We at FxWirePro were caught on the wrong side in our trading/call in copper, in the wake of Donald Trump’s victory. While we forecasted a Trump win and warned that copper might defy our stop loss, we were reluctant to bet on the upside. And, as a matter of fact, we still are. While one of the major reasons for the upside in copper has been the win by Donald Trump as many of his policies are pro demand, many analysts cited the demand outlook improvement in China. Most of the inferences came from a housing price recovery in China, the sector that consumes most of the imported red metal.

We were reluctant because we were betting on the exact opposite. China’s housing sector is in a bubble, which could come crashing down once more and this time around it might take down a large chunk of the country’s financial sector.

This thinking is not an outrageous one if you are ready to learn from the History. Some examples to clarify -

• In September, the average house prices in China were up by 11.2 percent from a year ago and September marked 12 months of consecutive growth in yearly data. In Tier I cities, like Shenzhen and Shanghai the prices have gone up by 2 or 3 times of the average prices.
• You might say, so what but consider this – A pieces of land in Shanghai got sold at $2000 per square feet, almost 3 times the price of similar land in Manhattan, New York.
• The price to income ratio had already hit 9.2 in late 2015.

To add some comparison and perspective to that,

• At the peak of the US subprime Crisis of 2008, the total value of US Housing sector was 1.75 times GDP. For China, it is currently at 3.27 times GDP and forecast is that it would reach 3.7 times of GDP by end of the year. Japan’s great housing bubble did burst at 3.7 times GDP. So it is matter of time for China and the question – how much can it take?

In a country where 70 percent of the wealth of the household sector in real estate, the current signs are alarming.