Clearing the Decks
Trade in Whisky;
Last week, I wrote about China, and the key takeaway is that China has been allocating, in some cases misallocating, vast amounts of capital for a very long time. We have all seen the ghost developments, bridges, dams and high-speed rail. Much of it is impressive, and their engineers deserve praise. As for their financiers, they deserve the Gulag.
The growth of the Chinese economy has been incredible. The time from the day that Hong Kong sent over its first ship to be scrapped after Deng’s reforms to the present day has been “glorious”. Yet, it has hit a wall with the issues facing the property market, as we have been following for some time. The China EverGrande 2025 bond trades at $2.25, having been issued at $100, and has defaulted on payments. Many bonds are in a similar state, and the Hang Seng Property Index, which reflects many projects in China, is trading at the same level seen in 1993.
Hong Kong Property
Back in the 1980s and 1990s, Hong Kong Property was one of the great trends. It periodically came unstuck but always seemed to recover. The recent fall of 67% differs from the ones seen in 1998 (-73%) and 2008 (-60%), as it has lasted for 64 months while the other corrections lasted for 13 and 15 months, respectively. The problem here is that China has become a deflationary force for the world, and until we see a devaluation, that will continue.
Money Week Summit
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