Chinese Equity Bubble Set to Burst

Amid the current financial crisis, there has been one equity index beating all others: the Shanghai Composite. Our analysis of this main Chinese equity index shows clear signatures of a bubble build up and we go on to predict its most likely crash date: July 17-27, 2009 (20%/80% quantile confidence interval).

Paper: The Chinese Equity Bubble: Ready to Burst (pdf file) by K. Bastiaensen, P. Cauwels, D. Sornette, R. Woodard and W.-X. Zhou

Comments

[Graham and ...:]

Agree with you as to the event, not certain that you're right about timing.

Jul 15 10:53 AM

[Sober Realist:]

Timing - that's the problem. I think it's got further to climb.

Jul 15 10:20 PM

[Alphameister:]

You might have compresssed the axis a bit more to make the chart seem even more vertical, but all-in-all a commendable job of overstating your otherwise unexplained conclusion. Considering that the Chinese economy never stopped growing, perhaps it was the 70% decline by its stock market that was excessive.

Jul 15 11:16 PM

[Ryu Mei Co:]

Yes, the rally is not over yet, but skepticism in China's data is growing, so watch very closely. Today, China's GDP is 7.9% better than most analysts' expectation, but Shanghai index is barely moved at all. It could be profit taking, it could be because of the few days of rally. Whatever it is, at this price level, it is just too tempting to short, imo. Still, patient is good.

Jul 15 11:35 PM

[Tony Daltorio:]

YAWN! Another American commentator saying how China and its markets are a bubble.

Why does the author not talk about the true bubbles - US financial and tech stocks, the US Dollar, and the biggest bubble in history - the US Treasury market??

Jul 16 02:17 PM

[BKLee:]

I live in Hawaii, and I have friends who have come from China recently to work here. I ask them why they are not in China with all the news about it being the next big economy, and their reply to me is that the real economy (Not the one that the Chinese Government presents to the world) in worst than the USA. They are people getting laid off from factories all across China, and it having a domino affect throughout . We should be very cautious about the market. If China goes suddenly, the global markets should follow.

Jul 21 05:30 PM