Severe, Sharp, Short, and Sweet

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

August 2008

Investors and clients appear to have a dilemma these days. On one hand, they recognize the investment potentials which the emerging economies, China included, can offer. On the other hand, these developing economies are relatively unseasoned and immature and concerns on them are not limited to economic ones.

In short, they sense the return potentials yet the risks remain somewhat illusive despite all the expertise and quantitative tools. The investment challenge is compounded when some of these investors e.g. investment funds have an obligation to place the investment capital assembled expediently, even when the markets have risen to a certain level and ‘good’ deals are not easy to come by. The concern for risk is not unfound.  

However, this does not imply all is lost for the investors because while they (and we) may not be able to see into the future, they can certainly prepare themselves for market eventualities, especially those of a more drastic nature and unexpected impact by e.g. not leveraging themselves to the tilt, setting aside some capital-cash to capture opportunities offered by such eventualities, and the like.

By no means this article is intended to predict anything and regular readers of our analytical articles would realize we normally do not predict about the future, one reason being prediction is a highly difficult if not impossible task. Based on the published real estate data and related information, there seems to be some market supply and demand mismatches here and there but no major or drastic conditions, at least not yet. Nonetheless, surprises, of both the pleasant and the unpleasant, do occur and thus it is always prudent to maintain a certain level of alertness and ‘what if’ mentality.  

Despite the foregoing, we think IF there is to be any market eventuality in China, such an eventuality is likely to be:

1)     Severe = in terms of the degree of changes in market conditions including asset prices etc (if not, why should we be concerned about it?)

2)     Sharp = in terms of the speed of such changes in market conditions

3)     Short = in terms of the duration of such changes in market conditions

4)     Sweet = in terms of such changes being music to the ears of the ‘prepared’ investors 

Do we have any solid and proven-beyond-any-doubt reasons or evidence for such an expectation i.e. the eventuality, IF and when occurred, is going to be severe, sharp, short, and sweet? NO, we do not but the following angles may help:

1)     All the major developed economies in the world today had gone through similar market eventualities when they were themselves emerging = despite the severity of such eventualities at times, they had all managed to not only recover their lost ground but also gain in strength and maturity, and all in good time too

2)     A form of ‘fighting’ spirit = just as some people give up at the first sight of difficulty, many others will decide to endure and persevere. Character counts. Likewise, whether an economy (country) could endure and persevere under very difficult circumstances, one may look at its character in addition to more tangible items such as financial reserves, GDP, know-how etc. While China has still a long way to go in terms of economic-social development, she has also come a long way since 1978 when she first opened up. In the process, she appears to have not only accumulated some wealth which could help counter in part the unexpected eventualities, if any and if occurred, but also developed a sense of persistence and perseverance which are probably more important in countering such market eventualities.  

In short, even if a market eventuality is to occur (just a hunch = do be careful in 2009), we bet China is going to persevere through it and to become even stronger, and this may spell opportunities to some investors.  

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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