next 6 -12 months.

    Looks like the Chinese are ready to expand their money supply! Watch the price of minerals as well as miners/explorers' share prices rise!

    After 18 months of continued RRR increases and Interest Rate rises, we are at the cusp of stimulus measures from PBOC and Chinese Govt.

    RRR and Interest Rate reductions are close at hand since the Chinese Govt is publicly commenting on expanding the money supply!

    There is a strong correlation between the Chinese Money Supply, and the prices for our minerals and mining shares!

    Interest rate rises and RRR rises have been draining excess cash from the Chinese economy over the last 15 months, you can see this with the red RRR line in the Chart below.

    Now compare this to the Materials and Energy sectors, XMJ Materials Sector below! There is an inverse relationship between RRR/Interest Rates and the Australian Materials Sector XMJ!

    The PBOC and Chinese Govt have lifted their interest rates and RRRs in order to reduce inflation from 6-7% to below their target 4%.

    It is currently 3.4%, while GDP growth has slowed to a still strong 8.3%! Giving them the mandate to begin their M2 Money Supply expansion and lift their economic growth again, while maintaining a low 3-4.5% inflation rate over this next cycle!

    For the last 12 months RRR was lifted from 16.75% to a record high 21.5%, in February they dropped their RRR by 0.5%, this RRR reduction will continue going!

    I have tried to line up the Dates from both charts to make it easier to see.

    The first thing to lift when money supply rises is the PRICE OF GOLD!

    Couple this with money inflows into the Materials and Energy Sectors, we have the perfect scenario for IndoChine as they make their milestone announcements!

    As we get additional inflows of cash into the Materials and Energy Sectors, this will amplify IndoChine's share price as they achieve their milestone events.....:)



    As the Chinese RRR and Interest Rates rose from November 2010 onwards, by the time it broke the 18% level, the Materials Sector on the ASX began to feel the pain and has been smashed ever since! Between the Japanese Earthquake the Greek Debt issue, it hasn’t recovered.

    Until now....

    The 17-18% RRR level is an important level, it is the point where the Chinese money supply moves from accommodative (expansionary for an economy) to restrictive(contractionary to an economy), and less and less money is available for business and local govts to buy commodities with! Since there is less money to buy commodities, commodity prices fall, pushing down our XMJ!

    As the RRR begins to fall back towards accommodative 17-18% levels, watch the XMJ lift! And lift strongly!

    As interest rates fall and Reserve Requirement Ratios fall, they will chase higher returns, investing in commodities like Dr. Copper, Gold, Iron Ore, Coal etc! !!!!

    The Materials and Energy Sectors of the ASX will begin to outperform the rest of the market going forward.....:)

    Cheers Nectar



    China’s Central Bank to Ensure Liquidity, Xinhua Says
    By Bloomberg News - Apr 19, 2012 2:14 PM ET

    China’s central bank pledged to ensure adequate availability of cash in the financial system by using tools including reductions in the reserve-requirement ratio, state media reported.

    Authorities will “appropriately take targeted liquidity management actions” based on circumstances including foreign- capital inflows and funding demand, the official Xinhua News Agency said in a report late yesterday on an interview with an unidentified person at the People’s Bank of China. Options include adding cash through reverse-repurchase operations and cutting required reserves, Xinhua said.
    Enlarge image China Central Bank to Ensure Cash Availability

    The central bank reduced the required-reserves ratio in February for the second time in three months to spur lending. Photographer: Nelson Ching/Bloomberg
    Euro Seen at $1.28 in June, $1.19 by End of 2012

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    April 19 (Bloomberg) -- Hans-Guenter Redeker, head of currency strategy at Morgan Stanley, talks about the wider yuan trading band and the outlook for the euro, dollar and Brazilian real. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

    The report reinforced economists’ forecasts for the government to take steps in coming months to keep credit flowing after economic growth slowed last quarter to the least in almost three years. Liquidity in the banking system remains adequate and the central bank will keep implementing “prudent” monetary policy, Xinhua said.

    “This is a clear ‘open mouth operation’ through which the PBOC sent the market a signal that further loosening measures will be rolled out,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc., said in a research note today. Authorities may lower the reserve-requirement ratio twice more this year, including next month, Zhang said.

    The benchmark Shanghai Composite Index fell 0.1 percent at the 11:30 a.m. local-time break.
    Lending Surge

    The central bank reduced the required-reserves ratio in February for the second time in three months to spur lending. Regulators also eased credit restrictions at three of the nation’s biggest banks, people with knowledge of the matter said last month. The actions helped send new yuan loans last month to the highest level in a year while money supply growth accelerated.

    The monetary authority will preemptively adjust and fine- tune policies in a timely and appropriate manner to guide steady and appropriate credit growth and maintain reasonable liquidity in the banking system, Xinhua said, citing the PBOC official.

    Joy Yang, chief economist for Greater China at Mirae Asset Securities (HK) Ltd. in Hong Kong, said the Xinhua report is consistent with her forecast for two or three more cuts in the reserve-requirement ratio this year. Tools such as the ratio “are needed to manage a stable liquidity level” relative to economic growth, Yang said.

    The central bank will also guide banks to “reasonably” set the pace of lending and will maintain a lower required- reserve ratio for some financial institutions, the report said.

    The levels for rural credit cooperatives and rural cooperative banks will continue to be kept 6 percentage points and 5.5 percentage points lower, respectively, than the ratio at larger banks, Xinhua cited the official as saying. The current ratio for the biggest banks is 20.5 percent.

    http://www.bloomberg.com/news/2012-04-19/china-s-central-bank-to-ensure-liquidity-xinhua-says.html
 
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