Events of the past week could leave you with the impression that a new bear market is kicking off. To be sure, the Eurozone financial system is heavily exposed to soured Greek sovereign and private debt. Much of it needs to be refinanced over the next six months, probably at higher rates. All this is a drag on Eurozone growth, which had a poor outlook to start with. But look on the bright side:

• Interest rates: The good news is that this will keep central banks from raising interest rates, and the ECB might even consider cutting rates and taking other “quantitative easing” steps.
• Not Collapse Amid Crisis:  When the Lehman Brothers collapse ignited the 2008 credit fireball, the global economy was already weakening, the Fed Funds rate was at 2%, house prices were plunging, oil was at $96, the Fed’s balance sheet was only $900 billion and the S&P 500 was down 20% year over year.
• Economic Indicators Improving: In contrast, the Greek crisis is unfolding amid a global economy that is strengthening, when the Fed Funds rate is near zero, house prices are improving, when oil is $84, when the Fed balance sheet is $2.3 trillion and when the S&P 500 is +34% year over year. 

In summary, the world economy is incredibly complex, and much more difficult to understand than even the smartest people on the most sophisticated trading room floors are willing to admit. There are so many hidden interdependencies that no one can keep track of them all, or forecast how they will react to any one set of stimuli at different points in the economic cycle. But of course, we’ll keep trying anyway.

Here are some other signs of strength in the global markets:

China real estate prices feel the pinch

I have written a lot about how China is working thoughtfully on curbing property speculation, something that should have been done in the United States in the mid-2000s. This restriction is definitely slowing down Chinese stocks, but it’s important to know it’s happening for a reason, and is likely to have the effect of lengthening the bull cycle in China. They figure that chilling the speculation now will prevent a crash later.

So here’s what’s happening. According to this article in the China Daily on Monday, home prices in Beijing may drop by as much as 30 percent by the end of this year following the introduction of tough new rules that ban families from buying more than one additional home. Other restrictions include a ban on non-locals buying an additional home in Beijing unless they’ve worked in the city for a year. And buyers must now disclose all information about their family, including their children’s marital situation and how many homes they already own

Zhang Dawei, a housing researcher, told China Daily that he expected Beijing home prices to drop by 15% to 30% as a lot of speculators’ homes flood the market. Realty executive Pan Shiyi said the policy is been the strictest in the capital’s history, and should reduce the demand for homes and dampen prices.

We care about this because it shows how China is taking steps to curb speculation. While it may put a wet blanket on the stock market for awhile, it should make it a long stronger long term. We’ll keep an eye on the region for a potential uptick down the road. 

Meanwhile, it’s pretty fascinating that since July last year, U.S. real property stocks, represented by the fund iShares Dow Jones US Real Estate (NYSE: IYR) ETF, are up 62% as a group, while Chinese property stocks, represented by Claymore/AlphaShares Chinese Real Estate (NYSE: TAO) ETF is down 5.6%. Back in the middle of last year, where this chart’s prices start, U.S. real estate was absolutely hated, while China was the darling. 

I think that the combination of better-than-expected fundamentals with worse-than-average sentiment still prevails for U.S. real estate, and that should serve to provide the IYR with longevity.

Indonesia keeps rates on hold

Indonesian stocks have been trading in their own little world, with no correlation to other emerging markets, commodities or China. Late Tuesday, the island nation’s central financial authority, called Bank Indonesia, announced at a policy meeting that it would leave interest rates at 6.5%. That’s high enough to keep the rupiah strong but not enough to choke off growth. Inflation is a mild concern, but within the 4% to 6% band that policy makers consider reasonable. Food is plentiful and cheap after a good rice harvest.

Analysts at Capital Economics of London report that unlike China, banks in Indonesia have not gone crazy as lenders. Borrowing has been rolling at a 18% year-over-year clip, which is supportive of expansion but not overheating. Analysts at the IMF and BI expect GDP to climb 6% in 2010 and 6.2% in 2011, which would be ideal.

Since the debt upgrades a couple of months ago by Standard & Poor and Fitch, foreign inflows into the fixed income market have soared. Yields are around 9.5% — a level that would be very high in Europe but is normal in Asia, and easily serviced by strong cash flow in tax receipts.

Once emerging markets stabilize, it will be a good idea to buy Market Vectors Indonesia Index ETF (IDX), which I have recommended in the past.

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