Asia Faces More Asset Bubbles

Business, China, Company Strategy, Economics, Japan, Olefins, Projects

Marc-Faber.jpgMarc Faber

Source of picture: http://www.cliffkule.com/2011_06_26_archive.html

By John Richardson

RECENT action by Western central banks will result in more hot money flowing into Asia, creating further asset-price bubbles.

Last week, the Fed launched QE3 and the previous week, the European Central Bank launched its bond-buying programme.

Equity markets in China could also surge by 10-20 percent, as they are relatively undervalued compared with the stellar-performing US market, says international investor Marc Faber, in this video.

Faber makes the point that the super-rich will search the world for undervalued assets, generating tremendous returns for themselves.

But he added that it was a “complete fallacy” that Western central bank action had already or would in the future benefit the average person in the street.

In fact quite the reverse will happen, as the super-rich become even richer at the expense of everybody else – until the world economy collapses, warns Faber.

For example, property markets could well take off again in China, as could speculation in chemicals and polymers, as all the hot money seeks strong returns.

The existing high cost of homes in China’s major cities is already a cause of social tension, said to be one of the factors behind the anger being vented against Japan over the East China Sea islands dispute.

China might face a tough choice: Either allow all this hot money to further inflate and distort its economy, or impose restrictions on the flow of overseas funds.

Perhaps it might decide to “join the party” by launching a big new economic stimulus of its own, in an attempt to deal with its industrial slowdown.

Living with inflation in excess of 5 percent per year would carry significant political risk – because of increased resentment over an even wider gap between the rich and the poor.

At the moment, though, it seems as if China cannot take major economic policy decisions, as it is too wrapped-up in its highly contentious leadership transition.

At the level of petrochemicals markets in China, which, of course, reflect the real economy, rather than the surreal world of super-rich investors, the demand outlook remains incredibly bleak.

The commodity polyethylene (PE) market, in terms of profitability, is the worst it has been in 15-20 years, we have been told.

PE prices were this week said to be as little as $50/tonne above the cost of ethylene, reflecting the inability of producers to fully pass-on the surging cost of oil.

And, of course, oil has gone up not because demand has got better, but rather because of all of that hot money flowing into commodities.

PREVIOUS POST

Asia Top Ten Chem Companies

17/09/2012

By John Richardson SINOPEC’s remarkable rise in the petrochemicals busines...

Learn more
NEXT POST

Saudi Arabia To Boost Oil Output

19/09/2012

By John Richardson SAUDI Arabia has offered its main customers in the US, Europe...

Learn more
More posts
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read
Pandemic and the developing world: No quick and easy solutions
01/09/2020

By John Richardson POVERTY alleviation in low-income developing countries could be set back a decade...

Read
The pandemic and petrochemicals demand: a whole new approach is required
30/08/2020

By John Richardson MONITORING demand has never been harder because of the pandemic. One of my collea...

Read
China’s limited policy options to help lower-paid workers make 2020 retail sales recovery unlikely
25/08/2020

All the data comparisons below are on a year-on-year basis By John Richardson AS I’VE been flaggin...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more