Don’t make China more of a crisis than it is

There’s nothing like a mega-global stock market panic to jolt you out of your holiday stupor, is there? And if one slap round the chops wasn’t enough, we had Jefferies analyst Mike Prew calling the top of the property market with one of the most downbeat forecasts there has been for a while - since 2007, in fact.

I cannot have been the only one feeling slightly punch drunk by midweek after the stark warnings prompted by Black Monday (aka the Great Fall of China). The most bizarre had to have come from Gordon Brown’s ex-head of communications Damian McBride, who seized his moment in the social media sun to offer his not-at-all-unhinged (or hopefully serious) three-point “advice on the looming crash” (“get cash in a safe place”, stock up on bottled water and “agree a rally point with your loved ones” - yep, really).

Rather more credible and worrying was the fear expressed by Larry Summers, former US treasury secretary under Bill Clinton, that we could be in “the early stage of a very serious situation”.

But let’s not make China into more of a crisis than it actually is - or before it actually is. For one, while it was its currency devaluation earlier this month that set the dominos toppling, China’s economy has been slowing for a while, as you’d expect after years of phenomenal growth.

Moreover, markets are traditionally less liquid in August because it’s summer, so there is every reason to hope what we are seeing is a correction rather than anything worse. Even if things are not looking too clever for China, there could be significant upsides for the UK property industry. For one, it would mean low interest rates for longer. For another, it underscores the attractiveness of the market, not least to Chinese investors, who may paradoxically become even more interested as their own domestic market falters. To conclude we are on the verge of the next global financial crisis is surely premature. In short, we should beware the bears trying to muscle in on the bulls in the China shop.

Talking of bears, Mike Prew certainly seems to have a sore head over the UK property market at the moment. Could his forecast have been any more negative? There probably is cause to feel a tad unsettled. Property shares have outperformed substantially and there is a nagging feeling this trend may have run its course. And lest we forget, he called it right in 2007. But here’s the thing: it’s not 2007. The fundamentals are stronger. Rental prospects are good, there remains a fair spread between yields and cost of debt and lending is more cautious. The property cycle isn’t necessarily seven years anymore either. On the plus side, says one senior industry figure: “Some analysts are a bit samey. At least he comes out with brave calls.”

Well, he has certainly done that - and he may be proven right - but there’s a world of difference between calling something first and calling it early.