Australian dollar hit by China bubble fears

See the latest Australian dollar analysis here:

Macro Afternoon

The Australian dollar got smashed back one cent last night probably as much as anything on having run too far, too fast:

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But there is also developing meme around China and property prices. Earlier this week, China reported prices rising very strongly. From Bloomie:

New home prices in September rose 20 percent in the southern business hubs of Shenzhen and Guangzhou, 17 percent in Shanghai and 16 percent in Beijing from a year earlier as prices climbed in 69 of the 70 cities the government tracks.

Property stocks fell in Shanghai on speculation Premier Li Keqiang will be forced to impose stricter policies to rein in prices and limit risks to the economy. Li has held off tightened restrictions on property this year as his government strives to meet a 7.5 percent annual economic growth target.

And here is the chart from the FT:

Screen-shot-2013-10-23-at-15.31.41

Also from the FT:

“There are intensifying concerns about policy risk in China following [Monday’s] strong Chinese home price data,” said Jim Reid, strategist at Deutsche Bank.

“Indeed, the one-week Shanghai interbank offered rate hit a three-week high overnight, adding more than 40 basis points, as did the onshore 7-day repo rate, on chatter that the Chinese government is mulling a crackdown on property-related lending.”

Mr Reid noted market talk that domestic Chinese banks had already hit their 2013 loan targets following excessive real estate lending in the last couple of months, and reports that domestic loans to property developers had jumped 50 per cent in September from a year earlier.

I expect a renewed crackdown will ensure. But this is not all bad news, clearly. One of the mysteries of this year’s Chinese rebound has been why property developers have not yet followed rising prices with rising starts. That may be turning now which will support iron ore demand, provided the coming clamp is not too tight.

It all adds to the point that I made earlier in the week that the current Chinese growth pulse is at its peak right now. For the Australian dollar there will be an increasing contest in markets between this rising and bearish realisation and the bullish pulse emanating from the postponed taper. We can’t get too much higher.

 

David Llewellyn-Smith

Comments

  1. From a technical point of view, for whatever that’s worth, 97-ish is about the 50% retracement from the April high, and it rubs against the 200 day moving average.

    Of course, there are are other reasons for the AUD to resume its fall.

  2. The biggest failure in history on the part of the economics profession, is about economic land rent, supply of land for various uses, and speculative volatility.

    What a pity the Chinese, who on one level, have been very diligent to learn everything they can about how to run an economy properly, did not work out how to escape this trap.

    My only hope that they do know what they are doing re land gains, runs along these lines:

    Move peasants off land, which effectively costs the State nothing. Build apartments. Sell apartments to crazed speculators at massive profits.

    Sink profits into building infrastructure, and more apartments on zero-cost land. Repeat process as long as possible.

    When crash comes, the unhoused millions of poor people can suddenly afford the newly-cheap apartments that have been standing empty up till now. Hard working middle class savings have de facto been confiscated to provide affordable housing for all.

    If I am wrong, the fat profits when well placed officials have sold apartment buildings to speculators at several times too high a price, have gone somewhere other than into further urban expansion; and the further building and infrastructure has been done using more debt…….

    Neville Bennett, an astute NZ economist, suggests much of the massive gains made by the well-placed in China, are popping up in the RE markets of the Anglo western world……

    • Yes, the nouveau riche Chinese are taking their ill-gotten gains and scarpering quick fast. If you sell property to them in Australia, you are complicit in a de facto money laundering operation 😯

      • Complicit?

        Why, when the FIRB is more than happy to turn a blind eye?

        The great Australian sell off is ON to anyone with the needs to park their ill-gotten gains.

    • What a pity the Chinese, who on one level, have been very diligent to learn everything they can about how to run an economy properly, did not work out how to escape this trap.

      Maybe they did work it out, but just found it far too tempting (and easy) to make money by controlling a monopoly on land?

      • In this, they will have learned only too well from the western land rentier class, who have well and truly got back in the game from the point that “urban growth containment” became a fad.

  3. http://blogs.wsj.com/chinarealtime/2013/10/23/report-aging-population-will-trim-3-off-chinas-gdp/

    “According to two Citigroup economists, Nathan Sheets and Robert A. Sockin, China’s “deteriorating demographics” are likely to trim 3.25 percentage points off China’s annual growth rate between 2012 and 2030, compared to its double-digit growth of past decades. While industrialized nations face similar demographic challenges, they have a deeper cushion of wealth to rely upon (witness Japan.) China needs to continue to grow rapidly if it’s ever to reach the fat-and-happy stage.”

    If that is not reason for concern about China, I am not sure what is….

    • disco stuMEMBER

      At 10c to the USD Sydney’s 700k median house prices might finally represent good value.

      • Yeah, they would finally be comparable to the similar house in Houston that is US $70,000…..

        That is assuming that a collapse in the AUS $ is not accompanied by the Sydney house price going to $7 million.

  4. can anyone tell me when the RBA will make its next interest rate announcement?
    also, can anyone recommend a better way to cash out of the AUD than the one i have planned?
    i got a quote from the commonwealth bank which was alot better than their retail rate but i’d have to fly back to australia because it can only be done at a branch.
    so as an alternative, i have just started a HSBC account here in hong kong.
    after i get my interest payment from the commonwealth bank on the 1st of november i will transfer 200K over. i have been told there is a $50 000 cap so this will take four days.
    i’m hoping the dollar is still around 95 cents then.
    i will supposedly have ‘free’ currency transfers here
    (there is a margin but it is small compared to the australian rates)
    open to any better suggestions… i’m a newbie to all of this

  5. China has been a violence place through out history. So the Chinese will corrupt as much as they can, will rip off the poor as much as they can and send all their money to safe haven like the US, Australia,Canada , Europe …aquiring properties in western world also one way to get the their money out of China

  6. I believe that what the Japanese government’s monetary easing policy is doing to push the YEN downwards healthily is also an appropriate action for the Australian government to consider. In a layman term is to print more money to make the currency move downwards peacefully.
    Since the YEN is much cheaper than before, the export and tourism businesses from Japan are active again. This is exactly what we want to see.
    Also, if the A$ depreciate, it will show an improvement of our government’s overseas investments which are usually calculated in foreign currencies.
    So, before A$ starts to depreciate, it should be a good idea for investors in Australia to rapidly purchase some overseas assets e.g. a supermarket chain in Hong Kong or some businesses in China.