My take on this: It seems that the Chinese government overshot its attempt to curb housing prices that began earlier this year. This is similar to the current housing market in London, UK (where the home prices of the most affluent borough fell the most). The reason behind home buyerss pessimism all boils down to anticipation of higher mortgage rates due to government/central bank measures. But these do not just impact the property sector - if people anticipate higher mortgage rates, they also would expect higher benchmark interest rates, so inevitably equity markets would be adversely affected as investors shift to the fixed income domain. This is exactly what is going on in the US right now: with the recent slower growth in the US economy, investors are betting that the Fed will raise interest rates later than previously expected. As a result, US stocks rally (I am quite happy about this myself coz 75% of my personal stock portfolio are invested in US equities.). I believe the moral behind these recent developments across three different continents is this: to be a successful investor today, one must keep ones fingers on the pulse of the government, predict what the government of that country wants to do next. I have read both of Benjamin Grahams classic literature on value investing and definitely agrees with Graham that company fundamentals is a key metric to make intelligent investment decisions. But it seems that in the current markets today, government measures are the biggest factor that influence stock market movesments. Even the most seemingly trivial announcement by a countrys government/ central bank can cause the stock price of a good (by Benjamin Grahams standards) company to stumble. On this note, I strongly urge other prudent investors today to be wary of government sentiments, which can lead to artficially irrational market conditions.
Posted on: Mon, 18 Aug 2014 09:27:48 +0000
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