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Thread: something to chew on ... a what if scenario by William Pesek

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    Default something to chew on ... a what if scenario by William Pesek

    A 'what if' scenario the world would do well to consider


    by William Pesek
    05:54 AM Dec 10, 2010
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    [SIZE=2]Fitch Ratings is performing a timely mind experiment: Pretend Chinese growth fell below 5 per cent.

    Fitch isn't forecasting a halving of Chinese output next year. And its corporate ratings head is quick to say there's no specific reason to expect the second-largest economy to bog down anytime soon. Bears haven't made much money betting against China. Yet if you said in 2005 that Bear Stearns would collapse, the United States Federal Reserve would emulate the Bank of Japan, Ireland would need a bailout, Indonesia would be a role model and North Korea would be killing South Korean civilians, you would've been laughed at. The supposedly unthinkable has an uncanny way of becoming reality in this upside-down world.

    Envisioning China stalling is a vital what-if exercise given the increasing importance of an economy that's still an emerging market. That outcome would shake markets from New York to Tokyo.

    "Any credible prediction below 8 per cent would spark a huge risk sell-off," says Mr Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore.

    With the US walking in place, Europe embroiled in a debt crisis and Japan deflating, investors wonder when or if emerging economies can fill the growth void. China sits at the centre of this debate. In 1980, its share of world GDP was 2 per cent. By 2008, it was around 12 per cent. As 2011 approaches, no one doubts the pivotal role Chinese growth will play in the global recovery.

    If China did slow markedly, Fitch says, the fallout would have negative consequences for sovereign and corporate credit risks of trading partners such as Australia, Hong Kong, Malaysia, Singapore, South Korea and Taiwan. Commodities markets would take a sizeable hit, as would industries such as car-making, chemicals, heavy manufacturing and steel. All export industries would be rocked.

    Increased market volatility would be another side effect. Risk aversion and potential financial contagion emanating from China would be the last thing the world economy needs. The hobbling of a key economic pillar might shock markets already on edge.

    A big slowdown would be a blow to multinational companies expecting major things from Chinese subsidiaries. Industries from consumer products to restaurants would generate lower profits and cash flows if Chinese demand weakened.

    I also wonder about the US Treasury market. Conspiracy theories about China dumping its vast dollar holdings to annoy the White House haven't come to fruition. What if China suddenly needed the money?

    For a nation at China's level of development, 5-per-cent growth is crisis territory. The chances of social unrest would explode, putting the onus on the government to take drastic measures to boost growth, such as selling large chunks of China's US$2.6 trillion ($3.4 trillion) of reserves to finance public-works projects.

    There's also a bad-loan risk. Recent data show that Chinese credit growth hasn't slowed from last year's rapid pace, as new bank lending has been offset by a surge in off-balance-sheet loans. So all those efforts in Beijing to rein in credit are coming to naught.

    The US Fed is part of the problem. Its policies feed a hot-money pipeline that dumps into Asia. Also, the Fed last week provided a detailed accounting of its efforts to shore up the financial system. The data-dump showed the extent to which it helped other nations' banks in Europe and Asia.

    Among the beneficiaries of the Fed's emergency liquidity facilities were Mizuho Securities USA and Daiwa Securities America. Perhaps we should rename the Fed the Central Bank of the World.

    The trouble for Asia is what happens to all this lending once growth slows. One risk is the infrastructure arms race unfolding in dozens of cities around China - all vying to be the next "it" destination for capital, companies and tourists. Once the music stops and all those debts are tallied, China may be looking at a bumpy few years.

    Soaring real estate prices have prompted analysts like former Morgan Stanley economist Andy Xie to call China's asset markets a bubble destined to burst. China is "on a treadmill to hell", with growth driven by the "heroin of property development", New York hedge-fund manager James Chanos has said.

    China's most-vocal critics have little to show for their pronouncements. The place is still growing at 9.6 per cent. The determination in Beijing to keep things that way explains why officials there refuse to let the yuan rise.

    No country ever grows in a straight line, though, and China is no exception. Even if the odds don't favour an abrupt slowdown, it's wise to contemplate that possibility and prepare for it. Stranger things have happened in this crazy world. BLOOMBERG[/SIZE]

  2. #2
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    All great nations weaken themselves with bubbles. Japan in 80's, US NASDAQ bubble followed by subprime, Europe debt crisis with PIGS having bubbles ..... as I said in another thread, Singapore also bubble, if starting salary is 3k while a subsidized 4r HDB starts at 300k .... God bless our next generation

    Inflation is day light robbery i.e. allowing the rich to rob the poor, any country has disregard to inflation will eventually taste the bitter end.

  3. #3
    OCR properties going to crash!

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    Current generation Singaporeans are lucky because >90% are blessed with home-ownership and they have and will still benefit from inflation! They just have to hold that shelters and pass on next generations (since next generation will take longer and longer period to pay off the properties unless they climb up the income ladder (i.e more competitive). This is not happening just in Singapore, but everywhere including US, UK, Europe, China even Malaysia etc!).
    Ops! forgot about those who keep missing the boat because they thought property prices too high and now have no choice but to be a "water-ghost" (talk down the property market and hopefully find some substitute for their place!).

    Quote Originally Posted by jitkiat
    All great nations weaken themselves with bubbles. Japan in 80's, US NASDAQ bubble followed by subprime, Europe debt crisis with PIGS having bubbles ..... as I said in another thread, Singapore also bubble, if starting salary is 3k while a subsidized 4r HDB starts at 300k .... God bless our next generation

    Inflation is day light robbery i.e. allowing the rich to rob the poor, any country has disregard to inflation will eventually taste the bitter end.

  4. #4
    Junior

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    recently, IMF had papers on China and HK property market
    [URL="http://blogs.wsj.com/chinarealtime/2010/12/03/why-imf-says-hong-kong-isn%E2%80%99t-a-property-bubble/"]http://blogs.wsj.com/chinarealtime/2010/12/03/why-imf-says-hong-kong-isn%E2%80%99t-a-property-bubble/[/URL]#

  5. #5
    Bricks & Mortar

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    April 2010, IMF Says Singapore Property Prices GROSSSLY INFLATED. Everyone Knows Except SHORTARSE

    [url]http://www.channelnewsasia.com/stories/singaporelocalnews/view/1098634/1/.html[/url]

    But in Oct 2010, [url]http://www.imf.org/external/np/sec/pr/2010/pr10397.htm[/url]

    IMF Sees Singapore Reflecting Regional Trends: A Strong Rebound but with Challenges Rising
    Press Release No. 10/397
    October 25, 2010

  6. #6
    Bricks & Mortar

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    Interesting read:
    [url]http://www.globalpropertyguide.com/Asia/Singapore/Price-History[/url]


    Nov 10, 2010 Share
    Singapore’s house price rises slowing, as government measures bite

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