08/11/09 Baltimore, Maryland
How do you say bubble in Mandarin?
Chinese property sales are up over 60% so far this year, the nation’s National Bureau of Statistics proclaimed yesterday. That puts the housing bubble here to shame. We’ve heard a bunch of nosebleed data points come outta there in the last few weeks… check these out:
- New loan issuance has tripled in the first half of 2009, to $1.1 trillion. That’s more than half of the entire Chinese GDP over the same period.
- 95% of those loans went to state-owned enterprises or provincial entities
- The Shanghai Composite is up 79% year to date, the best major market performance in the world
- Stocks on the Shanghai Composite trade for 35.4 times earnings, double that of the MSCI Emerging Markets index
- M2 money supply rose over 28.5% in the first half of the year
- The seven largest bond sales in the world this year were domestic transactions in China.
Damn near everything is up dramatically in China in 2009… except exports. Strangely, we don’t hear a lot of concern that the backbone of their economy has contracted 23% since this time last year.
“The Chinese government realizes,” adds Dan Amoss, “that its stimulus spending and pressure on banks to expand lending is inflating a massive bubble in the Chinese stock and property markets. The problem with unsustainable economy activity is, of course, that it must eventually end.
“But for now, the Chinese have much more room to borrow and inflate than the United States (which has spent the last few decades doing so). Eventually, the market will cut them off. The end will not be pretty, and at some point in the future, shorting Chinese stocks may be one of the best short-selling opportunities in history.
“In the meantime, it makes no sense to bet against China. The Communist government has proven very efficient at stealing the resources of its people (via inflation and taxation) and channeling them into whatever infrastructure project they deem necessary.
“This process could end next week or next year.”
Dan’s keeping an eye on China, but right now his focus is on a very well-known bank on the other side of the Pacific. He believes this major financial player will soon have to cut their dividend… crushing their stock price.
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To answer the opening question (how do you say “bubble” in mandarin): pàomò (two falling tones)
What a second. If you want to buy a home in China you need a deposit of about 40% of property value. Weren’t US banks giving 110% home loans a few years ago? I’m not going to argue that chinese stocks are not in a bubble, but it’s doubtful that property prices are (perhaps Shanghai is an exception). Also, whatever the Chinese make there is one thing that they’re not making anymore of, and that’s land.