Bill Herbert

Is the China Growth Story Coming Unglued?

In my view, China will be a buy when the SSEC drops to around 1,500.

The fact that it is down around 50% is striking, but irrelevant. It soared to a ludicrous height, mostly on momentum and the unfortunate tendency of the Chinese to gamble with gusto, whether there is any basis to what they are betting on, other than optimism and a belief in their own luck or destiny or whatever.

The fact is that although many in China are doing very well, and there has been a dramatic economic surge over the last decade, the average company does not have a solid financial foundation and there is nothing resembling modern securities laws - just faith in the upward-ticking average to guide you.

I believe that many Chinese companies could fall very hard, and prove to be worthless or nearly so, in a severe downturn. I admit I don't know, but am just inferring and hypothesizing here - but it sure looks and smells a lot like the dot-com mania of 1995-2000; then the crash of 2000-to-2002 when many companies that were favorites plunged over 90%.