Chinese Property Implosion could go Nuclear

You’ve probably heard about ghost cities in China for many years. People kept saying China’s property market would crash and hurt Australia too.

But it never happened.

Whenever China’s property market had problems, the government stepped in to fix things. They stimulated the property market again…and again.

Soon, people stopped listening to the doomsayers warning of apocalypse in Chinese property. The moment of truth never arrived.

Even when the huge property developer Evergrande failed, most people thought China would handle it without causing a bigger contagion.

But now things might be changing.

The property market in China is having real trouble.

Iron ore prices are falling fast. I warned about this in May. The price dropped from US$120 per ton to US$90 per ton. It looks like it has further to fall.

The oil price is also on the edge of an important support level. It could fall a lot further if this level doesn’t hold.

Copper prices hit a record high in May but have since dropped by 20%. People are storing more copper inventories now.

Copper still looks the most bullish of the three commodities on long-term charts. But watch out in the short-term.

For now, back to China. New home sales are falling again. They fell 26.8% the year leading up to August. This is worse than July’s 19.7% drop.

Bloomberg reports:

‘Cash-strapped developers — many in default for more than a year — are counting on a sales revival to persuade debt holders and fight off liquidation. Dexin China Holdings Co. in June became the latest builder to be ordered to liquidate by a Hong Kong court. Country Garden Holdings Co. is considering extending payments on some of its yuan bonds again.’

So, the downward slide in Chinese property continues.

Many property developers in China can’t pay their debts. They hope home sales will improve so they can avoid going out of business.

But if things don’t get better soon, we might see big problems in China’s property market in the next three to six months.

The US economy is also slowing down. We’ll see the first interest rate cut in a couple of weeks.

I’m interested to see how markets react to the US employment figures overnight. It will show us whether the market is more concerned about slower growth…or lower rates.

If the job numbers are bad but stocks go up, it means people think the economy will slow down safely. But if stocks fall after bad job numbers, it means people are worried about a sharp slowdown hurting company profits.

Good job numbers might mean a smaller interest rate cut.

We can learn a lot by watching how markets react to this news.

Hopefully my analysis in today’s Closing Bell below can help your understanding about the state of play.

In today’s video, I show you what’s happening with oil, iron ore, copper, the S&P500, and the Japanese yen. I think prices might go down in the short term, even though stocks are still going up overall.

If you want to learn how I study markets and find good trades, check out ‘The Lessons’.

There, I explain six important things I’ve learned from years of trading.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).