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9 Months, Financial Crisis may happen – Arturo Bris of IMD

Posted in Crisis News, and Property related

IMF said there’s a possibility of property bubble in Malaysia. There are truths there, especially the overpriced condos still empty after 1 year of key handover. However, everyone sits up straight when someone prominent enough tells you an exact date when the financial crisis may happen, again. For those who are overstretched by choice today, perhaps it is time to unwind some of your positions or risk losing it all if the below prediction comes true. There’s just no need to risk everything.

In a news.com.au news the following was reported. Arturo Bris, a finance professor at Swiss business School, IMD and who has taught Yale a few years said that based on his statistical analysis, the world could expect a crisis within 9 months or as early as April 2015, lasting a year.

These are his reasons:

A stock market bubble: “In the past year, stock markets have performed unrealistically well and at some point the situation will explode.”

Banking in China:“A severe crisis could be driven by growing Chinese shadow banking.”

Energy crisis: “If the US (the world’s largest producer of gas) begins exporting to the rest of the world, Russia might feel threatened, causing a geopolitical storm.”

Another real estate bubble: “There is a risk of a property bubble forming in countries like Brazil, China, Canada or Germany.”

Ratings and bankruptcy crisis: “Companies currently have too much debt and the new norm is to have a BBB rating.”

War and conflict: “There is increasing geopolitical tension. Events like the current crisis in Crimea could trigger a market crash, even if there is no war.”

Increasing poverty:“Overall world poverty has increased and whenever the poor become poorer, we can expect a social conflict.”

Cash and hyperinflation:“The surplus of cash that central banks and corporations are holding could end up damaging the economy.”

 

Briefly, explaining each of them.

A stock market bubble. This is also true for Malaysian stock market. The PER is now at close to 17 times. Personally, this is considered very high to me. Just be careful with the stocks you buy. There are still value but on a whole, it’s HIGH.

Banking in China. Seriously, I do not think this will happen due to China’s available options but then again I am not an expert in banking.

Energy Crisis: I have no idea about this though if we are talking about relationship, US has not been having good relationships not just with Russia but with many other nations including Germany and China.

Another real estate bubble: Brazil, China, Canada, Germany. Personal comment on China, the property prices there are more expensive in secondary cities even when compared to KLCC. Yet the per capita income is lower. Brazil’s economy meanwhile has not been doing great for a few years already.

Ratings and bankruptcy crisis: Personally, if there companies have more debts than its total business, please stay away no matter how much they say the prices will go up. Better be safe than sorry. BBB rating to me is a very bad level already.

War and Conflict. Personally, I think this is limited to certain areas / countries and is unlikely to be the major reason for any crisis. There’s really no reason for any of the super powers to make enemy of each other. Issuing strong one sided statements perhaps but taking actions?

Increasing poverty. If we take Malaysia as an example, we see online news continue to talk about people unable to make ends meet and they quote a few examples. Yet, whenever I go Starbucks, it is full of people. I have no idea who’s right.

Cash and hyperinflation. I think one main reason for inflation would be property prices going up. As for cash, I think majority of the countries have taken a lot of cooling measures. Even for Malaysia, the transactions continue to slide year on year though prices continue inching up.

There are many things you need to read and analyse before any conclusion can be made. Truth is, even when market is good, never ever bet everything you have because the next crisis, to me will come uninvited and definitely not going to be a predictable one. 9 months? No one knows if it may just be around the corner if the war in the Middle East escalates and the oil prices go crazy, causing many countries to also go crazy in the process.

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17 Comments

  1. racistmalaysian
    racistmalaysian

    I’ve told you that we’re heading for a crash. Still not believe?

    July 18, 2014
    |Reply
    • Crash is a likelihood due to many reasons. One of them being prices way too high for comfort. Another being another financial crisis worldwide.

      July 21, 2014
      |Reply
  2. Ang
    Ang

    Hi

    I was told by one of my friends saying that she believes that her condo is likely to appreciate up to 1milion for the size of 1050sqf in future (maybe 5-10 years). although, the condo is seaview located in Tanjong bunga somewhere near to Surin apartment, it looks like people is still optimistic and continue to dream about that.

    What do you think?

    July 21, 2014
    |Reply
    • racistmalaysian
      racistmalaysian

      If the condo is well liked by foreigners, it will go to RM1mil because foreigner can only buy RM1mil condo (RM2mil for landed). If your friend’s condo is predominantly local, then your friend can continue to dream. This is because no local in their right mind will want to buy a small 1050sqft condo with RM1mil even if they can afford it. And of course, 95% of Penangites will not afford to buy RM1mil condo unless they combine salary with wife (which also not likely to be affordable for 85% of the Penangites). My condo in Georgetown is RM700k already. My property agent told me to sell it now because it will go to RM1mil easily next few years. I am very happy when he told me that but after thinking for a while, I think its just bullshit. Even RM700k now is hard to sell. No one can really afford it unless outsiders from KL or maybe gwailo.

      July 22, 2014
      |Reply
    • Ang
      Ang

      Agreed.

      July 22, 2014
      |Reply
    • sideshowsteff
      sideshowsteff

      Hi Ang. Yr fren hv a realistic projection. On average, property appreciates 6% per annum. In 10 yrs time the property wud hv doubled. Forget abt the sharp increase for the past 4 yrs. They r off the chart. How long she takes to sell it off is another story la.

      When talking abt property crash, its not abt whether it will arrive or not, it is when it will hit. Hold 30 yrs wor (or more), sure kena at least 2 or 3 times lor. Just hv enough cash to standby in case cannot rent out.

      October 20, 2014
      |Reply
  3. pgboy
    pgboy

    5yrs down d road….u will notice hey….price did increase…..

    July 22, 2014
    |Reply
    • Price has to increase because all the inputs are increasing in price. Unless developers dont buy expensive land, declare no bonus, no increments etc. Even inflation will make sure price increase. But not every type off property. Some are just too over priced.

      July 22, 2014
      |Reply
      • racistmalaysian
        racistmalaysian

        Well in 2011 to 2014, house price increase double. I don’t think input increase double. So I’m sure the house price can sustain 50% drop.

        July 22, 2014
      • Yes, there are truths in that. Without extreme condition, I m not sure if what you say may come true.

        July 22, 2014
      • racistmalaysian
        racistmalaysian

        The price double up from 2011 to 2014 is due to extreme condition like cheap and easy credit with DIBS. Extreme condition for it to fall is not known yet. But non extreme condition currently facing property is huge household debt over GDP, loan rejection rate, increase BLR, increasing GDP (less money to buy more expensive house) etc and finally oversupply. Sometimes drop might be very subtle. You might not notice it and suddenly you find yourself in property crash condition. Let’s say flipper A sell 10% cheaper. Another sell 10% cheaper than flipper B. This will continue if the current market condition persist when more DIBS condo VP’ed.

        July 22, 2014
    • Ang
      Ang

      Hi Pgboy,

      From what substance, do you think the price will increase, and how much it will increase for 1050sqf in Tanjong bunga? please elaborate.

      July 22, 2014
      |Reply
    • racistmalaysian
      racistmalaysian

      Let’s say 2015 property crash 50%. Then 5 years down the road, it increase 10% from the 2015 price. Yes it do increase. But increase after crash. Same like USA. It crash in 2008. It does increase in 2014 but it never increase above 2008 price.

      July 22, 2014
      |Reply
      • Five years at 2% per year for recovery is very unlikely. Then again anything is possible. It is not an Apple to Apple comparison when we look at our market versus the US. There, it was driven by cheap credits n pure speculation. Everyone was buying to flip then. In Malaysia fortunately for market or unfortunately for some borrowers, it is not easy to get approval for mortgages.

        July 22, 2014
      • racistmalaysian
        racistmalaysian

        I think depend on location also. Maybe those affected are faraway location. Those prime location still be affected but lower percentage drop and higher percentage during recovery. I still think that approval for mortgage prior to 2014 is quite easy. Now is harder with 50% loan rejected. This loan rejection also partly blamed for current slowdown in property.

        July 22, 2014
  4. sideshowsteff
    sideshowsteff

    Many people think there’s a property bubble going on and they r waiting for the day it crashes to buy in. Well, they r still waiting. Someone said in a formerly leading property forum tht property market is gonba crash 6 mths after election. He was so confident tht he even sold his house to stand buy to grab em when they fall

    Few days ago I bought some shares for the first time based on my fren’s research. And i can rely on him because he is an overly cautious person who dun believe in buying property. Well we know what happened to the stocks market these few days. Down 30% in 2 days. It was not for the faint hearted. Comparatively, buying property is boring and more forgiving. It is still the best investment vehicle in Malaysia.

    With so many ppl on stand by to support the market when it fall, the effect will be cushioned. Buy relatively affordable products so u hv a bigger pool of prospects. At least u wun find yr property down 30% in 2 days.

    October 20, 2014
    |Reply
    • Your investment in share is still an investment as long as you have not sold. After all, even FD pays you interest only after one year. 🙂 The most important is not to predict with accuracy but to buy objectively because if you can predict, it’s because you happened to be lucky. The sad part is, no one can be lucky all the time….. cheers!

      October 20, 2014
      |Reply

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