After selling off significantly over the summer, the market has had one of its best months in decades during October. The commodity stocks that helped lead the selloff on concerns about Chinese demand growth have recovered but are still off substantially from their pre-selloff highs.
One of myriad reasons for the overall market rally has been the better than expected manufacturing and other economic reports coming from the Middle Kingdom. However, while all eyes are on Europe there are disturbing signs still coming out of China that point to a huge property/lending bubble that could be the next headwind to rock the equity markets worldwide.
10 disturbing numbers from China:
1. 6.1% - The reported inflation rate as of September.
2. 9-11% - The probable real rate of inflation in the country.
3. $14.5 Billion – China’s monthly trade surplus in September. This is down from $17.7B in August and $31.5B mainly due to Europe. Whether this is an inflection point like September 2008 or just a blip is yet to be determined.
4. 30% – The current amount of disposable income that is saved in China. This is up from 19% in the mid 90’s even though household income was up five-fold during that period. The high saving rate is the result of a poor social safety net, lack of investment opportunities outside property and low interest rates on bank deposits among other reasons. This does bode well for Chinese efforts to balance their economy by making its trajectory more led by consumer spending.
5. 50% - China’s investment to GDP ratio, the highest of any major economy. This can lead to poor capital allocation, excess capacity and increased economic volatility.
6. $4.2B – Forex reserve growth in the third quarter. This compares to a monthly average of $58B a month in the first half of the year. A precipitous drop similarity occurred in the second quarter of 2008, foreshadowing a huge drop in commodity prices and worldwide growth.
7. 1400% - The amount of median family income in Shanghai it takes to buy an apartment. This is up from 600% ten years ago. Other major cities show similar rises. This is a sign of a huge property bubble and reminiscent of the rise in the Western countries until 2005/2006.
8. 22% - The fall in the Chinese equity market since July.
9. $7.8T– The amount of lending that has occurred in the Chinese economy in the past 30 months as the government juiced liquidity to stave off any economic slowdown from the 2008 financial crisis.
10. 50% - The estimated percentage of this lending that was “off the balance sheet.”