While the U.S. saw their home prices plunge and begin to recover, China and Canada have still been in what's been considered a housing price bubble. China even more worrisome when you consider their large shadow banking system (alleged to be 25-30% of their entire financial system) which runs behind the scenes and basically ignored by larger banks. They are, after all, providing a service to small business and investor but at risk and what cost?
(China home price index to the left - Canada's home pricing index to the right. )
In 2013 Fitch estimated China's shadow banking system represented an astounding 60% of GDP. Yep, 60% and no one's paying attention to the children in the playground? Mind blowing. For all the complaints here in the US over government regulation, they are there when we need them; pulling on the reigns and don't wait until the child runs into traffic in front of a truck. Well, they usually don't.
In any case, China's credit-market gauges are triggering alarm bells, as banks grow cautious in lending to each other while investors prefer the safest government bonds. Tightening credit markets; where have I heard that before? The spread between the two-year sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007.
Many have been concerned if their China's housing bubble (and Canada's too although it's odd not many talk about it - China must grab more headline reads) and pondering if a crunch in China would lead to a 2nd global meltdown. It hurts my brain just thinking about it but maybe that's why many Corporations are holding vast amounts on cash on their balance sheets......just in case.
Premier Li Keqiang, we await your further efforts to curb leverage in China. Will you de-value your Yuan or let the failures begin? Things cannot go up indefinitely and the Fed will be easing off the QE pedal in the US. I am not short China nor Canada and their charts (GXC EWC) seem to be tightening; eventually a move one way or another will come. Should they beware the Ides of March?