The Dows/DJIA hits a record high today amidst the drop in the dollar value causing the Euro$ to hit a record high against the USD$. The Singapore STI index have also hit a record high of 3800+pts as stock markets across all region rose significantly signalling that the US subprime mortgage credit crisis has eased.
But is it really over? Or just a death trap awaiting to sprawl on the world largest economy. Its like a major conspiracy. News of Dubai and middle east furiously buying up undervalue stocks during the subprime mortgage turmoil and the recent announcement of China launching its Investment Corp with trillion of funds to play with. Can you imagine what will happen to the US economy if China Investment Corp owns significant percentage of the S&P 500 companies? Obviously, the chinese government's refusal to revalue its RMB has a certain reason behind it causing a big hoo haa to the US feds.
The sleeping dragon has awaken.
China has overtaken Japan as the economy with the largest trade surplus with a forex reserve of $1.33 trillion(as of 11 JUL 07). As crazy as it seem, China seems to be the next super power that could shake the world's economy. China stocks has been soaring in recent years as Jim Rogers pointed out, China is the future. Truth is, No matter which part of the world u travel to, you'll find products or souvenirs having a stamp saying "Made in China". Nearly all countries, there'll be a chinatown. With Macau and HongKong boosting China's economy, i would be surprise if China remains in its conservative state. But with the devalue of US$ and the slowdown on US economy, China's manufacturing sector might be affected.
On a personal note, China is still majorly undeveloped and many people are still living in poverty. Healthcare, water, energy and transportation are still widely scarce in poorer rural areas. I do believe in the near future the wealth gap in china will be extremely wide and it risk falling back into the medieval days of lords and slaves. Looking at the amount of extremely wealthy businessman from the mainland moving out, with leading examples from Russia, maybe communism has evolve agressively?
China is finally seeking its vengeance since the day of the invasion of foreign powers after retrieving HongKong and Macau. The next big thing will be what Japan did, invading the world by using its economic powers.
China resisted devaluation of its currency during the Asian financial crisis of 1997-98, and this provided a key element of stability that contained the crisis after most other Asian developing countries were forced off fixed rates.
China has unpeg its currency from the USD$ after 10years but a floating currency this could make China more vulnerable to future financial crises.
However, China is protected by having huge currency reserves of $750bn (SGD$1300bn), built up by its years of trade surpluses. But many of these are in US Treasury bonds, which will become less valuable to China after its revaluation.
So China may start to switch from holding dollars to holding other types of currency, for example the Euros, which could lead to a sharp fall in the value of the dollar. It could also make it more difficult (or expensive) for the US government to finance its massive budget deficit.
So is the US credit crises over? Think again.
Its off the worse but its not over...
