My concern for the Chinese real estate market is growing greater as builders continue to increase supply despite falling prices and demand. This is the worst case scenario for prices and the positive impact for Chinese GDP growth due to continued construction is nothing more than a sugar high, which will dissipate as demand wanes. While Chinese growth has had a hugely positive impact on commodities and manufacturers such as CAT or DE, we think there is a tremendous risk that the situation is likely to get a lot worse. I’d be wary of depending on very optimistic China driven growth as you can’t keep building buildings that aren’t needed, as eventually the bubble will burst.
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