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Daily Intelligence Briefing

May 12, 2014

The idea of a “new normal” of slow growth and weak markets in western economies has found a new home in China. After annual GDP growth slowed to 7.4% in the first quarter, the leadership is managing expectations down even lower: the president says the country needs to “adapt to the new normal” and the central bank has ruled out easing reserve requirements and insists there will be only minor adjustments to “fine tune” policy settings. Meanwhile, home prices have slowed into the single digits, housing starts are down by a fourth from last year, and unsold residential floor space is up by a fourth.

Developers are already feeling the sting in their Hong-Kong listed share prices. But the biggest hit could be to local government finances that rely on property sales: as much as a third of municipal debt is backed up by land sales, so a sustained downturn in prices and turnover threatens a much harder landing. Some analysts believe the drag from real estate alone could lop off a percentage point from GDP growth … but analysts also believe that the government will step in with more stimulus if needed. They launched a mini stimulus last year and did so again earlier this year. Rhetoric aside, the odds are high that the planners will step in once again with administrative commands to shore up the economy.

 

HOUSE PRICE GAINS ARE LAGGING ALIBABA’S MONEY MARKET FUND

 

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Today’s Issue Cluster: China Real Estate

  • China’s president manages growth expectations down further and says the country must “adapt to the new normal”
  • The central bank chief downplays any big stimulus or imminent cuts in reserve requirements and says it will only “fine tune” policy adjustments
  • Home prices have slowed into the single digits year on year … investors are buying wealth-management products instead
  • New housing starts are down by a fourth from last year while unsold residential floor space is up by a fourth or more across the major cities
  • Declining land sales are crimping local government budgets …. a third of local debt has been guaranteed by land sales
  • Analysts say it’s not longer a question of if there’s a bubble but rather how big … Nomura and UBS expect at least some government stimulus
  • Total debt is still growing faster than GDP

Best of the Rest

China – All the talk about deleveraging aside, credit is now twice the size of the economy and is still outpacing GDP growth

Retail – Barnes & Noble gets back to its roots and plans a big expansion of its college stores

Ship – Pirate attacks are down globally but are surging in Southeast Asia

 

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About McAlinden Research Partners:

McAlinden Research Partners, a division of Catalpa Capital Advisors, provides daily, weekly, and other periodic reports that identify actionable investment themes early. As students of change, we specialize in the identification of critical inflection points for asset classes, industry groups, and other clusters of securities. MRP reports complement the individual investment styles of clients by guiding them to where they can find investment opportunities. MRP clients include pension funds, sovereign wealth funds, private banks, asset managers and wealth advisors from around the world.

Disclaimer:

The information provided in this presentation (the “Report”) is not to be reproduced or distributed to any other persons. This Report has been prepared solely for informational purposes and is not an offer to buy/sell/endorse or a solicitation of an offer to buy/sell/endorse Interests or any other security or instrument or to participate in any trading or investment strategy. No representation or warranty (express or implied) is made or can be given with respect to the sequence, accuracy, completeness, or timeliness of the information in this Report. Unless otherwise noted, sources for public data include Bloomberg, Trading Economics, and FRED (Federal Reserve Bank of St. Louis Economic Data).

McAlinden Research publishes daily, weekly, and other periodic reports on the economy and the markets. Catalpa Capital Advisors, LLC (CCA) is a Registered Investment Advisor which manages client accounts. References to specific securities, asset classes and financial markets discussed herein by McAlinden Research are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Securities discussed in the Report may or may not be held in accounts managed by CCA and/or its associated persons, and changes in those accounts may be made at any time without notice to its subscribers. Neither McAlinden Research nor CCA is under an obligation to inform research recipients if any accounts managed by CCA subsequently purchase or sell securities discussed by McAlinden Research and they do not anticipate providing such information.

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