Chinese real estate has been booming. Since 2000, year estate investments grew 200% in China. The Chinese Claymore/AlphaShares China Real Estate ETF (TAO), which tracks Chinese Real Estate went up more tan 70% since January 2009.
If there is one thing that Europa underestimates than it’s the impact of a bursting Chinese Real Estate bubble. The bubble has grown mainly on the residential side of teh market, but with Beijing’s 4 trillion yan or 586 billion USD stimulus package, the bubble also started growing on the commercial side in 2009. Remember that China pumped worth 12,9% of its GDP in stimulus packages in 2009. By way of comparison: Brazil invested less than 2% of its GDP in stimulus packages to support growth.
With 70 percent of real estate investment in China coming from bank loans, a dramatic drop in land values could send shock waves throughout the economy.
Stratfor published last week an excellent report on the Chinese Real Estate bubble, you can read it here.
Especially in Beijing and Shangai the situation is dramatic. In both cities, real estate activities have accounted for more than 30% of the GDP since 2000. In Shangai real estate activities even contributed more than 50% of the GDP. A GDP which is sustained for more than 50% on an inflated real estate bubble…
No doubt there is a correction ahead on the stock exchange, but when one adds thhe extent of the inflated China real estate bubble, one could wonder how big the downward slope ahead could really be.
Last time we were in Montevideo, the works of the new container terminal (the biggest of South America) ongoing. This week, Katoen Natie, the Belgian value-added logistic operator opened its new 190 million USD container terminal in Montevideo. Katoen Natie is much more active in Latin America than it is in Asia, it has more than 30 operations in Brazil.
Meanwhile, the family Huts of Katoen Natie is also active as a project developer in Uruguay, building a complete town: Jacksonville, in the Zonamerica. They bought the Alesianen convent with 560 hectares and are making alotments in that zone with schools, hospitals, a Regency hotel,…
The quality of Belgian newspapers today is quite in contrast to the quality of Brazilian newspapers. De Morgen started its downward trend from 2006 on and now also De Standaard became pure pulp and Bloomberg copy- paste.
We follow-up news in Brazil through O Globo and Folha Sao Paulo. Both excellent newspaper, but you need a subscription on the printed edition before you can browse the digital edition online. Globo even launched its digital version on Kindle, the first newspaper in Latin America. And of course you had Brazilian economical newspapers like the excellent Valor Econômico or Jornal do Comercio. But it they could never seduce me to take a subscription, for the same reasons as De Tijd and De Standaard in Belgium can no longer seduce me to take a subscription: a lack of true journalism and too much copy-paste of online material that is freely available.
The Portuguese Group Ongoing, which published “Diario Econmico” in Portugal launched “Brasil Econômico” this weekend. Ongoing is the private investment vehicle of the Rocha dos Santos family. They have a focus on Telecom, Media, Real Estate and Financial Services with georgraphical focus on Portugal, Portuguese speaking countries, Africa and Spain.
The newspaper launched on a print run of 55.000, that is more than the 47.700 run of De Tijd in Belgium. Smart move of the Rocha dos Santos people.
Globo published today an article on the rise of the Brazilian Real against the US$ since the beginning of 2009. This graph speaks for itself: The Brazilian Real appreciated 25,49% since, the Chilean Peso 14,06% and the Argintinan Peso 10,95%.
One might argue that despite this 25% appreciation of the Brazilian current, the Brazilian commercial balance yielded a 21,69 billion US$ surplus since January 2009. Just as one might argue that despite the depreciation of the dollar, the US trade deficit in August is still a hefty 3,6% of US GDP.
The IMF projects the Brazilian GDP to clock 2009 with a 0,3% growth; one of the few countries which will not end up in red. The growth for 2010 is projected to be between 4,5% (IMF) and 5% (Mantega).
Meanwhile China’s press is fulminating against claims that the renminbi must be revalued. An editorial in Xinhua last week had this to say:
The Group of Seven rich nations have again pushed developing China to appreciate its currency, the RMB yuan, so as to promote a so-called “more balanced growth”. On Saturday, G7 central bankers’ meeting held in Turkey’s Istanbul failed to produce any significant boost to the world economy. Instead, they turned fire on China’s currency, blaming it for the financial crisis.
In so doing, the rich nations have obviously intended to shirk their due responsibilities in the wide-spreading global financial turmoil. As it is known to all that the current crisis has been a result of developed countries’ lax financial regulation, excessive consumption and their lasting monopoly on the international financial system.
Everyone seems to agree that as part of the necessary global rebalancing the US will have to reduce its net imports, and this will be achieved in part by a depreciation in the value of the dollar, but everyone also seems to agree just as fervently that any reduction of the US trade deficit should not come at their expense, but rather at the expense of the rest of the world.Europe says it is Asian that must appreciate, Asians implicitly insist that it is Europe that must appreciate. It doesn’t take a PhD to see the mathematical difficulty.
My reaction to this is: Brazil already appreciated its currency, while the impact for Asia and Brasil is still ahead.
And you ask why Brasil’s growth is still healthy despite it’s 25% currency appreciation? The answer is: it’s internal market.
But I believe the US won’t win this one. The fact is that these trade disputes are not going to go away, and because each side has legitimate complaints, or at least what seems like legitimate complaints to domestic audiences, without serious global coordination (can take ages) the only very likely outcome is even more trade disputes. And these are disputes which will be won by the country or countries that control the one resource everyone in the world wants: net demand. And net demand is something Brazil has plenty of and China is short of.
This means that if surplus countries don’t allow for a rapid and orderly adjustment of the imbalances, which will require a rise in the value of their currencies among other things, the same thing will be achieved by trade conflict. Meanwhile Brazil should focus on the sovereign fund plans they have, it will be strong economical weapon in the oil-rich future.
End September, Merrill Lynch published its monthly FX forecast. The USD trades now at 1,73 agains the BRL, they consider the USD still to be 10% overvaluated against the BRL and project it to fall to 1,6 against the BRL. This is exactly the June 2008 when the BRL was trading at its top level. Completely aside: also take notice of the South Africa Rand, which they consider to be 16% overvaluated against the USD.
More interesting even are the future projections they make.
1. The US Dollar versus the Brazilian Real
They project the dollar to appreciate 7% from end December 2009 till March 2010, but eventually by end 2010, the dollar would fall against the Real to 1,65 (3% less then the end 2009 rate).
2. The Euro versus the Dollar:
The Euro would continiously fall against the dollar throughout the coming year and end at 1,28 against the dollar, that is a 17% decrease in value.
1+2 would mean that the Euro would fall 20% against the Real from today until end 2010. This would mean that by end 2010, the Euro would trade at 2,12 against the Real. This seems highly unlikeable to me (give and take you get 2 Reais for 1 Euro). On the other hand: I do agree that the Euro will fall against the dollar by 2010 and that the Brazilian Real will more or less remain it’s current rate against the dollar.
Since January 2009 until today, the Brazilian commercial balance account a surplus of US$ 21,69 billion. This is more than the US$ 19,815 billion in the same period of 2008 (the first 3 suarters of 2008 were top quarters for Brazil).
Nicolas Eyzaguirre, director of the Eastern Hemisphere of the IMF, announced last week that Brasil should recuperate faster than any other Latin American country from the crisis.
The IMF announced in Istanbul last week that Brasil’s challenge is to “manage it’s abundance of wealth”.
Uma vida prática e com muito estilo, é o que o empreendimento Le Jardin tem a oferecer a você e sua família. São três casas independentes cercadas pelo verde em um dos bairros com mais qualidade de vida de Florianópolis.
O empreendimento Moradas da Ilha, oferece a oportunidade única de morar em casas cercadas pelo verde em um dos bairros com mais qualidade de vida de Florianópolis.
Chinese real estate has been booming. Since 2000, year estate investments grew 200% in China. The Chinese Claymore/AlphaShares China Real Estate ETF (TAO), which tracks Chinese Real Estate went up more tan 70% since January 2009.
Stratfor published last week an excellent report on the Chinese Real Estate bubble, you can read it here.
