Last week, share market speculators drew breath rather sharply … as China’s 3-month growth in GDP to March, came in at “just 7.7%”.
True, this was down from the expected 7.9%; but it was still in line with China’s overall growth, throughout 2012.
However, let’s get real: Compared with anywhere else in the world, 7.7% is clearly an enviable figure.
How will China affect the Mining Sector?
You can undertake any amount of micro-economic analysis you like, in attempting to predict alternative scenarios for China’s future. But let’s just stick with the underlying fundamentals.
Right now, China is so far only about 50% urbanised — exactly where the US was in 1920. And China’s current steel consumption is 500 kg/person — the precise amount the US was consuming, at the same point in its urbanisation program.
It took the US from 1920 until 1975, before it reached the 75% level of urbanisation … and from there on, it has more or less plateaued.
During this period, US steel consumption peaked at 700 kg/person. And then fell back to 400 kg/person.
Given the lengthy time span, and the potential level of steel consumption involved … I will leave you to reach your own conclusions about China’s likely impact on our mining sector — even if you choose to discount this potential going forward.
And what about the US Economy?
Yes, there have been mixed messages flowing out of the US. But again, let’s focus upon the underlying determinants of consumer confidence.
According to The Saturday Age (20 April, page 2) the US housing market is now once more recording healthy price gains.
The well-regarded S&P/Case-Shiller home price index confirmed that prices rose on average by 8.1%, in 20 major cities during January. As you can see, there were some standout examples.
However, in addition to this fillip to consumer confidence, US companies emerging from the GFC have engineered substantial gains in productivity.
And therefore, while the US recovery may appear to be a little slow … the necessary ingredients are there for it to be sustained.
Bottom Line: So far this year, Australia has seen an unprecedented surge in overseas buyer interest for Commercial property — particularly from Asia.
However, you only need to look at the yield disparity between the rest of the world and Melbourne & Sydney, to fully appreciate why (see the chart at the top of the page).
Furthermore, overseas interest rates are far lower than ours — making the numbers even more attractive. And so, as this demand grows … prices will inevitably rise.