China's First Corporate Default – AUD Ramp

In case you hasn’t seen or heard yet, the Internet is “on fire” with the latest concern coming out of China, that a tiny little solar company is on the verge of default.

Chaori Solar Energy out of Shanghai, ( a maker of solar cells ) said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow.

Now, while this may not “immediately appear to be that big a deal ( as we’ve all seen companies default / go belly up before ) the implications are that “if indeed” Chaori defaults on its corporate bond interest payments on Friday it will be the first “ever” corporate bond default allowed in China.


Where normally bailouts are quietly made and companies / investors are “bailed out” by the PBOC (Peoples Bank Of China) and the government, it appears that in this case China is looking to set a “new example” in simply allowing the company to default – as a simple matter of market mechanics and ever day market volatility.

The message clearly being “we are not going to be there to bail out every single company that goes off the rails” and that the “permanent backstop/endless liquidity injections”  investors in China have come to enjoy ( and even come to rely on ) will “not” be there moving forward.

A bold move, with far-reaching implications.

How many other companies in China are on the brink of default? How many corporate bond holders might just look to “get the hell out of the road” now knowing the government isn’t going to be there to step in and help?

Bank of America Corp. is calling it “China’s Bear Sterns Moment”.

Do you think the sudden “blast higher” in AUD might just be indication that the big boys are front running this a bit? Providing even “higher levels” to get short from?

So we’ll see. So we’ll see.

26 Responses

  1. Careydina March 6, 2014 / 4:14 am

    Yeah man, it has been up since yesterday. Jpy is pretty weak today. Hopefully some good news from the US later?

    • Forex Kong March 6, 2014 / 4:17 am

      I’d be looking for “bad news” out of the U.S in order to see these things turn.

      JPY needs to hold here, and of course “good ol USD” – still a mystery for the most part.

      • Careydina March 6, 2014 / 4:40 am

        USD has been down for so long already… it might have a surprise? I’m holding nzd/usd.

    • Forex Kong March 6, 2014 / 4:19 am

      Any news on the default will most certainly have negative impact on AUD so…….I’m a tad suspicious of this “ramp job”.

      Perhaps “somebody” already knows what’s up.

  2. Q March 6, 2014 / 4:29 am

    China has a plan – which it isn’t sharing. It has the clout to deliver it and the resources to back it up. These are small cracks that have been allowed to “leak”. Much more of this kind of thing to come.
    As for the Aud, I’ll ride it up as it rises and down the other side as it drops. That’s just me.

    • Forex Kong March 6, 2014 / 4:34 am

      If indeed China follows through on its “planned reforms” it can only contribute further to it’s “slowing” – which is a good thing in the longer run.

      They’ve stocked the fire for years now expanding credit and building like mad. Now it’s time to trim the fat , and put the economy on a “sustainable” path. The reforms may be painful short term but it’s the right thing to do.

      AUD running out of steam here, and frankly I can’t see a single reason for it to go anywhere but down.

      • Franky March 6, 2014 / 4:52 am

        No reason to go up? what about all good data from Australia this week? Not important?
        I hope you’re right, but if AUD/USD goes above 0.91 I’m out. What if big guys want to short it from 1.1? 🙂

        • Forex Kong March 6, 2014 / 5:05 am

          Yes good data…..but “still” can’t clear making a new “higher high” in either AUD/USD “or” AUD/JPY “or” AUD/CHF.

          It’s a fast n furious run higher here over the past 48 hours, but it would take alot more than that to consider an “actual change in trend” as far as I’m concerned.

          This “burst” will retrace here.

  3. zkotpen March 6, 2014 / 5:44 am

    Howdy Kong!

    I’m sure you recall, I tend to ignore the news … but not the charts, which do reflect all news better than I can.

    Did you see that unassuming little move down in gold in the overnight? Five waves down, from 1342 to around 1331? I believe that’s a signal of intent in the related precious metals markets, as it also broke the lower trend line.

  4. Andy Quah Hu Kwee March 6, 2014 / 7:09 am

    Been reading your article / blog for some time, you tend to make call too early…… So this time, I will hold out for a while more….

    Regards, Andy


    • Forex Kong March 6, 2014 / 7:22 am

      I’m always early yes Andy so good for you….hang put a little longer perhaps.

      • Careydina March 6, 2014 / 7:44 am

        AUD/JPY skyrocket…

  5. Careydina March 6, 2014 / 7:45 am

    AUD/JPY skyrocket…

    • Forex Kong March 6, 2014 / 8:07 am

      I don’t think I’ve ever had as many people so concerned about a trade in the entire time I’ve been blogging!

      I’ll post a follow up chart / post on it in general Careydina.

      • Careydina March 6, 2014 / 8:32 am

        Hahaha.. that would be nice kong! I have small position on AUD/JPY. But market has been weird recently. All pairs small in range (except today). I am still think USD will be strengthen soon-hope it will be happening soon.

  6. JSkogs March 6, 2014 / 9:18 am

    Alright I forced myself to ignore the market basically all week. I think it’s finally worth looking at today!

  7. Rob March 6, 2014 / 9:21 am

    My hands are numb from sitting on them these last few weeks. : )

  8. David March 6, 2014 / 9:32 am

    Loving these prices; starting positions short AUD/JPY, NZD/JPY and EUR/JPY (been waiting for USD/JPY to get back to 103 and I’m happy AUD, NZD and EUR are rocketing, this makes these crosses even more extremely attractive short). Also reloading long GBP/NZD (my favorite pair).

    • JSkogs March 6, 2014 / 9:52 am

      Yup…if you are initiating today you have some stellar positioning I believe. I held some and I am reloading/adding to others.

      • JSkogs March 6, 2014 / 9:53 am

        Getting serious now about USD longs.

        • Forex Kong March 6, 2014 / 9:56 am

          I’m not.

          It’s broken down completely here.

          I see it taking out the lows and heading for “lower lows”.

      • JSkogs March 6, 2014 / 10:28 am

        Hmm I’m undecided so I’ll take your comments and use today’s low as a stop then. If it runs…..great….if not I’m out

        • Forex Kong March 6, 2014 / 10:43 am

          I’m out…and with a loss – to the degree that I’m willing to stick around.

    • JSkogs March 6, 2014 / 10:02 am

      You don’t think its just range bound consolidation from the Oct 29 low?

      • Forex Kong March 6, 2014 / 10:04 am

        I don’t.

        I think it’s full on breakdown / that Oct low…..and lower.

  9. schmederling March 7, 2014 / 10:15 am

    Knee-Jerk reaction in the markets….. jobs report does not line up with all the weather crying & poor earning over all….. the two just don’t add up here…… unless you have added part-time work to cover off full-time….. which makes more sense here….. so as weather is bad….. earnings are poor part-times goes up here….. that’s what I am thinking here…. cuz in todays world your not keeping hours if up if the overall volume is low….. someone is lying here….. Jobs or corporate…. I thinks it’s jobs….

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