The Sell-Down on Property Stocks

The widely watch US Dollar index, a measure of the dollar’s performance against a basket of six of the world’s major currencies, has plunged 15.1% since its high of March 4. It could potentially put the greenback in free-fall territory. It is plunging against the euro, the Japanese yen, the British pound, the Swiss franc, the Canadian dollar. It is even sliding against the currencies of lesser developed economies. On top of that, risk reduction and profit taking are among the theme that I am seeing to emerge in recent months, and likely to continue as amplified investors anxiety have crept in.

But on the other hand, as the US government imposed a new tariff of a 35% duty on imported Chinese tires, sparking speculation that Chinese government could retaliate with their own actions. With both sides at odds, the upcoming G-10 summit in Pittsburgh will keep this story in the headlines for some time.

If this turns out to be the case, the recent drubbing US dollar could quickly come to an end as the clash between two of the world’s biggest economies could force an escape into safe haven outlets.

One of the main casualties will be property related stocks. Singapore government, among other, put up measures designed to prevent future dramatic price swings in the residential property market. With immediate effect, banks and developers will not be allowed to offer loans on homes under construction, where the borrower need only put down as little as a 5% cash down-payment and defer payment of the principal until after building is completed. The government will reinstate its ‘confirmed list’ of land sales in the first half of 2010 and increase the supply of land available to developers.

And in China, while government officials are pleased to see a recovered real estate sector, they also are starting to worry that prices are rising too quickly, luring speculators into the market and turning it into an asset bubble - not an economic driver. Latest statistics show that housing prices in China's 70 major cities grew 1 percent in July from a year earlier - the biggest increase over nine months. China's property sales surged 60 percent by value in the first seven months. The A-share market also echoed the property sector's strong rebound.

More Asian governments are warning of speculative bubbles in real estate markets and they said they may take steps to cool an overheated market. Bank of Korea said it would lift interest rates if home prices climbed further.

It is really hard to find a time when these four factors worked together. Investors and policy makers should be alert to this. I re-call that in the recent stock market bubble in China, it collapsed from more than 6,100 points in October 2007 to 1664.93 points last October.