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Home / Futures Blog / Chinese property market signals possible reversal

Chinese property market signals possible reversal

July 12, 2010 by Daniels Trading

In a sign that could have ramifications for global markets in both equities and commodities, Chinese property prices fell in June, the Financial Times reported on Monday. After 18 months of sometimes steady, sometimes meteoric rises, the average price of housing in 70 major cities fell slightly, by 0.1 percent.

The Chinese government has been fighting to cool down the real estate market, which many fear has entered into a bubble as bad or worse than the subprime mortgage bubble.

China also faces social unrest issue, the FT reports, as a combination of internal migration and real estate speculation push the price of apartments higher and higher. The government is trying to ward off a collapse in the market, instead attempting to engineer a so-called “soft landing.”

A true collapse in the Chinese market could trigger a series of catastrophic financial events, especially among countries that depend on exports to the industrial giant. Stock indexes in commodity exporters like Brazil and Australia would definitely fall, led by mining giants like Vale and Rio Tinto. Crude oil futures and copper futures would likely fall, and gold futures might rise as traders look for an exit in the form of a haven asset.

Many Asian stock indexes would likely take a big hit, and in the run up to a potential crisis, index futures may or may not reflect this.

In the U.S., it is difficult to say what might happen. Much will depend on the Chinese government’s response to any emerging crisis, and how it deals with the potential for bad debt and insolvency in its own banks. Reliable information about the Chinese financial system is difficult to come by.

Some Asian market experts say that official reports are composed of equal parts optimistic political posturing and outright fabrication. It is known that many of the loans on Chinese banks’ books are already non-performing.

The Asia Times reports that the government’s China Banking Regulatory Commission admits that Shanghai banks could lose 5 billion yuan, which equals 6 percent of their 2009 profits, on an average property value drop of 30 percent.

One positive note is that the Chinese government has, in some ways, more room to maneuver than the U.S. did in 2008. The government has strong revenues, enormous reserves and a generous fund of domestic savings. Furthermore, its centralized power would allow it to act more decisively to stem a crisis, without worrying about political considerations.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Archived News

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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