Monday, June 22, 2009

Economy is Not Yet Recovering...

The news about PPI (-0.1%) and CPI (0.1%) of USA are self-explaining: the previous improved selling on retail goods is more due to the decrease on price rather than the increase of in-the-market disposable income of USA consumers.

The inventory figures will provide further information. Had it been lowering with the level of trade stock, the essence of recovery will go even thinner.

The property rush in China shows cool-down. The renewal of new rental contract experiences a more than expected downward adjustment. For example, a 130sqm flat that can be rented at 12kRMB/mth can now only be rented at 8.6kRMB/mth. Assume the rental return is usually 3.5%, then the market price of that unit drops from 28kRMB/sqm to 22.3kRMB/sqm. Even if we lower the rental return to 3% (assuming that the rental market is worsening), the unit still only worths a mere 26kRMB/sqm, a minimum of 8% drop from the previous price (which is not the peak yet).

Statistics by some surveyors also reveals that despite the so-called rush (by bottom-fishing of the affordables, loosen mortgage, and inadequate supplies from 2008), on average only (cumulative) 50-52% of units have been sold for the "new" apartments opened-for-sale in recent half a year. Even if the shortage of supplies continue, the cumulated unsold units can re-quench the "thrist" of the market.

What is interesting most is about the "reports" by the big i-banks and F.I.s - while they were talking about a quick recovery and inflation just 2-3 weeks ago, now they all start to change the expectation and remain "bearish" on the market. Is this a hint that after the interium report period, something will happen?

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