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January 27, 2017 | Slowing Chinese Capital Exodus Ereminds of Japanese Driven-Bust in Early ’90’s

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

All the money the west spent (wasted) buying consumer goods on credit piled up in China between 2001-11 and then flooded back into global property markets since. But after the credit bubble, flows are finite and their slowing signals downside for home prices that are now unaffordable for working families everywhere. We saw a similar capital boom and bust between Japan and the west in the 1980’s and ’90’s.

China’s escalating crackdown on capital outflows is sending shudders through property markets around the world.

In London, Chinese citizens who clamored to purchase flats at the city’s tallest apartment tower three months ago are now struggling to transfer their down payments. In Silicon Valley, Keller Williams Realty says inquiries from China have slumped since the start of the year. And in Sydney, developers are facing “big problems” as Chinese buyers pull back, according to consultancy firm Basis Point.

“Everything changed’’ as it became more difficult to send money offshore, said Coco Tan, a broker associate at Keller Williams in Cupertino, California.Here is a direct video link.

Capital fleeing collapsing Japanese asset bubbles in the early 1990’s also drove up global property prices to unhealthy levels, followed by a decade of mean reversion thereafter. This Wiki summary is succinct. It is also foreboding for currently grossly inflated asset prices in many global markets.

The Japanese asset price bubble (バブル景気 baburu keiki?, lit. “bubble economy”) was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble collapsed. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices had been closely associated with excessive monetary easing policy at the time.

By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ). By late 1991, asset prices began to fall. Even though asset prices had visibly collapsed by early 1992, the economy’s decline continued for more than a decade. This decline resulted in a huge accumulation of non-performing assets loans (NPL), causing difficulties for many financial institutions. The bursting of the Japanese asset price bubble contributed to what many call the Lost Decade.

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January 27th, 2017

Posted In: Juggling Dynamite

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