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Comparing China To The Dot-Com Bubble - Why I'm Short BIDU

I laugh so hard to read this kind of "bubble burst" predictions on daily basis here at SeekingAlpha when SSE continues to go up equally on daily basis. Just went back and read 1/31/2007's note - "Get Ready for the Chinese Bubble to Burst", where it said that several large US IB firms warned their clients to take caution of Chinese market as it went up 125% in a year then. Well, if their clients did so and got out of China market at the time when SSE was only at 3000, then their clients would have lost 50% more profits (assuming they got in at 1000), and that will make these firms living at miserable lives now as their clients’ complaints about their misjudgment growing louder each passing day. In fact, more and more QFIIs are dropping off as the China Train continues to churning along. That’s why we’ve been seeing a growing trend of QFII’s warnings, even yelling at Chinese government for not taking more serious controlling measures (ironically, aren’t these guys always want governments to stay out of the market?) to “cool down” (kill) the market momentum. Well, we are familiar with this kind of “sky is falling” predictions, right? 20 years ago, we started to hear all kinds of predictions of crash landing of Chinese economy after China’s GDP had continued to grow at 8~10% annual rate for just 7~8 years after it started economic reform in 1979. Since then China’s GDP continued to grow at 8~10% annual rate for another 20 years and counting!!! Do you still hear that same-old “crash landing” prediction? Hardly so! Guess what? All those smart fortune-tellers are now busy predicting that China’s stock market will crash after SSE only went up for 18 months. Didn't they say “you live and learn”? Guess some people just never learn!

BTW, hope your 150 BIDU shorts make you rich soon! I really don’t want to see you sleeping on NY streets…

Implications of a China Crash

A bit more credible infomation about the accnt numbers from authority - just read a news today that the Chairman of CSRC, China's version of SEC, said last week that among 95mil total accnts existing, his guess is that only 30mil are active investors. He said there are 35mil "dead accnts". Since China has two stock markets- Shanghai and Shenzhen, to trade the stocks in both markets, one needs to open separate accnts in both markets, so the Chairman said that the remaining 60mil accnts are probably owned by 30mil active investors. His conclusion is that China's so called "whole-nation trading mania" isn't as serious as it sounded.

Implications of a China Crash

Richard, GS's numbers with regards to accnts match that of mine - 5% of population (1.3bn) is roughly 70mil, and 7% today is about 90mil. What that 70mil then however had a lot of water in it. The actual active investors then were estimated just 25mil. In any event, comparing 7% to US' investment population of roughly 50% at the 2000 was a far cry. Where is the "over heating"? Let's look from another angle, Chinese people has the world's second highest saving rates at 25.5% (compare that with -0.5% of US saving rate). In the past 18 months when the market had been "over heating", only 3~4% of the savings had flown into the stock market. If another 10% savings flow into the market, then the index may reach 10,000pts.

GS is one of the biggest cry babies currently in China. I actually watched its Asian market's cheaf economist's interview in HK. She had admitted that China's trailing PE ratio was at 30s and the earnings growth is strong, so the market wasn't really "over heating", just grew a little too fast, that's all. A research report found out that GS got out of the A-share market a little too early at 2500 ~ 3000 range. After that A-share market continued to grow up to 4000 mark, so it had been left out cold. That's why you heard a lot of negative comments recently from GS people in almost every occations, pushing hard for Chinese government to issue some kind of measures to cool down the market. What's the purpose behind it is obvious, right?

China's A-share market will not crash, period. Not at this level, not at 5000, not even at 6000. It will reach 5000 by year end, and move up 20% a year or more thereafter for the foreseeable future. Just sit tight and watch.

Implications of a China Crash

Actually, as early as in 2001 when the China market was at a height then, there were 70mil accnts. However, most accounts were opened to catch new IPOs - a special phenomenon for China that an IPO would guarantee to make you 50% or more so everyone wants to get in IPO. So, the Chinese built a lottery type of system, which in tern encouraged many to open as many accnts as possible to increase the chance to get the IPO. So, a conservative guess was that, among that 70 mil accnts, at most there were 25 mil active investors. Now, another 20 mil accnts have been opened since then, so a real count of 50 mil active investors is a reasonable guess now. And that 50mil is just 3.9% of the total population. So izomax is correct.

One thing I want to add is that, it takes a lot more for foreigners to understand Chinese. I’ve seen so many crying babies that are calling “wolf is coming” with regards to China. This happened 20 years ago when China’s economy had just entered the 10th year of high GDP growth of 8~10% yearly after its economic reform. So many of world renowned western economists were predicting a catastrophic crash down for Chinese economy then. What happened 20 years later? China’s GDP is still growing at 10% a year, and China’s economy has grown another 300%! Now China’s stock market has just started to catch up its GDP growth after a 60% slump from 2001’s 2500 to 10/2005’s 980, yet western analysts are jumping out crying “wolf is coming” again. Stop! Grow up and stop the crying! The trend is your friend, follow it! I think lots of QFIIs are starting to understand the real facts. You should to!

Is China Headed for a 1929-Style Market Crash?

This kind of articles delivers nothing but nonsense. All of these so called "international" analysts know absolutely nothing about China. Just simply go back and count how many similar "Wolf Coming" articles have been written predicting China market crashes since about a year ago, yet the China market, just like its economy, has been shrugging off all those "smart a__" comments and moving higher. This reminds me the fact that about 20 years ago when China's reform entered its 10th year with continued 8~10% GDP growth year-over-year, so many "world renowned" economists were rushing to predict that China's economy was too hot and it would turn belly-up in no time. Well, another 20 years past and China's GDP growth not only did not slow down, but has a trend to move faster. However, look around, do you still see any "smart economists" who are still predicting China's economy crashes, hard to find. Instead, all those big mouth "economists" were going crazy now to praise for China's growing power! Well, not every one. Now as China's stock market enters its second year of long delayed CATCH UP of its GDP growth, all of a sudden, a younger generation of "smart a__" began to jumping out and make smart prediction of 1929-style crash! What a laughable bunch of idiots.

You want to see some real facts, here are some -

1) Based on the latest 5/8 and most authorized report by China's CSRC, at Shanghai Composite index of 4000, China market's trailing PE (2006) is only 36. However, in the 1st qtr 2007, average Chinese company reported a whopping 60~80% net income increase, which effectively moves 2007 PE down to just 20~25. With the continued GDP growth in the foreseeable future, it is reasonable to expect Chinese companies to maintain a relatively high earnings growth for several years to come, therefore a PE of 20~30 for such an emerging market is not high at all.

2) Yes China's market index did go up 130% last year, and continued to go up another 50% so far this year. However, during the period of 2001 to 2006, the same index went down from 2500 to 998, while China's GDP continued to grow at 10% a year in all these years. Obviously the market had behaved "over cold" in those years. If it behaved normally in comparable to GDP growth, at just a 10% a year growth, then at the end of 2006 the index would have reached 4500. So, what the past 18 months the Chinese market has done, was simply a catch up, and return to normal. In fact, we are still not there yet. Personally I see at least 500 ~ 1000 pts to go by the end of this year.

Stop crying "Wolf Is Coming". There is no such wolf. Instead, take the advantage of the booming Chinese market, and the fear currently shown by those smart cowards in CAF, buy as many CAF as possible. I guarantee you that you will be richer, much richer by the end of this year!