Stock markets all over the East fell like stones yesterday. Tokoyo dropped 3.3%, Shanghai dropped 4.1%, Australia lost 2.2%
Three things are conspiring. First, worries that China’s growth may slow, either by design (by choking back on all th elending and free money flowing out) or by accident (the credit pull-back precipitates a property and bank bubble burst). Second, as the euro weakens all eastern exports get more expensive for Europe to buy. Europe is devaluing, or at least allowing it to happen and in many ways the less indebted nations are HAPPY with this. Germany especially. Third, Australia is worried about its own bank troubles.
The Australian market has bled away 5% of its worth in the 5 days since Sunday when the government first announced its so called ‘super tax’ on mining company profits. The miners are fighting the plan and it may not happen. The markets are wondering does the government need this cash for a reason. What is so pressing that they are willing to poke a stick into the largest companies in Australia? I actually think the tax is a sound and equitable idea. But the miners don’t like it and neither will their customers (China) if the costs get passed along.
But it isn’t just this tax. Banking shares have tumbled in Oz. National Australia Bank’s profits lunged down 22% due, the bank said, to ” …accounting volatility from significantly lower movements on financial instruments”. Which means they have been writing down losses on derivatives, securities and debt holdings. Who’s debt are they exposed to? And how much? The bank tired to pain a rosy picture insisting everything is going to go well. But 22% doesn’t come out of nowhere and neither does it disappear back into nothing.
So far the East has benefited from their currencies being weak relative to the euro. A side effect of the Greek and PIIG debt drama is that Europe is devaluing without having to do it themselves. The markets are doing it for them.
Asia is not happy and there is much more drama to come from the lucky country, the middle kingdom and the land of the rising sun.
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