Chinese Markets Beginning To Crack

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.

Comments

[iddjjs:]

What a misleading article this is! "it plunged about 6% today alone!", sounded like it has been cracking all along. The truth of the matter is, Shanghai Index has gone up for 9 consecutive sessions for over 20% before today's drop. And, you know what's the reason for the drop - the US led world market meltdown! So, as soon the world market stablize, or even without it, the Chinese market will resume upward trend. In my view, RMB has 30% appreciation possibility in the next 5 years, that alone will facilitate a 500% growth of Chinese stock market up to 25,000.

Stop crying "walf is coming". It never came, and never will!

2007 Aug 16 08:41 AM

[Lei Yang:]

What day is 'today'? I'm not seeing this '6%' drop.

2007 Aug 16 08:51 AM

[User 97862:]

What a surprisingly uninformed article! Some examples:

"Plenty of big egos out here in Hong Kong strutting their stuff - and about to be deflated, thank God."

In an intricately linked global economy, it seems incredibly foolish for an investor on wall street to express glee at the financial mishap of the largest trade partner with the United States.

"[Chinese] banks are funding huge stock market speculation in China itself, so if the bubble bursts, so do China's banks."

And if China's banks burst, then so does the U.S. economy. In the event that, due to some crisis, the Chinese banks stop buying U.S. treasuries, the interest rates on this country will go through the roof. The liquidity dry spell we're seeing now will seem like the last great flood of the yangtze river by comparison. Economic growth will slow to a crawl, if not move into major recession territory, caused by the lack of investment by domestic firms.

be wary of what you wish for...

2007 Aug 16 11:38 AM

[rlirph:]

This article contained several erroneous information:

1. Today the Chinese A share market closed at 4765.45, down 104.4 points (-2.14%). The Shanghai Composite Index has been up 2090 points (+77.4%) this year. There are 13 days in which the market was down more than 2.14% this year. A -2.14% action can hardly be a concern.

2. The H shares in Hong Kong was battered badly because foreign funds must sell their holdings to meet
their expected redemptions.

3. If one looks at the price of H shares, can some one explain what does the US subprime problems has to do with the performance of Guangshen Railway (GSH)? Does it mean when a US homeowner who is going to lose his home means his Chinese counterpart will no longer travel by train? - may be on his bicycle?

This article is a good example of some one who claims he knows much about Chinese stock market but in reality he does not...

Dr. Raymond Li, MBA, Pharm.D.

2007 Aug 16 11:57 AM

[alfredchew1:]

Stay Cool Jim, Lei Yang and Jack. Olympic is just less than a year away. Let's be realistic. China needs US market and US needs China factory.

2007 Aug 16 12:05 PM

[User 97862:]

Ok, I've cooled down sufficiently to check my facts. A correction for my own "misinformation" is warranted here. So China is not the largest trade partner of the U.S. That's actually Canada, followed by Mexico. China comes next at third. However, the main point is still valid. Economic difficulties in China will not lead to sunny days in the U.S. Quite the opposite. Worrisome indeed, unless you've taken a short position, which is perhaps what the author of this article has done since he sounds so exuberant even in this down market.

2007 Aug 16 12:43 PM

[chalinwang:]

FXI PGJ fall more than 6% , not Shanghai ndex

2007 Aug 16 01:40 PM

[iddjjs:]

Well, turned out that the author has had a bad luck and picked a market bottom day to write this erroneous and misleading article. Right after the article was published on Thursday, US market rebounded sharply on Friday, which as I predicted pulled up the world markets as well as Chinese markets with it. In just finished Monday trading session, Shanghai composite finished up 5.33% to completely wipe out the mild losses it endured last Thursday and Friday triggered by the US led world market meltdown, this has put Chinese stock markets back to the upward trend. In my view, Shanghai composite index will break 5000 mark in next one or two sessions, and continue moving up from there once it absorbs some possible mild profit taking at that historic milestone.

Once again, “wolf” didn’t come. The crying baby lied again…

2007 Aug 20 05:23 AM

[irondoor91:]

PPT rides to the rescue right on time Thursday 11:00 with the leaked info that the Fed was going to have an "emergency" meeting. What's the emergency, at least as it relates to the stock market? We have not had a correction in 5 years. Every pullback has been met with massive liquidity buying on the dips and by corporations buying back their own shares (why not if you can borrow unlimited sums with no impunity). If this puny correction does not hold for a while and the Fed pumps it up again, it seems to me that they are just delaying an inevitably larger bear.

Explain how the Fed's actions will bail out the over-leveraged jumbo mortgaged homeowner/speculator in CA, FL, NV, AZ and elsewhere as their interest rates begin to reset next month?

2007 Aug 20 12:46 PM