Click here for the PDF: The Weekly Beacon September 1 2023

We will be giving some macro economic market updates on a weekly basis. No equity recommendations will be given in this commentary, and we encourage you to contact us if you have questions regarding any observations.

Feel free to send in your pictures of lighthouses to be featured in our weekly commentary.

This weeks issue: Chinese economy, Chinese real estate, Chinese debt, Evergrande group, Chinese government versus financial markets, BRICS expands, China versus the US, BRICS oil dominance, China global investment, G7 versus BRICS, Mortgage rates, Home prices, Interest rates, Disney’s issues, Disney lawsuit, Disney profit margins, Sell side analysts, Nvidia stock, Stock prices, Valuations.


Chinese debt issues

Is China facing a Lehman moment? Maybe. Was the Evergrande real estate problem ever resolved? Not really. Were these questions slightly hyperbolic? Yes, but China is facing a serious debt problem that deserves to be looked at. The debt problems they face could stunted the country’s economic growth and could throw a serious wrench into the forecasts of many who believe(d) the Chinese economy will one day be larger than the American economy.

It seems China has some of the makings of an economic disaster. Their property developers remain under duress after over-leveraging themselves, and their economy seems to be in free fall with huge manufacturing, export, and employment misses.

We have talked about the Evergrande real estate crisis in depth in this publication but if you need a quick refresher:

The 2020–2023 Chinese real estate sector crisis is a current financial crisis sparked by the difficulties of the Evergrande Group and other property developers in China in the wake of new Chinese regulations on company debt limits.

In other words, some believe this could be a major Lehman moment for China. The funny thing is the event has kind of flown under the radar for some investors over the last 18 months as our domestic difficulties have surprisingly dominated the news. Many Western investors (including us) have also avoided investing in China in recent years due to the unpredictability of their authoritarian government.

Back to the current crisis.

The Chinese economy is struggling and so is its real estate market. Existing home prices fell by 9% in July. The steepest decline in a decade. The real estate market is extremely important to the Chinese population, as the property sector holds 70% of household wealth, well above the percentage for Western nations.