Market Views 19 December 2011

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Juice

Macro

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96tril yuan (US$622bil), mostly in bank loans, more than the current size of the European bailout fund. There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97tril yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than 3/4 of the overall debt. The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the MD of CLSA Asia-Pacific Markets. “You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you. “You know how this story ends -- badly.”
Comment: China cannnot save the world as it has its own problems. This boom may not be coming to bust anytime soon but we have to keep this in mind. The bubble shall burst in time to come

Property

Hong Kong luxury home rents, which fell last quarter for the first time since mid-2009, may slump 10% next year as banks and hedge funds scale back amid the threat of a global recession, according to brokers including Jones Lang LaSalle Inc. (JLL) and Colliers International. “We’re definitely at that tipping point,” said Anne-Marie Sage, Hong Kong-based head of residential leasing at Jones Lang. “We’ve began to see vacancies at the very top end of the market. The banking and the financial sector have basically stopped all movement.”
Comment: When it rains, it pours. While we already know that property prices are not going to hold up, rental market may crash as well. This phenomenon not only will occur in HK but in Singapore too. For those thinking that the economics of the 2 countries differ greatly, that may not be the case. Note that the foreigners holding up the rental market can be relocated easily regardless of industry or rank, be it white or blue-collared workers

China’s home prices posted their worst performance this year with more than half of the 70 biggest cities monitored in November recording declines after the government reiterated plans to maintain property curbs.
Comment: Where the money is coming from, the situation is bleak


Sources: Bloomberg, Reuters, WSJ, The Business Times, Analyst Reports, Company Announcements