Reduce Your Chinese Holdings Before the National Party Congress Begins

Yesterday we suggested that China's market may be ripe for a crash-ette. Maybe this is what will get Wall Street to fall (again)?

1. How much has the Chinese market fallen once the NPC has adjourned?

In yesterday's piece we analyzed the Shanghai Composite from its peak around the time of the National Party Congress until a big trough was reached. We concluded that on average, the market fell by about 22%, give or take about six percentage points on each side.

Now, we want to find out what happened after the NPC actually adjourned. In more recent history, the NPC adjourned on 18th September 1997, and on 15th November 2002. So what happened to the market until the trough was reached?

• from 18th -29th September, 1997, it fell by 8%, and
• from 15th November, 2002 - 2nd January, 2003, it fell by 10%

Thus, our "pattern prediction" suggests a fall of about 9% after the NPC adjourns on Sunday, 21st.

2. How much has the market fallen during the week of the NPC?

But what does the market do DURING the NPC? The Chinese market fell as follows:

• 12th - 18th September 1997: -3%
• 8th - 15th November 2002: -4%

3. So what has the overall market loss been from the start of the NPC until the next big trough?

Thus, the overall loss from head to toe, from the start of the NPC until the next big market trough, has been the sum of how the market (mis-)behaved during the NPC and thereafter:

• 1997: -11%
• 2002: -14%

4. How to preserve your profits off this

Simple: cash in next Monday when the NPC starts, ahead of the lemmings, and then wait. We will keep tracking this and make our suggestions.

Comments

[painter:]

The basic question: Will the future resemble the past? And if so, to what extent?

2007 Oct 12 02:18 PM

[Chimin Sang:]

I always think since Enzio von Pfeil is in fact a doctor. He should give himself a proper name as Dr. Enzio Von pfeIL, shortened as Dr. EVIL.

2007 Oct 12 02:19 PM

[evilll:]

Confirmed. Dr. EVIL is actually a doctor! "Having studied under Nobel Laureate Friedrich von Hayek in Freiburg, Germany, he got his PhD in economics"
Don't know who von Hayek is, but it seems Dr. EVIL poses a disgrace to him.

2007 Oct 12 11:57 PM

[Travis Johnson:]

Interesting perspective, I'm glad to hear it -- but I also don't see much that's similar between the Chinese stock market in 1997 and 2002 and the situation in 2007. In 2002 and 2003, the overall market performance was generally quite weak, the shares ran up nicely in 2000-2001, but fell off for the next couple years.

Though there may be an impact from the party Congress, either positive or negative, I would hesitate from this small sample to say that those changes were caused by the Congress, especially since I have no idea what the news flow was around that time. And I would definitely be careful about comparing the impact on a stagnant and tiny market in 1997 and 2002 to the impact on a much larger, wildly booming market in 2007. Compared to the period from January 2006 to the present, as I read the chart, the entire previous history of the Chinese stock market might as well be a flat line. This Congress might have a short term impact, as you're implying is possible, but probably the announcements made at the Congress, whether positive or negative, will have a far larger impact on this much more news-focused, momentum-driven market ... all just a guess on my part, of course.

2007 Oct 12 04:41 PM

[Mahant:]

I fully agree with these views and would like to add that Global movement of capital and increasing impact of growth of BRIC since old periods has changed substantially.

2007 Oct 13 03:06 AM

[simple:]

Agree with Oneguy. Dr. did not provide economic, political or statistical analysis behind his forecasting. Two data points are observations but provides no satistical validatity. It doesn't help Dr's credibility.
One suggestion for Dr is to analyze and compare current chinese growth trend with Japan in 60s and Taiwan in 70s, or other historical cases. That may help for your predication.

2007 Oct 14 12:44 PM

[simple:]

Agree with Oneguy. Dr. did not provide economic, political or statistical analysis behind his forecasting. Two data points are observations but provides no satistical validatity. It doesn't help Dr's credibility.
One suggestion for Dr is to analyze and compare current chinese growth trend with Japan in 60s and Taiwan in 70s, or other historical cases. That may help for your predication.

2007 Oct 14 12:44 PM

[Max Petrisek:]

Sounds like a wild guess to me. You may not be arare of all the chnages in China that are beneficial to investors?

2007 Oct 14 10:12 PM

[bandkanon:]

What if the NPC decides to declare that its all good to go to let mainlanders buy on the HK market? I would hate to miss out on that!

2007 Oct 12 07:05 PM

[Zeon:]

See a theme here? Run with the herd.

2007 Oct 12 08:21 PM

[mmm:]

I do not see the author understand Chinese politics at all. I rather he studies the political environment back then and now instead of playing those meaningless number game. As a Dr., he got to be smarter than that, or maybe not. (At least he got paid for his writing, trash or not.)

2007 Oct 13 12:17 AM

[mmm:]

I do not see the author understand Chinese politics at all. I rather he studies the political environment back then and now instead of playing those meaningless number game. As a Dr., he got to be smarter than that, or maybe not. (At least he got paid for his writing, trash or not.)

2007 Oct 13 12:18 AM

[Mahant:]

your analysis was novel.

2007 Oct 13 02:59 AM

[praha1:]

Too many nasty comments. Dr. von Pfeil said reduce not liquidate. There is a big difference. If you've been investing in China, you've made lots. Rather than be excessively greedy, take some profits. It's actually a judicious suggestion and I thank him for it and also hope that he continues to monitor the situation.

2007 Oct 13 03:37 PM

[gc.alpha:]

it's not timing the market, it's time in the market. you want to be long term greedy. be sloth-like ala buffet. worked for him.

2007 Oct 13 08:24 PM

[User 113637:]

I guess "THE GOOD DR" ( he calls himself) has nothing to write about. So he has to bash the Chinese Bull market. I think "THE GOOD DR" must take Chinese politics 101 and history 101 in High school.

2007 Oct 14 07:02 PM

[pulihora:]

current communist party in china is not really against capital markets, -- they are also enjoying this boom. They don't spoil the boom party.

If at all there is a drop, it will be by wall street giants to steal money from common man.

2007 Oct 16 12:09 AM

[pulihora:]

current communist party in china is not really against capital markets, -- they are also enjoying this boom. They don't spoil the boom party.

If at all there is a drop, it will be by wall street giants to steal money from common man.

2007 Oct 16 12:09 AM

[pulihora:]

current communist party in china is not really against capital markets, -- they are also enjoying this boom. They don't spoil the boom party.

If at all there is a drop, it will be by wall street giants to steal money from common man.

2007 Oct 16 12:11 AM