James Lewis

What China's Stock Market Implosion Means for Oil

The smart money exited the stock market a long long long time ago.
Currently the losers are as normal the dumb money consisitng of un-eductaed gamblers from all over China who are stuck in the market.
There are no margin calls because no one can buy stock on leverage. There are also a number of companies that used their companies cash-flow and borrowing facilities to purchase cross holdings to gamble on the market in the name of business diversification.

The markets drop will affect some people but not broadly. The middle class hold more property than stock and because of revelent strenghth of property prices there net worth has not fallen. It is actually this property net worth and inflation expectations that is driving rise in consumer spending in China.

I disagree that there is no support technically in the market until 2000. There is very strong support at circa 2550 (2007 low). At levels around this the amrket is a buy.

Remmeber the main drag on the amrket is Petrochina because earnings are being destroyed by the government subsidy actions in the fight to control inflation rather than deal with route cause of rmb undervalution. If they do raise price of oil, then we will see a very good rally in petrochina.

In terms of efficiency - everything about China is very inefficient.
This is the reason that they need to undervalue the Yuan and subsidise everything in sight to compete.