China Tells

I have mentioned in a previous article in Business Times that China wants to slow down and China will slow down. Since then I have received some letters from investors asking for advice on how to hedge themselves against such a scenario. In this piece I would discuss some potential solutions.

I would recommend the investors to pay more attention to those developed markets who rely heavily on the growth story in China. The reason is that first it is not easy to short China directly on the capital market. Secondly China might still be fine if the economic growth slows from 10% to 8%. However a two percent loss of growth in some developed markets would make the dramatic change between growth and recession. I think some of the economies are particularly vulnerable to a slowdown in China. One of them is Australia.

Australia is one of the largest beneficiaries of China’s growth phenomenon. Thanks to its large reserve of natural resource, Australia had a commodity boom in the last few years. It is well reflected from the fact that the housing price in Australia only had a minor blip during the financial crisis, which is in sharp contrast to other G7 countries. Also Australia is one of the few developed countries that fared fairly well during the global financial crisis.

Behind the rosy scene, however, there are a few potential danger signs. For example, the Mortgage debt rate to GDP ratio in Australia is at a staggering 85%, which is even higher than that of US before the crash of housing bubble in 2007. The Economist Magazine estimates that Australian’s housing price is over valued by more than 60% based on the ratio of house prices to rents, which puts Australia at the top spot of the housing market over valuation league table. According to the latest stats released by Housing Industry Association of Australia, the house affordability index in Australia has plunged to a very low level almost similar to that in 2008. This is a clear signal to show that there is a huge housing bubble being built in Australia and that bubble is subject to burst any time in the near future.

Investors should be aware that a potential collapse of Australia’s housing price would have a profoundly detrimental impact on the currency. In addition investors should to look into equity market, especially those sectors that are largely exposed to the housing market in Australia. Last but not least, some industrial metals that are highly connected to the construction sector is worth watching.

自从我在Business Times上发表了一篇关于中国经济软着陆的文章，就陆续收到了一些读者来信，问我如何在中国经济增速放缓的情况下保护他们的投资。今天我就想这个问题谈谈自己的看法。

我建议投资者将注意力集中到对中国经济增长有很大依赖的那些国家。主要原因如下，一来对于国际投资者来说，由于人民币的管制，很难直接在资本市场上采取看空中国的投资策略；其次某些国家在中国经济增速放缓的情况下可能其损失还要超过中国，澳大利亚就是其中一个例子。

澳大利亚在08/09年金融危机的时候没有受多大影响，由于其丰富的矿产，在中国需求的带动下受益匪浅。澳大利亚的房价仅在08年有小幅回落，但是到了10年迅速回升，超过了危机前的价格水平。根据经济学家杂志的估计，通过横向比较世界各地的房价/房租比，澳大利亚的房价至少被高估60%。澳大利亚按揭贷款对GDP的比值达到了85%，比美国07年房地产泡沫破灭之前的比值还要高。诸多迹象表明，澳大利亚的房价正在形成一个巨大的泡沫。在中国经济放缓的影响下，澳大利亚的房地产泡沫随时都有破灭的可能。

如果澳大利亚的房地产泡沫破灭，我建议投资者可以做空一些澳元。同时可以关心一下对建筑比较敏感的行业，如银行，重型机械等等。跟建筑业有紧密联系的贱金属，如铜，铝等也可以考虑一下。