markets in danger

THERE ARE SOME QUITE DISTURBING REPORTS COMING OUT RECENTLY REGARDING THE DANGER OF STAYING IN THE STOCK MARKET IN THE NEAR FUTURE. I HAVE COPIED IN ONE FROM FN ARENA FROM TODAY. IT SEEMS TO INDICATE COMMODITIES TO DROP AND CHINA TO SLOW ETC.
Bluescope would also be seriously affected by any bubbles bursting etc.
My experience suggests that once this type of talk starts then eventually things start to happen and they tend to happen in a big way.

China Overheating?
March 19 2007 - Australasian Investment Review – (AIR)

It didn't take long for the Chinese Government to act to
try and further control an economy which is starting to
look like it is getting out of hand.
Interest rates have been increased to an eight year high
after a string of official figures last week revealed an
economy growing much faster than the eight per cent
target suggested by the government at the recent
People's Congress.
Last week we had strong retail sales figures for the
country for January and February, news that the trade
surplus in February skyrocketed to more than $US23
billion (the second highest on record) and then a report
revealing that industrial production also rose sharply
in the first two months of the year.
We've had a nasty stockmarket bubble which is worrying
countries around the world, inflation is now above the
authorities' comfort zone and even though industrial
investment seems to be easing, the government Friday
revealed the third increase in official interest rates
in a year.
(A bit like Australia and New Zealand, except the
magnitude of the situation in China is many times larger
with faster growth and a much larger economy: what could
be on the verge of being the world's third largest
economy in the next couple of months.)
China's one-year benchmark lending rate will be raised
to 6.39 per cent - the highest in almost eight years -
from 6.12 per cent with the high rate kicking in
immediately.
The move follows similar announcements in April and
August of last year. Last month it also ordered banks to
set aside more money as reserves for the fifth time in
eight months to rein in the money supply and cut back
lending for new business investment.
Commodity prices will take a hit from the news after a
very sharp rise in copper prices on Friday as world
stocks continued to fall on renewed Chinese buying of
the metal.
Normally a rise in copper prices would be bullish for
the Australian market with BHP Billiton and Rio the
leading stocks to benefit: but the rate rise in China
and the continuing signs of an economy starting to get
out of hand, will force some analysts and companies to
have a second look at the situation.

China is still growing but there are now concerns that
it is growing too quickly for the country's economic
health and for trade and political reasons: there are
growing suggestions the Democratic-controlled US
Congress is becoming more protectionist and might start
pushing for levies and other trade barriers on imports
from China.
The final straw seems to have been figures late last
week showing that the country's industrial production
accelerated in the first two months: production rose
18.5 per cent in January and February, according to
China's National Bureau of Statistics. That was after a
14.7 per cent increase in December.
The trade surplus rose from $US2.5 billion in February
2006 to a massive $US 23.8 billion last month and second
only to the record of just over $US24 billion last
October.
The growth in China's money has jumped to its highest
rate in half a year and inflation hit an annual rate of
2.7 per cent in February from 2.2 per cent the month
before.
The big fear is that the Chinese economy has moved into
hyper drive and the only way it can be slowed is by an
officially engineered crunch.
But the odds of the three rate rises being enough to do
that are not good. There's a bubble in industrial
investment, a bubble in the stockmarket and both place
added pressure on the government's ability to rein in
the madly charging growth machine.
There's growing concerns the higher trade surpluses are
being recycled back into China to finance the expansion
in investment (a glut in capacity in many industries is
looming) and the surge in the stockmarket, especially
since January (and including last month's sharp fall).
Official figures released a couple of weeks ago show
that an estimated 60 per cent of 600 consumer items in
China are in oversupply because of too much production,
not too little demand.
Consumers it seems are just being overwhelmed and the
surplus is being shoved on to the export market to try
and clear inventories.
Is China's economy getting out of control and starting
to overheat?
Copyright Australasian Investment Review.
AIR publishes a weekly magazine. Subscriptions are free
at www.aireview.com.au




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