Chinese Markets Beginning To Crack

Includes: CAF, FXI, PGJ
by: Enzio von Pfeil

Markets are moving into Prof. Kindleberger's "panic" stage. Soon you will see what the just-deceased Nancy Astor referred to as the "noveau pauvre" - the "new poor".

About time that some of our swaggering and generally younger brethren in the finance industry were cut down to size, don't you agree? Plenty of big egos out here in Hong Kong strutting their stuff - and about to be deflated, thank God. Us older folks all have been there and become the stronger for it. Anyway, back to the current financial quake.

The mess is deepening. Has China cracked? We think so: it plunged about 6% today alone! We suggested this recently: banks are funding huge stock market speculation in China itself, so if the bubble bursts, so do China's banks.

The Financial Times carried a useful page of insights last Monday on the SIV crises - which appear to be the SUVs of the financial world. The crisis has gone from sub-prime to structured investment vehicles (SIVs) to a vehicle used to finance these SIVs - asset backed commercial paper, or ABCP. In other words, an asset management problem has morphed into a liability management problem.