Wednesday, June 10, 2009

Stock Market Rules the ChinAmerica?

I am very disappointed by the crappy editorial of HKEJ.

An asset price inflation on housing market and stock market is not the indicator for recovery. An active commercial activity is the real index of economic recovery. Currently the rises of property and equity market are triggered by extremely large liquidity.

Take an example. Today in the morning I received a promotional text message from BOC regarding "borrowing 1 week short-term money by p.a. at 1.2% for stock investment".

Another example: Mortgage rate in China now is averaged around 4.13% for 70% downpayment and 15 year installments. Of course, one of the recent triggers of the current surge, is that HK, TW, and Macau people who use overseas bank accounts can enjoy an "equivalent rate privilege" if they mortgage on the China branch of those banks. In that case, for example, HK people can enjoy 3.5 - 3.7% mortgage rate. Some bank staff can even enjoy 1% mortgage rate for the self-use property. The spread between China and HK mortgage rate, plus the strength of RMB, encourages affordable Chinese people investing their money in HK - everything in HK seems "cheap" to Chinese citizens now.

On the other hand, when I checked the ICBC website for corporate and commercial loans, the shortest 1 month loan will cost you 5.23%, subjected to restricted due diligence by their banks. Except the government subsidized industries, others will still suffer from the lack of liquidity (for survival or for expansion) and the lack of orders (and hence over-capacity). Domestic market does not decline - and yet does not enhance either. The daily products prices remain at 2006-2007 level (according to my observation only) but not as high as 2008. Some electrical and electronic consumer products are even on bigger discounted sales (up to 60-70% off). Expat restaurants and pubs are directly hit: except soccer night they are only half or less filled. And of course, we have never included the nominally "studying" or "practising" fresh-grads who earn no better off than half the "normal" salary.

Integrating with Bloomberg news - "high unemployment and a continued bad housing market will prevent the FED from raising rates" (which to any normal people is certainly a bad news) - I cannot see how ChinAmerica is doing well. What scares me most is that now people, including analysts, cannot distinguish inflation caused by hot economic activities from inflation caused by excessive money supplies. By definition, I agree that an over supply of money trigger inflation. But whether or not such money is "allocated" into ecnomic activities, or simply on trading securities, makes the decisive difference: whether or not the money is used mainly in growing the pie, or is used mainly in zero-sum trading game. The latter one fattens the minority who cannot support the consumption market.

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