November 26, 2009 7:27AM SHANGHAI stocks have done very well, copper has soared and property has been blazing. Not one of those assets, though, can match the roaring returns on a kilogram of Chinese garlic.
In the garlic-producing heartland of Jinxiang, wholesale market prices of the pungent clove -- caught in a tornado of easy liquidity and artificial market forces -- have been whisked into the stratosphere.
Average prices, according to a report from the Ministry of Commerce, have hit 6.14yuan (97 cents) a kilogram, having surged 286 per cent since March.
In some markets, the price has risen fortyfold this year, according to Jerry Lou, a Morgan Stanley analyst. In Jinxiang, the market activity has become so frenzied that fever for the stinking produce is affecting the financial sector.
Local banks and cash machines have found themselves running out of money as speculators withdraw hard currency to fight for their purchases. The astonishing surge in the price of garlic makes it the best-performing Chinese asset class of the year.
Two factors are driving the gains.
Garlic, Mr Lou writes, has become a barometer for China's wider issues of bubble formation. The massive flood of liquidity -- created by the huge government stimulus package and unprecedented bank lending -- has made a diverse range of assets the target of speculation. Garlic has joined property and stocks as a favourite market for cashed-up punters.
Helping things along has been a technical squeeze on the market. Chinese garlic is a big export commodity -- 60 per cent of the garlic used in American restaurants, for example, is Chinese in origin.
But last year China reduced its total garlic planting areas by 50 per cent, diminishing the overall supply and giving speculators a reason to assume future shortages.
The H1N1 virus, and the suggestion that garlic may offer some immunity from it, has also had an effect. Some believe that the suggestion may have been promoted by traders in Jinxiang.
Nevertheless, the theory has been adopted beyond China's borders: the Moldovan Army has added 0.5 ounces of garlic to soldiers' daily rations to protect them from the ravages of swine flu -- and make their food taste better.
Source:
http://www.theaustralian.com.au/business/industry-sectors/garlic-price-soars-as-chinas-top-performing-asset/story-e6frg95o-1225804001035
