Here is a look at the gold bull and China’s epic collapse.
CHINA’S STOCKS ARE NOW “UNINVESTABLE,” ASSET MANAGERS SAY
February 7 (King World News) – Gerald Celente: About 40 percent of asset managers attending a Goldman Sachs conference in Hong Kong last week called Chinese equities “uninvestable,” the Financial Times reported.
“The global investors we spoke to are, by and large, out of China,” Timothy Moe, the bank’s chief Asia-Pacific equity strategist, told the FT.
The poll was taken the day after China’s vice-premier publicly urged Beijing to take “more forceful and effective measures to stabilize the market and boost confidence.”
China’s stock markets have lost about $2 trillion in value in a rolling sell-off that began last summer.
“Global investors’ confidence has been shaken by three years of grinding losses pockmarked by fleeting rallies that quickly fizzled out,” the FT said.
The MSCI China stock index has shed more than 60 percent of its value since peaking early in 2021. The loss reflects the ongoing 30-month-old crisis in real estate, a slumping export industry, geopolitical tensions with the West, a shrinking labor force, and Beijing’s dithering over how to support the economy.
Foreign investors are likely to avoid Chinese stocks as a long-term investment even after the economy begins to revive.
Stock markets are at the heart of capitalism. China’s president Xi Jinping has shown that he fundamentally distrusts capitalism and its tools. More than once, capricious regulations have been dumped on an economic sector, crimping its capacities and limiting stock gains.
Until Beijing demonstrates ongoing respect for free market forces, foreign investors may dip in and out of China’s stock markets when they see a niche opportunity but will not make China a sector in their portfolios.
Even then, foreign investors will be wary and quick to jump out of the market at the smallest hint of government overreach.
And that quick jump is coming. While the Shanghai Composite hit a five year low and the CSI 1000 Index had slumped to a 2018 low, today as Beijing promised to artificially pump up the sagging economy and equities, it was a different story. Their securities and regulatory commission promised to “guide institutional investors … to enter the market with greater efforts.” On the “good news,” China’s slumping CSI 300 index shot up nearly 3.5 percent and Hong Kong’s Hang Seng index spiked 4 percent…
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CHINA’S PROPERTY CRISIS: NO END IN SIGHT
China’s 30-month-long property crisis left about 20 million pre-sold homes unfinished, analysts at Japan’s Nomura Securities have estimated. Companies will need about $450 billion in working capital to complete them, they added.
Where those funds will come from is unclear.
The country’s property crash was sparked in 2020 when Beijing abruptly tightened rules about lending to developers, many of which were already overleveraged. That left companies short of working capital to complete projects underway.
Since then, more than 50 development companies have disappeared or defaulted on their loans. Last month, Evergrande Group—often referred to as “the world’s most overborrowed developer”—was ordered to be liquidated.
The company had defaulted on more than $300 billion in dollar-denominated bonds and, after two years, had still failed to work out a settlement plan with creditors.
Country Garden, another leading developer, defaulted in October. Since then, its property sales have crashed, dropping 69 percent in December, year over year.
The number of open mortgage loans fell by 1.6 percent in 2023, the first decline in almost 20 years, according to Caixin, a Chinese property industry magazine. Until 2021, the number of mortgages was growing by at least 10 percent every year.
In China, buyers customarily take a mortgage and begin making payments on a home when, or even before, construction begins. The property crash left tens of thousands of buyers paying for homes they now are unsure they will ever move into.
In 2022, a movement grew among affected buyers to stop making mortgage payments. To mollify them, many banks offered payment holidays of up to six months. However, the missed payments were to be due in one lump when the holidays ended.
Although only about 2 percent of home buyers joined the boycott, the movement added pressure for the government to step in to solve the problem.
It also helped to sour potential buyers on stepping into the market. “I’ll consider it when the property market is more stable,” one told The Wall Street Journal.
When that will be remains anyone’s guess.
Again, as we have long forecast, China’s housing market began its boom when they joined the World Trade Organization in 2001 and like all booming markets, the housing and commercial real estate sectors were overbuilt.
Making a bad situation worse, China’s zero-COVID policy which locked down the nation for three years destroyed lives and livelihoods of hundreds of millions across the nation.
Therefore, resolving China’s real estate crisis will take years or possibly decades, even with the massive government intervention that most analysts are calling for.
Developers need hefty cash infusions to finish their projects. But even if they do, the people don’t have the money to buy apartments or condos. Beijing’s new rules announced last month allow developers to apply for bank loans on commercial properties they own, such as office buildings and shopping malls, then use the new loans to pay off their old loans and troubled bond issues. The new loans also could be used to pay operating expenses.
A catch: the banks that make these loans are required to do due diligence on the borrowers, many of which are in terrible financial condition and so are bad loan risks.
Also, the rules add new debt to companies already unable to pay off existing loans.
Beijing will continue to take these grudging half-measures to solve the property problem, seeing how little the government can do before things get better.
With this approach, things never will.
However, China’s national and local governments already are toting massive debt. Some government officials are calling the national government’s debt—triple the country’s GDP—a “crisis.”
Before the property mess can be cleaned up, Xi and his inner circle will have to agree to intervene with trillions of yuan in subsidies and supports for developers.
Even when developers begin completing their projects, it will take years of a stable market to convince Chinese consumers that buying a house is not a speculative investment. Coaxing households to invest in a home is likely to require even more subsidies.
Consequently, China’s residential real estate industry will not be a strong contributor to GDP for years to come…
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CHINESE INVESTORS MADE 2023 A GOLDEN YEAR
China was the world’s strongest market last year for gold jewelry and other gold-related investments as the country’s real estate, stock markets, and domestic currency all stumbled, the World Gold Council (WGC) said in its latest quarterly report.
Chinese equity markets lost about 20 percent of their value in 2023, the Financial Times noted, while home sales by large developers plunged 35 percent in December, year on year.
Those investors, together with “blistering” demand from central banks, lofted gold’s price above $2,000 and set records in December. Central banks, led by China, Poland, and Singapore, added a net 1,000 tons to their reserves.
Central banks’ purchases were likely greater; not all central banks report their gold purchases.
Demand in China for gold bars and coins shot up 28 percent last year to 280 tons, offsetting most of a sharp drop in Europe. Sales of gold jewelry rose 10 percent to 630 tons.
Worldwide, demand for gold in all its forms struck a record 4,899 tons.
“China was key to a lot of what was happening last year,” Louise Street, WGC’s senior market analyst, told the FT. “When you look at the consumer sector, China is not the price-setting factor, but it’s providing a floor.”
“Gold has become a necessity for Chinese portfolios as they continue to expect disinflation and income uncertainty,” BMO analyst Colin Hamilton wrote in a note.
While gold prices are on hold, one ounce is still selling above $2,000 … which has become the bottom line. As geopolitical tensions increase and as interest rates go down, we maintain our forecast that gold prices will go much higher this year.
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