Keeping with the theme of Chinese hard landing and the various charts I have presented over the last week or two, I thought I would present the HK residential property price index in the today's chart of the day.
We are now starting to decline, so the bulls say this is just a much needed correction while the bears say a hard landing in China will be a repeat of 1997 Asian Financial Crisis. Some bears say the majority of the worlds economy could enter a huge deflationary bust and a prolonged period of no growth, similar to that 1930s. Finally, super bears say the world is about to end haha!
What do you say?
1) Residential price diverge higher from rental prices, which can be seen as a speculative store of value (I think a shift from $SSEC assets to immo assets around 2008).
ReplyDelete2) Rental must turn lower to confirm the contraction signal from the residential. I give 0% trust to the "forecast area". So I remain open mind right now.
3) If we are in a declining trend, Residential will be lower than rental. If this turn to be the case, mean historical trend tend to be revisited (100-120?...)
4) If Japan is a guide, China will deal from a over-investment boom (industrial and immo). As a result, and while the Gov must provide liquidity to the banking system, they won't be able to sustain their $-peg any longer. Which mean
(a) less inflation to china relative to buying power, which would be very positive for Chinese low-classes, and the start of their rebalancing process. They could face low-inflation to light deflation, BUT "Japan like deflation" => slower economic growth but higher quality of the standard of living. As the Gov will have to choose between industry and the street, I think they will choose the street this time. They know they cannot rely anymore on their exports like in the past, they must turn to internal market.
(b) CNY appreciation, and a Chinese consummer-centric policy will left less flow to buy TB and USD. This could become a real problem for western countries and force them to solve their debt problems (translate: print), which could at least lead to some rebalancing: inflation to burn the over-indebt system and rebalance witha lower standard of living but more competitive industry.
5) as long as we won't have a solution to this over-liquidity, over-indebt, and over-leveraged system, this could in fact turn to a nightmare, as leverage could act to the downside.
6) as China is a central-gov driven country (closer to USSR than Japan ins the 80), everything is possible out there too.
Fred
Very interesting points there Fred, however I do not think any of those technical things matter too much right now.
ReplyDeleteConsider that Peoples Bank of China just published a report admitting that 89% of families and 60% of corporations in the province of Wenzhou are involved in shadow bank lending or loan sharking.
Apparently there have been newspaper reports suggesting that people are running away from paying debts and some have even jumped out of windows to death.
Now liquidity starts pinching majority who are speculating in the property bubble, we could have an unwinding effect already starting. That will affects rich property developers who have invested large amounts of their profit into HK apartments pushing prices of penthouse to world records.
Therefore, just plain and simple, we could have a bust here! Just look at the Hang Seng Index... it has been dropping like a rock. What is it trying to tell us?
Yes Tiho, could be. But (6) China is far from a democracy, and they have large FX reserves. The only thing the gov want is to satisfy people for not changing the political system. So as (if) the immo crash, people will be in the streets, asking for reforms. The western answer would be to bailout the bank and launch some stimulus. The Chinese answer could be nationalisation of the prop developers, and large scale distribution of immo to the low-classes. On a pure financial aspect, the operation is the same for the PBOC, but the social impact could be very different.
ReplyDeleteThe only thing I can guess about China is they could be very creative. Political reactions and decisions in the USSR during the 50-70 is a better blueprint than Western democracies. IMHO.
Fred
I have to admit, it is very difficult for me to consider what the Chinese will do in any or all of those case scenario. However, I do think the Chinese population will keep eating and their salaries relative to Western salaries will keep improve over time. Therefore, for me Agriculture is a sure bet here!
ReplyDelete