George Chen

By George Chen
The opinions expressed are the author’s own.

How time flies. It’s already the end of August and speculations naturally arise about what China’s inflation reading will be for this month.

The most optimistic view these days is that the August Consumer Price Index (CPI) could decline to below 6 percent. The most pessimistic view I’ve heard is that growth has slowed down in August, but probably only to 6.2 percent or 6.3 percent.

But, why should we care about the August CPI so much? One month cannot tell the whole story.

The reason we care so much is because if the August CPI growth slows down (we will see the official release of August economic data in the coming weeks), it’s good news for the central bank as well as for the ordinary people in China who have been fighting with fast inflation for more than three years already. But, it’s not good enough.

Yesterday, amid market talks about August CPI, I heard something interesting from Mengniu, China’s top dairy product maker: “We are confident we can at least maintain (first-half) margin levels in the second half,” Mengniu Chief Financial Officer Wu Jingshui told reporters after the company’s first-half earnings release. He added the company might raise product prices and adjust its product mix to offset an estimated 3 to 5 percent rise in raw milk costs in 2011.

By George Chen
The opinions expressed are the author’s own.

I remember a veteran trader once told me of the three scenarios under which one should sell stocks.

First, sell when you start to sense the government is beginning to tighten market liquidity, indicated for example by a sudden influx of IPOs or a tougher monetary policy. Second, sell when you see almost everyone, from monks to neighborhood grandmothers, is buying. Third, when you see big banks such as Goldman Sachs downgrade their economic forecasts, which basically means they know they misunderstand something and have to fix the misunderstanding, sell.

So, this week Goldman Sachs trimmed its economic growth forecasts for China to 9.4 percent this year, from 10 percent previously, citing a recent run of surprisingly weak data, high oil prices and supply constraints. Goldman’s report created a buzz in the market, pushing some investors to sell further amid already weak sentiment. More banks are expected to follow Goldman’s move to trim their China forecasts in coming days and weeks.