Asset Bubble in Asia – Investing Strategies
You may want to watch Asia closely for the next few years. There is some stuff going on there that will affect your investing. Even if you only look for stocks to invest in here in the US, you will find that you can be extremely affected by what happens overseas.
Specifically, I’m talking about a possible asset price bubble in Asia. Let’s take China for example. They are growing so fast right now that the government’s central bank is trying to slow it down. Now to slow an economy that has this much momentum and is this big is like trying to slow down the Titanic. It won’t happen by using the controls on deck. It will only happen when it hits an economic iceberg.
Here is the other issue regarding numbers. If there is indeed an asset bubble, like I think there is, that is inflating the balance sheet of these countries unjustifiably. Let’s just say that the real estate market is overpriced by 50%. I’m not sure about that number. I’m just using it as an example.
If it’s overprice in aggregate by 50%, that means a huge portion of their economies balance sheet is showing essentially a fake number. Okay, it’s not fake, but it can and probably will have a fast fall.
Just take the tulip market bubble in Holland. If they saw a 5% increase in their GDP because of the prices of tulips went up by 1000%, you’d question that GDP number. A similar thing is happening in China.
I don’t want to get too much in the weeds, but just so you know to be watching your investments. Especially watch closely companies that have a significant market penetration in the emerging markets in Asia. Although the US stock market as a whole will be impacted, these stocks will especially take a hit.