Let’s take a look at two global economic updates that happened last week that investors should take note of. First on our list, we take a look how the Aussie dollar continues its slide following comments from the Reserve Bank of Australia. Next, we’ll look at the Chinese property market and how there may be further property curbs after home prices surged 21%. RBA talking down the Aussie Dollar The Aussie dollar has climbed almost 50% in the four years ended Dec 31 as the nation was spared from the 2009 global recession and a China-led mining investment boom…
Let’s take a look at two global economic updates that happened last week that investors should take note of. First on our list, we take a look how the Aussie dollar continues its slide following comments from the Reserve Bank of Australia. Next, we’ll look at the Chinese property market and how there may be further property curbs after home prices surged 21%.
RBA talking down the Aussie Dollar
The Aussie dollar has climbed almost 50% in the four years ended Dec 31 as the nation was spared from the 2009 global recession and a China-led mining investment boom spurred growth. The currency’s resilience resulted in a tight spot for manufacturers and tourism operators in Australia, which in turn, sparked job cuts at foreign companies operating in Australia such as Ford Motor.
With the dire situation made worse by China’s slowdown; the Reserve Bank of Australia (RBA) has progressively cut rates by 2.25 percentage points in the past two years to 2.5% as it aims to boost industries outside resources that have been squeezed by the currency’s strength.
The Aussie fell 0.6% to 91.78 U.S. cents in Sydney after touching 91.68, the lowest since 9 September. It has crashed 2% since 15 November; drifting near a fifth weekly drop amid speculation the nation’s central bank will take steps to curb currency strength. The governor has sought to exert pressure on it by maintaining an easing bias, even as evidence mounts that record-low interest rates are stimulating housing.
Reserve Bank of Australia Governor Glenn Stevens said, “Our position has long been, and remains, that foreign exchange intervention can, judiciously used in the right circumstances, be effective.”
“There is caution in the market that the RBA may cut rates if the Aussie strengthens,” said Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
A steep fall in the Aussie dollar may prove to be a bane to Australian-based companies listed on the Singapore Exchange. Companies such as Ausgroup (SGX: 5GJ), Civmec (SGX: P9D) and Tat hong (SGX: T03) are predominantly engineering or construction firms servicing the oil and gas and resource industries across Australia. They have all reported lower earnings due to the impact from soaring currency translation losses than before.
Fast Rising China home prices may lead to tightening
As home prices in China surged 21% from a year ago in four major cities: Shanghai, Guangzhou, Shenzhen and Beijing; the government has taken measures to rein in home prices – second-time home buyers now pay at least a 70% down payment.
Nevertheless, fast rising Chinese home prices is likely to fuel sentiments of greater tightening in the short to mid-term. Most Chinese stocks fell after a manufacturing gauge declined and on speculation the government will announce property curbs.
“There’s concern about more curbs in the property market,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “With property prices going up and talk of higher taxes, there are a lot of concerns and uncertainty about how taxes are going to be implemented.”
China may also use a higher tax rate in its property tax trials and increase “significantly” the scope of residence properties that must pay the tax, the China Securities Journal reported today. The cities of Shanghai and Chongqing have already started experimenting with property taxes.
On the other hand, SGX-listed Capitaland (SGX: C31) seems to be going against the odds by continually expanding aggressively in mainland China, despite the government’s efforts to cool the market.
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