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Dovre Insight: Dragon Year

Spekuliantai.lt | 2012-01-31 | Kitos | perskaitė: 782
Raktiniai žodžiai: Rinkos
Dovre Insight: Dragon Year Dovre Insight: Dragon Year

 China saved the world economy and commodity markets after the financial crisis. In the dragon year the Chinese growth model is facing the most serious test to date.

We have now reached a week into the dragon year. The dragon is seen as the best symbol of the Chinese Zodiac signs and expectations for 2012 are very high among the average Chinese. Paradoxically enough this year China's unique growth model will be put on its most serious test so far.

The prevailing situation in China reminds of 2008 a lot. Just like the times when exports in developed markets were weak and house prices have rolled downward.

After the Lehman Brothers bankruptcy governments panicked and ordered credit loosening. Bank lending soared and that financed an investment boom which included the real estate market. After 2008 investment and exports were the engines of Chinese economy.

World

Investment accounts for 49 percent of gross domestic product. It is a world record. The danger is that there might have been too many investments. Have there been too many houses or smelters built? The developers now have difficulty servicing debt. This can in turn lead to higher loan losses and a financial crisis.

The lesson from 2008 is that the Chinese authorities believed in the hard landing and stimulated too much. The result was an overheated property market and painfully high inflation. The government has tightened sharply in the past year which is partly reflected in the housing market. In Shanghai house prices topped out in September and have fallen every month since.

How soft?

The danger is that what started as a soft-landing in the Chinese economy ends up being not so soft. In order to achieve a soft-landing the authorities must turn growth over from being investment-driven and credit financed to being led by private consumption. The answer to whether this succeeds or not will be clear during the dragon year.

For the Oslo Stock Exchange and the Kingdom of Norway there is much at stake. China uses half of the world's steel and coal. A collapsed Chinese real estate market would hit mining, smelting and bulk shipping industries. Oil prices also live dangerously, albeit to a lesser extent. China uses a tenth of the world's crude but the country has accounted for 40 percent of global consumption growth since the turn of the century.

More than a thousand words

We included Intex Resources in to the Dovre-portfolio. The company owns a large nickel deposit in the Philippines and recently signed a memorandum agreement with a major Chinese industrial consortium for the sale of 90 per cent of this. This already made the stock price double.

If letter of intent is fulfilled Intex will be left with assets of around NOK 40 per share. This will send the stock sky high. Naturally the risk is extremely high. If the Chinese withdraw themselves the stock will probably head toward zero.

The chairman of Intex, Jan Westrum, apparently sees the sale being as good as completed. A week ago he bought own shares for 17 million at a price of 6.70, he owned no shares before this. Such action tells more than a thousand words.

Dovre-portfolio:

• Morpol
• Subsea 7
• BW Offshore
• Sevan Marine
• Fornebu Development
• EMGS

In: Intex Resources
Out: Subsea 7

 

 

 

 

 

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