Wednesday, June 10, 2009

Chinese Economic Reports Supplant US Reports in Importance

This must be at least the 10th time in the past 3 months the market has gapped up overnight based on a Chinese economic report. Yesterday we touched on car sales [Chinese Car Sales Jump 47% Year over Year on Subsidies], but today the happiness across the globe comes from a positive property report. The problem with all these "gaps" is you have to be invested overnight to take advantage of them.

As we wrote in [May 27, 2009: How is China Spending Their Stimulus? ... and How Many Loans will go Bad?]
1. Housing: China’s stimulus plan allocates 400 billion yuan (10% of the total stimulus) to the construction of low-income housing, upgrading shanty towns and other measures to improve housing conditions.
  • Basically completed: 210,000 units of low-income housing.
  • Under construction: 650,000 units of low-income housing, 8,500 units on state-owned reclaimed land and 18,000 fixed homes for nomadic peoples.
  • Renovations: Work has been sped up on improvements to 100,000 homes in coal-mining shanty towns, 129,000 homes in areas subject to caving in as a result of coal mining and 157,000 shanty town homes on state-owned forest areas.

In America we call this socialism. In China we call this successful stimulus.

For decades when the American market led, the rest of the world would follow. If the US had a strong day, many emerging markets would "gap up" and follow. The great irony is how the shoes have reversed so quickly - each time China jumps overnight; now America gaps up. Sort of like an oligarch dominated, emerging market. Imagine that.

I guess go forward we need to focus more on all the Chinese economic reports... as the US economic reports are so 20th century. Below is some detail on the property report... one stock I am aware of to play this is E-House Holdings (EJ) - which ironically is down a tad as I type this. But then again it deserves a rest - what a chart.

Now remember, a flood of money has been pushed through the banks per government directive. If these loans go bad in a few years is no one's concern today it appears. As long as they "stimulate" bulls are happy.

Via Bloomberg
  • China’s property sales and investment accelerated, adding to signs that growth in the world’s third-largest economy is recovering. Sales rose 45.3 percent to 1 trillion yuan ($146 billion) in the first five months of 2009 from a year earlier and real- estate investment growth quickened to 6.8 percent, the National Bureau of Statistics said in a statement on its Web site today. Sales grew 35.4 percent in the first four months.
  • “As developers run down inventory rapidly, they will soon start to buy land and increase spending again,” said Frank Gong, chief China economist and strategist at JPMorgan Chase & Co. in Hong Kong. “Property investment, which accounts for 10 percent of China’s GDP and is a trigger for growth in related sectors, will become a strong driving force in China’s recovery.”
  • As part of the stimulus plan, the government has pledged to build 5.2 million low-rent homes over the next three years and subsidize housing for 7.5 million poor urban families by 2011. China last month lowered the amount of funds developers have to put up for property projects to spur construction after cutting transaction costs for home buyers last year. (that's a lot of stimulus)
  • “Stronger than expected property investment growth means that fixed-asset investment growth in May could surprise on the upside and that investment growth in 2009 may also be stronger than most people expect,” said Sun Mingchun, chief China economist at Nomura Holdings Inc. in Hong Kong.
  • Urban fixed-asset spending expanded 30.5 percent in the first four months and data through May will be released tomorrow.
  • Land sales in Beijing in May exceeded the total amount sold in the first four months of the year, the China Daily newspaper reported today, citing the city’s land reserve center.
  • Property sales by value doubled in Beijing, surged 68.5 percent in eastern Zhejiang province and climbed 61.9 percent in Shanghai during the five-month period from a year earlier (bubble?)
  • Property prices dropped 0.6 percent last month in 70 Chinese cities from a year earlier, the smallest decline in five months. Prices jumped 0.6 percent month-on-month in May, the bureau said.
We seem to be seeing a major concentration of 'surge' in the big cities, at least in property. What is interesting is one the leading property economists in China thinks we simply have a bubble waiting to burst. But as we saw in the late 90s (tech stocks), and mid decade (housing) bubbles can run much longer than you anticipate. [Apr 15, 2009: - Chinese Property Prices to Halve in Next 2 Years]

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