Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 29/03/11

with 4 comments

China has 64 million empty apartments

Regular readers of my twitter feed will know that I’ve been bearish on China for a good while now. I’m very nervous about the country’s property bubble and the consequences of its eventual bursting. Given the monetary authorities’ habit of turning up late to the party in this part of the world I wonder if the recent reserve requirement hike by China’s central bank – the 9th in 15 months – suggests that things are about to get very ugly. This video did the rounds today, and it’s a useful primer on just how serious the situation is. The most eye-popping statement in it – China has 64m empty apartments. Yes, 64 million empty apartments. Katie Melua once sang that there are 9m bicycles in Beijing. Not many will be singing about these millions of empty apartments.

Peripheral Europe gets a kicking – again

Speaking of authorities arriving late to the party, S&P’s “experts” downgraded Greece to BB-, keeping it on rating watch negative today, while it also downgraded Portugal to BBB- from BBB, also with a negative outlook. The downgrades prompted little by way of a reaction from the single currency, presumably because you’d have to be in a coma not to know how grave the situation in those countries is. Ireland will presumably be in focus come Thursday afternoon’s stress test results. All of this makes me wonder if the ECB will delay raising rates, which would be positive for the 400,000 Irish borrowers with tracker mortgages. If it doesn’t, we’ll have a situation where Ireland will experience inappropriate ECB rates on the way up as well as on the way down. Who knows how many more people here will be tipped over the edge when the rates do eventually move higher.

Online about to become the biggest advertising market in the UK

Research from the Internet Advertising Bureau said that UK online advertising rose 12.8% in 2010 to a record £4.1bn. This puts online second only to television (£4.28bn). I read a piece recently which argued that TV advertising was coming under pressure from newish innovations such as the ability to “pause” live TV and so on, which in practice often leads to the ads being skipped. Hence the new drive for product placement in TV programmes themselves (now permitted in the UK). I can’t see £4.28bn being spent on product placement though.

Treasure Ireland?

Treasure hunters are searching for a ship with a $260m cargo that was torpedoed by the Nazis off Ireland

The “knowledge economy”?

So, outside of Literature & Peace, how many Nobel laureates has Ireland produced? Only one – Ernest Walton (Physics, 1951). If that’s not an indictment of our education system, I don’t know what is.

AT&T – T-Mobile USA update

This is a good article: The Financial Case Against AT&T Buyout Of T-Mobile

Ronan Lyons blogs on Ireland’s $1trn worth of oil and gas reserves

Ronan Lyons has a good blog on Ireland’s supposed oil and gas reserves here. To emphasise, it’s written by Ronan Lyons. Got that? Ronan Lyons. OK? Now that all the cranks know where to direct the hate mail, here’s my view on it. We have seen a lot of hysteria about the supposed give-away of our energy resources to huge multinationals. The problem is, as Ronan correctly points out, that outside of this eye-watering estimate of how much oil and gas we have off the coast, not many people have had luck in finding it. Out of 130 wells drilled, only 4 have proven to be commercial discoveries. So, while it’s nice to think that we might have around 5x our GDP sitting off the coastline, it’s not likely to be a game-changer for Ireland Inc for a long time to come.

Irish Life & Permanent takes the plunge

(Disclaimer: I am a shareholder in Irish Life & Permanent plc). Shares in Irish Life & Permanent tanked in Dublin today on concerns about the government taking a stake in the bancassurer. Goodbody’s Eamonn Hughes has a good primer on this here.

Datalex reports its FY results

(Disclaimer: I am a shareholder in Datalex plc). From a corporate newsflow perspective, today saw results from Irish travel software maker Datalex. They looked solid enough to me, see here for the views of Davy and Goodbody.

By way of request

Someone asked me for a primer on junk bonds. This page – and the links off it – provides a solid enough overview.


Written by Philip O'Sullivan

March 29, 2011 at 2:51 pm

4 Responses

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  1. While this is a significant problem, more worrying is the question of what is actually owned? Land rights in China are non-existent, with apartment purhasers only having a 70 year right to use that is not automatically reset if the apartment is sold – this is because the land is owned by the state…..

    Further, mortgages on these properties are securitized (and these securities are not available to domestic Chinese domestic investors) with no ‘freehold’ ownership or leaseholds with an automatic right to renew. This is not only a recipe for a property disaster, it is a recipe for serious social unrest when things go bust……apartment owners have a declining value in assets and NO second hand market for selling at a loss because of the 70 year ‘leasehold.’ Foreign investors will get stung in the MBS market…..and if you think that sub-prime represented irresponsible lending, there is a lot of evidence that Chinsese state owned banks make them look like small potatoes…….Between the vacancies and the property market structure, I think you are understating the potential problems here…..

    If you want some of this evidence, please contact….


    March 29, 2011 at 8:15 pm

  2. Some good analysis there, as I said in my piece, things could be about to get very ugly.

    Philip O'Sullivan

    March 30, 2011 at 6:24 am

  3. Hi Philip,

    Really like the blog well done.

    As for your comments about Nobel Laureates – its mainly down to the size of the country and that science is not encouraged because it lacks a defined career path.

    Many of our brightest graduates in encouraged into medicine and law instance, and more esoteric paths are discouraged.

    While there is a Nobel Prize for Medicine, its not typically won by praticising physicians.

    William Mangan

    April 2, 2011 at 11:13 am

    • Thanks for the feedback William. I agree with your comments about the lack of encouragement of science here. It is something that urgently needs to be addressed if we are to be genuine competitors in an increasingly knowledge-orientated global economy.

      Philip O'Sullivan

      April 2, 2011 at 11:17 am

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