The Valor Blog.
Investment News and Views, Direct from Our Team.

China has to slow fixed asset investment at some stage…

Great article here from Andy Xie. The big China slowdown in fixed asset investment has to come at some stage. The question is whether they take their medicine now or get quite sick in the next few years…

Either way, those holding onto the hope that China can keep growing forever at their current growth rates, I think Andy sums it up quite well:

China’s FAI is so vast that sustaining rapid growth would surely bankrupt the country soon. FAI has tripled in five years to the current level of 70 percent of GDP in nominal value. If it triples again, the amount would become bigger than the economy of the United States. There wouldn’t be enough money in the whole world to fund it.

This is why I feel comfortable about not holding any of the Australian Miners.

How much this affects the Aussie banks is a less certain, however I would guess that West Australian, Northern Territory and other mining dependent property areas will have a reasonable amount of de-leveraging of their properties. Add this to a weak Victorian market and an already decimated Queensland market and the mainstay of the banks, that is property assets, is not looking overly promising. At the current elevated prices for the banks, I think there is significantly more risk than shareholders are factoring in.