China hard landing

[Joshuatree]

Panel discussion re hard landing. The woman has a pretty compelling view.

http://www.macrobusiness.com.au/2015/02/china-already-hard-landing/ (http://www.macrobusiness.com.au/2015/02/china-already-hard-landing/)

[skid]

Interesting stuff--First speaker was enough and the one worth her salt.

I wonder how many have actually thought much about the affects of the QE cuts on China. Which of course has already caused pain in OZ and NZ as well has put alot of eggs in that basket.

[Daytr]

Copper short?
Chinese hedgefunds were aggressively shorting copper prior to Chinese NY.
Its since bounced back around 10%

[pietrade]

http://www.macrobusiness.com.au/2015/02/china-already-hard-landing/[/URL][/QUOTE]

Many thanks for the link. A very interesting discussion.

[skid]

The main thing to watch for is that if China comes in for a hard landing,your not standing underneath it!:):mellow::(

[PSE]

The lady is onto it but now that this view is prevalent in the market is it priced into the resource and services stocks?
Jim Chanos was one of the first to warn about China when no-one was listening.
A China crash would greatly affect NZ and Australia especially the crazy property bubble and it's impact on the big four australian banks which are all at stretched valuations.
There is always another crisis and this one could be particularly nasty for us but my feeling is the best approach is to have a diversified portfolio of cheap stocks and keep the debt very low rather than to hide under the bed and go all cash.

[PSE]

This view on China is also the reason for the strong NZ dollar vs the aussie creating a good chance to pick up the three or four companies on the ASX worth buying.
In the long term I like the Aussie economy much more than the NZ economy which depends only on 1080 flavoured milk powder and building houses for Asian/European immigrants.

[Daytr]

ANZ looking relatively cheap. ;-)
One issue I think the banks will face at some point is a crash in property markets both Australia & Auckland.
That could be very messy for the banks.

[PSE]

Interested in the metric u use, and the companies u compare them with, to reach ths conclusion.

From the ASX website;

ANZ CBA WBC NAB MQG
PRICE 35.010 89.860 37.290 37.380 73.450


YIELD 5.06% 4.6% 4.87% 5.26% 3.93%
PE 13.160 16.390 15.330 16.940 15.230
I normally value companies on their 10 year average of historical earnings but lets not do that as it would take too long. The banks are a highly leveraged investment and normally trade (over the last 20 years) on a PE of around 11.5 in the case of the big four.
So I compare them to themselves.
Maybe you have last years earnings here so at least 30% overvalued and I would argue that the amount of debt in the economy means that their extraordinary historical rate of growth at best cannot be sustained and at worst could lead to a recession. So they are something more than 30% overvalued because they have saturated the market.
I sold my mac bank at $50 because I thought it fully valued, it is more fully valued now :)
I have WOR, STO, CDD, TPI and QBE with an overall yield of 5% and I think a lot less leverage, risk in the price and greater ability to grow earnings and dividends from the present cyclical lows.
Right now oil and gas and anything related to resources is selling cheap, like the big aussie banks were during the GFC when I bought my mac bank for an average of $30. A lot of the resources stuff is deservedly cheap with more tough times ahead but I have tried to pick to avoid china risk as much as possible.

[PSE]

I am a long term investor and expect these things to fluctuate in price over the short term but the share price will track the earnings as they recover over a 5 year period say.

[skid]

ANZ looking relatively cheap. ;-)
One issue I think the banks will face at some point is a crash in property markets both Australia & Auckland.
That could be very messy for the banks.

There is always that chance,but a more likely scenario would be a slight drop or a leveling off with no more increases for a while(which is not really a bad thing)--We would really need to know just what % of houses are bought by Chinese Investors,not living here.

If I were Chinese type policy maker(ie no real opposition) to help solve the housing problem in Aucland, I would be developing a passenger service on the existing RR tracks to Hamilton.(preferably good enough for a 45min-1hr commute)

[Joshuatree]

BEIJING YOU HAVE A PROBLEM IN 10 CHARTS

http://www.zerohedge.com/news/2015-03-11/beijing-you-have-big-problem-ten-charts (http://www.zerohedge.com/news/2015-03-11/beijing-you-have-big-problem-ten-charts)

[skid]

BEIJING YOU HAVE A PROBLEM IN 10 CHARTS

http://www.zerohedge.com/news/2015-03-11/beijing-you-have-big-problem-ten-charts (http://www.zerohedge.com/news/2015-03-11/beijing-you-have-big-problem-ten-charts)

I hope the person who wrote the article has a higher education than the posters at the end:ohmy:

[flying]

I cycled through the whole of China five months in 2006 just before the crash. I went back this year and spent nearly 2 months in Shenzhen the first of the special zones and then spent a week in Hong kong. China is so big and so complex I only saw a fraction of reality. I stayed totally with the locals the only westerner in a part of Shenzhen of probably half a million people. I cannot disagree with anything the lady said. Life is really hard even in the big cities. I had to sleep on the balcony with a choice to sleep on my thin rubber mat on hard concrete or in a rickety wooden chair. Some of the local boys managed to sleep on the concrete WW2 prision standards and thought nothing of it. Because of this harsh living the people are incrediably resilent and I was really surprised by their unconcern of the economy. My veiw for what is worth things will carry on Asian style a lot lomger than most people think like Japans huge debt mountain. What will bust everything will be an upsurge in interest rates 2016????

[digger]

[QUOTE=flying;563906]I cycled through the whole of China five months in 2006 just before the crash. I went back this year and spent nearly 2 months in Shenzhen the first of the special zones and then spent a week in Hong kong. China is so big and so complex I only saw a fraction of reality. I stayed totally with the locals the only westerner in a part of Shenzhen of probably half a million people. I cannot disagree with anything the lady said. Life is really hard even in the big cities. I had to sleep on the balcony with a choice to sleep on my thin rubber mat on hard concrete or in a rickety wooden chair. Some of the local boys managed to sleep on the concrete WW2 prision standards and thought nothing of it. Because of this harsh living the people are incrediably resilent and I was really surprised by their unconcern of the economy. My veiw for what is worth things will carry on Asian style a lot lomger than most people think like Japans huge debt mountain. What will bust everything will be an upsurge in interest rates 2016????[/QUOTE}

Top post flying. Very interesting to get comments from people who have spent some time there. I am well into my 70s now but way back in the 60s I spent time in India much as you have in China.It is only by being with the locals do you get the inside feel. As with you I was the only non Indian in the group. Actually I ended up owning a holy cow. The story here is that I was very good middle distant runner and I trained often. The Native Indians in the outback villages were taken with my camera. Before I knew it they put up there best runner [foolishly] against me in a two mile race. They had nothing to put up against my camera so a holy cow was offered. I left the village with the understanding that I would collect it on my next visit and in the meantime the origional owner was to use it as his own. I haven't been back.
Still your post was much appreciated and a good read.Left me with something to think about.

[Valuegrowth]

The main problem in some of the emerging markets is huge gap between poor and rich. However we cannot forget emerging market totally. Their middle class population has increased. So they create demand for certain things. There will be demand for all types of food and beverages in the coming decade. We cannot ignore combined population in China, India, Indonesia and other Asia countries. More than gold they will create demand for food and beverages. They will have less arable land in the future. They will eat more meat and drink milk, tea and coffee than other countries in the coming decade. Despite some social and environmental issues there could be growth in limited areas in countries such as China, India and other Asian countries. Just like any other country China also will have slow growth period time to time. Debt crisis is part of global financial system and it applies to China as well. We may see debt and property crisis as well in China. Irrespective of any future crisis Chinese people will not stop eating and drinking. So food sector will have growth in China and as they cannot produce everything locally they will have to import food in the coming years.