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Global financial crisis(GFC) can also be known as market correction. It typically happens once every decade where the creation of a GFC is typically a result of economy downfall. Conventionally, the country or corporate must be influential and big enough to be vulnerable to dismantling the global economy. For example, 1997 GFC was the result of the property market collapse in Hong Kong, 2007/08 GFC was the result of collapse of Lehman Brothers in US. They both have a set of similarities if you evaluate a bit further:
1. Both cities (HK & NY, US) were pivotal as global financial hubs when GFCs happened,
2. Both GFCs happened because of real estate bubbles where property markets surged to a sky high/unsustainable level where the property prices are nearly 30 years of middle class people’s gross incomes,
3. Leading corporate banks in the countries have produced detrimental level of bad debts in their lending portfolios from the borrowings to clients in share or property markets,
4. Gloomy economy outlooks before GFCs with high unemployment rates, bad business trading conditions but property and/or share markets peaked regardless before the crashes
If we look at the GFC cycle, we are getting extremely close to the 10 years cycle in 2017. So hope everyone stays alert on your investments.
At the moment, there are two possibilities that may trigger next GFC:
1. Brexit: Following the Brexit announcement, pounds and property prices have slumped significantly. London securities exchange slumped but recovered and surge to a new peak. Employments, business operations, trading conditions remain uncertain and ambiguous.
Other consequences: Free trade policies between the UK and EU countries, immigration, work rights between EU countries and etc. Due to the uncertainties, big corporates would be hesitant to headquarter in the UK leading to a chaotic market condition. So it would take time to stabilise the trades between the UK and EU. During these periods, corporates would be opting to reduce the risk of losing money, i.e. putting expansion projects on hold => demands for commodities decrease => supplies increases => if politicians could not produce a functional solution, this would result in a GFC
2. China: China is now the second world economy powerhouse. It has two securities exchanges that enable shares trading, in 2014, both markets produced remarkable returns on every sector. But in 2015, all the gains from 2014 were completely wiped out where Chinese government literally pumped in awful lot of money to stabilise the markets. Chinese markets have been volatile and outlooks remain ambiguous.
At the very moment, all Chinese major property markets have been stagnating since 2015 so developers are struggling to sell their off-the-plan projects. Some developers have been repaying massive amounts of interests on a monthly basis for half a year now,and some constructions have been put on hold. This implies Chinese developers are cash strapped.
China cash reserve: The Reserve Bank of China reported substantial cash reserveback in late 2000s. There have been recent reports saying the China reserve is no longer in the positive end rather in the negative section. Though the debt level is not way near US.
Ghost towns: Ordos Cityin Inner Mongolia, Yingkou, Tianjing and few other cities that have hell of a lot of unsold projects. This has contributed to approx. 20-30% of the borrowings of corporate banks where some developers struggle to repay the debts.
Cash strapped corporate banks: There have been reports saying that few Chinese leading banks have been doing capital raisings in order to increase the cash reserves in order to operate the businesses rather than distributing dividends
In summary, I would believe China is more vulnerable to causing the world economy to crash especially because of its bureaucracy, so a lot of hidden truths are not accessible.
Why I think China is the reason that would trigger the next GFC:
1. Beijing: Global financial hub
2. Unsustainable property prices relative to salaries
3. Cash strapped corporate banks
4. Share markets have been strong in China this year
5. Developers struggle to repay the debts from ghost town projects
6. Developers struggle to sell their off-the-plan projects
7. China cash reserve is no longer in the positive end
My feeling is that both property and share markets are very vulnerable to the collapse. So I would advise people not to rely so much on investments now.
Lastly, these are just my personal view points. |
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老陶家常菜 （一） (2010-1-28) 老陶 
发表于 2016-9-12 22:40
