Global Economic Expansion Ahead, But China's Real Estate Bubble The Next Threat

The world's economy is entering a period of self-sustaining growth and will fully exit the worst slump in six decades a year hence.

The global equity market rally is now nine months old. And heading into 2010, it is difficult to argue that investor sentiment is overly bullish on equities. Because of the combination of low inflation, reasonable public policy, decent profit growth and reasonable valuations, we believed that the global equity rally that began in March 2009 was the beginning of a multi-year bull market.

Now, just months later, the question on everybody's mind has become: How strong will the global economic recovery be? Source

We might be tempted to envy China's spectacularly resilient real estate boom: After sagging in the global financial meltdown of 2008, property values in China's urban centers skyrocketed in 2009. Shanghai's Pudong district, for example, experienced a 57% rise in a matter of months.

By comparison, residential real estate in the U.S. is up 3.4% on average from its bottom in May, but still almost 30% below its peak in April 2006.

However, those admiring China's reflated housing bubble might be careful what they wish for, as the new real estate bubble in China is even more precarious than the one which imploded in 2008. Source

Who is telling the truth about China? Who do you trust more, the Chinese government or the politically connected folks at the helm of Goldman Sachs (NYSE:GS)?

For years, the Street has looked at any Chinese economic data with a wary eye. Without the checks and balances of a democratic government, Beijing had plenty of reasons to manipulate its growth figures.

Even though all signs point to a strong, stimulus-fueled recovery, most pundits refuse to believe the country’s tales of double-digit GDP growth.

But the folks at Goldman Sachs are taking the disbelief in a different direction. According to reports from the banking behemoth’s analysts, China likely grew by 13.1% last month. Source

However, IMF says Global recovery is stronger: Australian miners and farmers are set for a good year, with the International Monetary Fund forecasting that the gathering strength of the global economic recovery will support further gains in commodity prices.

The IMF says the revival in commodity prices over the past 12 months has been much stronger than in any previous world recession, and that there are good prospects for commodity prices remaining high over the long term.

Growing optimism about the world economy has brought strong share price gains in seven of the past eight trading sessions, with the S&P/ASX 200 rising 48 points yesterday to close at 4924 points. Source