When strange tales of copper to cash merge into investing in property
We hear of a curious tale involving copper and China's property market. Rich Chinese looking to invest in domestic property run up against banks which are under government orders to cut lending for property speculation.
To get around this difficulty, according to the Evening Standard of London, punters instead get a loan to buy copper, sell the metal for cash and invest the proceeds in the property market. The paper tells us that, according to specialists, this has been a massive trade which Western metals traders have serviced for years. It suggests that if the Chinese property market stops rising, then copper prices will tumble.
We are not convinced - and view this as just another way in which mainland Chinese, who have difficulty getting credit, use copper to skirt restrictions on short-term loans. These are then rolled over, using the copper as collateral, to finance property purchases.
The worry surely is: what happens to Chinese banks should the copper price decline significantly, making it difficult to service long-term property loans? One blog suggested that soya was being used in a similar way. But it has long been assumed that loans for 'working capital' by mainland companies have been used in ways the lending banks may not be comfortable with. We live in interesting times.
Offering a different view
The initial public offering of luxury goods company Prada has provided a rich source of material for us to chew over in the past couple of weeks. We are happy to provide a more detached view of the deal courtesy of Dealogic.
