Want to See a Bursting Bubble?

With Chinese growth and prosperity displayed on our TV sets each night throughout the Olympics, it's hard to imagine that China's stock market could be doing so poorly. But in a classic bubble pattern, China's Shanghai Composite is now down 60% since just last October. It is now just 9% above its highs from 2001, and it is on the verge of giving up nearly all of its parabolic gains following its breakout in 2006.

Anyone hoping that the Olympics would give ailing Chinese stocks a boost has gotten a rude awakening. Since the opening ceremony on lucky 8/8/08, the Shanghai Composite has had three straight daily declines of 4.47%, 5.21% and 0.52%.

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Comments

[rlirph:]

Thanks for the beautiful insights! Does the editorial board at Seeking Alpha screen articles for quality?

2008 Aug 12 10:34 AM

[Dame Daxx:]

Insights from the Bespoke peeps are always welcome.

2008 Aug 12 10:39 AM

[investor88:]

Good article, excellent chart of the Shanghai composite index. Real economic growth in China is still 10% pa yet the share index has collapsed some 50%. Goes to show that the Chinese shares were in a bubble no less than the dot com bubble of year 2000. Nasdaq now 8 years after the 2000 bubble peak is a shadow of its former self. Chinese shares similarly would probably also take years to begin a genuine uptrend. Though the sp500 was never in such bubble territory like Nasdaq and China, the sp500 is widely expected to remain subdued for years because of the Great Leverage unwinding. It appears world equity and asset markets are in synchronized downturn, with recovery expected not in V shape but more like a U or L.

2008 Aug 12 11:07 AM

[James Lewis:]

rlirph, this chart in the article can be of very valuable quality.
It does in effect show the most likely supoort level and possible capitulation point in the market.

Also it puts the 'pyramid selling scam' we have seen over the last few years in China into prospective.

Take a look at the chart, especially the breakout point high in 2001.

2008 Aug 13 07:53 AM

[Pipo:]

But China will perform sooner rather then later.

Its my pick for the next year.

Visit a China related site at investinchinastocks.bl...

2008 Aug 13 08:10 AM

[secmaven:]

The Chinese are said to save 35% of their income. US workers are now in a negative saving posture. Their stock market has collapsed abjectly. Our market is toughing it out. Something does not compute here.

2008 Aug 13 02:44 PM