The Wall Street Journal reports,"shares weakened in Asia and Europe as news of slowing house price growth in China raised concerns about the health of home lenders in the world’s second-biggest economy. Meanwhile, the bond market is looking optimistically at the remarkable developments in the Ukraine, which are already prompting a 180-degree shift in the country’s geopolitical orientation away from Russia and toward the European Union.
The market response to the developments in China’s property market demonstrates the bind that the government is in. Their policies of restraining credit appear to be having some success, but that success is precisely what everyone fears. The global response is perhaps a mark of how investors believe there’s a bubble in China that needs to deflate and that this poses risks to its banking sector".
UKRAINE: Former President Viktor Yanukovich’s fall from power and flight from Kiev has handed victory to the protesters as an acting government takes power. Calm has settled on the country for now and hopes have risen for a civil resolution to Ukraine’s complex political and financial situation. The acting Interior Minister declared Mr. Yanukovich a fugitive and said it was opening a criminal case into the mass murder of civilians. Meanwhile, attention turned to the Ukraine’s desperate financial situation, with the acting Finance Minister saying the country would seek a loan from the U.S. and Poland and that it would call a donor conference with the IMF and E.U. The E.U. said that an aid package that had been part of a trade agreement abandoned by Mr. Yanukovich could be revived if that agreement was put back on track.
The immediate actions of the new government amount to a quick reversal the Mr. Yanukovich regime geopolitical orientation, which looked to Russia over the E.U. That will satisfy Brussels and the U.S., but it won’t guarantee that the country avoids financial collapse. It needs around $35 billion in foreign assistance during the coming couple of years and it remains unclear how Russia, whose control over natural gas supplies lends it significant influence over Kiev, will respond. For now, Ukrainian sovereign bonds have rallied, but there remains considerable uncertainty.
CHINA: Chinese new-home price growth slowed in January for the first time in a year, according to new government data, in the strongest sign yet that lending limits and an oversupply of housing in some cities are reining surging prices. Average new home prices in 70 Chinese cities rose about 9% in January compared with a year earlier, according to Wall Street Journal calculations based on data released on Monday by the National Bureau of Statistics. While that figure shows China’s housing market remains frothy, it also marks a drop from December’s 9.2% rise as well as November’s 9.1% rise.
Beijing’s efforts to cool real-estate prices are finally paying off but the government still has to walk a fine line between cooling prices and crushing the sector, which remains an important driver of economic growth. All eyes are now on the annual National People’s Congress in early March for details on further property-sector policies. The government has said it would speed up property-related tax legislation, but hasn’t revealed the extent of the changes for property taxes or capital gains taxes.
