Is Chinese Real Estate bubble popping?
Posted on 12. mai, 2010 by Jean Jacques Ohana in Weekly Focus | Commentaires fermés
Maybe the European debt issues have distracted investors from paying attention to the signs of weakness in the alleged “growth zone”: Asia and specifically greater China.
For more than a month, Riskelia’s Trends and Bubbles Radar has identified a major weakness: Chinese real estate. The Trend stands at -68% with no specific bear exaggeration. This signal is a very significant alert and has never weakened so far.
This concern may seem inappropriate in the mega growth zone: credit growth is rising at the outstanding rate of 22% which fosters an inflation rate now standing at 2.8%, the fastest pace in 18 months. Property prices jumped by 12.8 percent, new lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecasts. The increase in property prices across 70 cities was the highest since data began in 2005, defying a government crackdown on speculation that intensified last month.
China has increased banks’ reserve requirements three times this year, withdrawing cash from the financial system. Still, policy makers have left benchmark interest rates and the yuan’s peg to the dollar unchanged.
As a matter of fact, the real economy seems to boom out of reason and financial markets are surprisingly weak. Chinese real estate, Shangai Composite, base metals and Basic Resources stocks index are not brilliant to say the least as demonstrated by the Bloomberg chart:
Time will tell if this alert was just an anticipation of a tightening of Chinese monetary policy and of a yuan reevaluation. In any case, the combination of Chinese weakness and sovereign solvency issues (which in our view are far from being resolved) could result in a perfect storm. Our radar will carefully scrutinize the next developments.
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