In the last week, the stock market experienced one of the worst starts of a year ever. In China the stock trade circuit breaker was triggered twice in just four days. After that emergency shutdown all trade is suspended for the rest of the day. On Thursday the 7th of Januari, actual trade was limited to 15 minutes. The imminent collapse has been predicted on a lot of the independent news channels.
Two of the most obvious warning signs all those sources mention, namely consistent downward pressure on the oil price and a significant slow down in China, both are a reality right now. It was already obvious that the double digit growth figures China has shown for some time were completely unsustainable. After the 2008 collapse much faith was put in lowering interest, increasing debt and government stimulation initiatives to increase demand and promote spending.
In China local government could make ends meet by selling local farmland and making it available for urban development. Once an investment company acquires the land rights, they are to build on it immediately. One or more buildings must be present within two years. They can not just wait for a few years, for instance, until the moment there is an actual housing demand in that area…This is one of the reasons behind the so called Chinese ghost towns (a bit of a misnomer since these towns were never inhabited in the first place).
Meanwhile the all important Chinese manufacturing sector keeps shrinking and the year-over-year change in global exports is at the second lowest level since 1958. Maybe it is time to buckle up.