Bob Carver notes:
China Stock Bubble About to Burst
It appears that the bubble in the Chinese stock market is finally becoming a concern as Goldman Sachs is warning that:
"It is now a critical time for the government to take action and prevent the excess from building up further."
Here are some interesting factoids about the Chinese stock market:
* The total value of all stocks on the Shanghai Exchange exceeds the value of all other Asian stock exchanges combined -- including Japan, the second largest stock exchange in the world.
* The Shanghai Index has quadrupled in the last 22 months.
* PE Ratios are in the 40-50 range.
* Goldman Sachs economist Hong Liang said new stock account openings in the month of April totaled 4.79 million, exceeding those of 2005 and 2006 put together. About 17% of total accounts were opened in the past four months.
* Beijing is aware of the risks, and over the weekend, Gov. Zhou Xiaochuan of the People's Bank of China told reporters that he, too, is concerned about a possible bubble forming in the stock market.
If it were possible to let the air out of a bubble slowly, of course that would be the right course of action. However, at this stage of overvaluation, that's not possible. Probably the only way the government could prevent a crash is to shut the market down completely for some period of time (say, a few years). That isn't really practical and would likely be a cure worse than the disease. There's really nothing good that can come out of the situation, so just expect a crash sooner or later.
The last time the Shanghai market had a 10% correction in February, it quickly pulled the rest of the stock markets around the world down with it. Since then, just 3 months later, Shanghai is now 33% above the level it reached before that correction, after having pulled stocks higher along with it worldwide. No doubt, a much large correction will happen this time and it will have a much stronger impact on the rest of the planet's stock markets. In fact, it may have already started. And, it will come at the worst possible time for the US stock market, which has been pushed to an extreme of overvaluation by Yen-carry loans to fund private-equity buyouts of public companies and massive share buybacks by corporations.
The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ.
In any case, here are the results of Thursday's bubble -- er, stock market -- trading:
As Confucius might have reminded us after seeing the state the world's stock markets are in,
"By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."
China Market
Started by
gm_general
, May 12 2007 08:10 PM
6 replies to this topic
#1
gm_general
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Posted 12 May 2007 - 08:10 PM
darn, why are targeted ads so ironically funny? I tried to preview this, and got an ad claiming I could "double my money in the Chinese stock market!"
Bob Carver notes:
China Stock Bubble About to Burst
It appears that the bubble in the Chinese stock market is finally becoming a concern as Goldman Sachs is warning that:
"It is now a critical time for the government to take action and prevent the excess from building up further."
Here are some interesting factoids about the Chinese stock market:
* The total value of all stocks on the Shanghai Exchange exceeds the value of all other Asian stock exchanges combined -- including Japan, the second largest stock exchange in the world.
* The Shanghai Index has quadrupled in the last 22 months.
* PE Ratios are in the 40-50 range.
* Goldman Sachs economist Hong Liang said new stock account openings in the month of April totaled 4.79 million, exceeding those of 2005 and 2006 put together. About 17% of total accounts were opened in the past four months.
* Beijing is aware of the risks, and over the weekend, Gov. Zhou Xiaochuan of the People's Bank of China told reporters that he, too, is concerned about a possible bubble forming in the stock market.
If it were possible to let the air out of a bubble slowly, of course that would be the right course of action. However, at this stage of overvaluation, that's not possible. Probably the only way the government could prevent a crash is to shut the market down completely for some period of time (say, a few years). That isn't really practical and would likely be a cure worse than the disease. There's really nothing good that can come out of the situation, so just expect a crash sooner or later.
The last time the Shanghai market had a 10% correction in February, it quickly pulled the rest of the stock markets around the world down with it. Since then, just 3 months later, Shanghai is now 33% above the level it reached before that correction, after having pulled stocks higher along with it worldwide. No doubt, a much large correction will happen this time and it will have a much stronger impact on the rest of the planet's stock markets. In fact, it may have already started. And, it will come at the worst possible time for the US stock market, which has been pushed to an extreme of overvaluation by Yen-carry loans to fund private-equity buyouts of public companies and massive share buybacks by corporations.
The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ.
In any case, here are the results of Thursday's bubble -- er, stock market -- trading:
As Confucius might have reminded us after seeing the state the world's stock markets are in,
"By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."
Bob Carver notes:
China Stock Bubble About to Burst
It appears that the bubble in the Chinese stock market is finally becoming a concern as Goldman Sachs is warning that:
"It is now a critical time for the government to take action and prevent the excess from building up further."
Here are some interesting factoids about the Chinese stock market:
* The total value of all stocks on the Shanghai Exchange exceeds the value of all other Asian stock exchanges combined -- including Japan, the second largest stock exchange in the world.
* The Shanghai Index has quadrupled in the last 22 months.
* PE Ratios are in the 40-50 range.
* Goldman Sachs economist Hong Liang said new stock account openings in the month of April totaled 4.79 million, exceeding those of 2005 and 2006 put together. About 17% of total accounts were opened in the past four months.
* Beijing is aware of the risks, and over the weekend, Gov. Zhou Xiaochuan of the People's Bank of China told reporters that he, too, is concerned about a possible bubble forming in the stock market.
If it were possible to let the air out of a bubble slowly, of course that would be the right course of action. However, at this stage of overvaluation, that's not possible. Probably the only way the government could prevent a crash is to shut the market down completely for some period of time (say, a few years). That isn't really practical and would likely be a cure worse than the disease. There's really nothing good that can come out of the situation, so just expect a crash sooner or later.
The last time the Shanghai market had a 10% correction in February, it quickly pulled the rest of the stock markets around the world down with it. Since then, just 3 months later, Shanghai is now 33% above the level it reached before that correction, after having pulled stocks higher along with it worldwide. No doubt, a much large correction will happen this time and it will have a much stronger impact on the rest of the planet's stock markets. In fact, it may have already started. And, it will come at the worst possible time for the US stock market, which has been pushed to an extreme of overvaluation by Yen-carry loans to fund private-equity buyouts of public companies and massive share buybacks by corporations.
The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ.
In any case, here are the results of Thursday's bubble -- er, stock market -- trading:
As Confucius might have reminded us after seeing the state the world's stock markets are in,
"By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."
#2
xe2dy
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Posted 12 May 2007 - 09:28 PM
Chinese pour savings deposits into stock market
SHANGHAI, May 12 (Xinhua) -- More than 70 billion yuan (9.1 billion U.S. dollars) was transferred from savings accounts in Shanghai to stock trading accounts in the first four months of this year, the Shanghai branch of the People's Bank of China estimated on Saturday.
In April alone, RMB-denominated savings deposits with Chinese banking institutions decreased by 8.5 billion yuan (1.1 billion U.S. dollars).
"Given the continuous bullish stock market, the diversion of savings deposits will persist for a good while yet," said an official with the Shanghai branch of the Industrial and Commercial Bank of China.
Shanghai is far from being an exception. The craze has challenged banking service facilities in some areas.
In Changsha, capital city of central China's Hunan Province, a lady surnamed Wei found tens of thousands of yuan of her money deposited at a local outlet of the China Construction Bank failed to be transferred when she was in a hurry to buy in stocks at around 9:00 a.m. on April 30, the last trading day before the week-long May holiday. Her money was safe but the bank's computer crashed due to an overload of transfer requests.
A similar cases occurred again with the China Construction Bank Changsha branch on May 8, the first trading day after the holiday. Company sources said the bank is testing new computer servers with a larger operating capacity.
The heavy inflow of funds, strong corporate profits, and double-digit economic growth have helped drive up the key Shanghai index by more than 51 percent this year after it soared 130 percent last year.
In the first trading week after the May Day holiday, the combined market value of the two bourses on the Chinese mainland swelled by 4.97 percent from April 30 to 16.89 trillion yuan (2.2 trillion U.S. dollars).
Investors dived into the robust capital market. It is reported that on May 8, the first trading day after the weeklong holiday, the two bourses recorded the opening of 421,831 new stock trading accounts, including 368,400 accounts for the A-share market. This brought the total number of stock trading accounts on the two exchanges to 94.37 million.
According to a monthly report jointly produced by Shanghai Securities Journal and Shenyin Wanguo Securities, in April alone a record 250 billion yuan (32.5 billion U.S. dollars) was added to the capital ready for stock trading, bringing the total on the A-share market to 980 billion yuan (127.3 billion U.S dollars).
The investment spree has aroused concern from the industry watchdog.
In a notice released on Friday, China Securities Regulatory Commission (CSRC) urged stock exchanges, securities dealers and related authorities to educate investors about the risks of stock market investment.
These institutions must make investors understand that stock markets are risky and they should be cautious in entering the market, especially those who use all their savings or pawn their apartments for loans to invest in stocks, the notice said.
Editor: Gao Y
http://news.xinhuane...ent_6090257.htm
PBOC governor hints at reserve increases
www.chinaview.cn 2007-05-07 08:32:42
BEIJING, May 7 -- People's Bank of China Governor Zhou Xiaochuan said there's room to raise commercial banks' reserve requirements further after seven increases in 11 months failed to slow lending and inflation.
"There surely is still room" to raise the reserve requirements, Zhou said in an interview on a flight from Beijing to Frankfurt on Saturday.
Zhou, on his way to a meeting at the Bank for International Settlements in Basel, Switzerland, also said an acceleration in inflation to the fastest pace in two years is "normal" and "not very unexpected," Bloomberg News reported. China's central government is trying to prevent excess cash from a record trade surplus from stoking inflation, fueling wasteful investment and creating more bad loans.
Economic growth accelerated to 11.1 percent in the first quarter from 10.4 percent in the previous three months, driven by a trade surplus that almost doubled to 46.4 billion U.S. dollars.
The PBOC has raised interest rates three times since April last year and sold bills to soak up liquidity in the banking system and stem price increases. Still, inflation accelerated to 3.3 percent in March, the highest rate in more than two years, and banks made 1.4 trillion yuan (180 billion dollars) of new loans in the first quarter alone, nearly half the total for last year.
"The recent acceleration in inflation is normal" because prices of primary goods have increased substantially and labor costs have risen, Zhou said.
Asked whether inflation can be kept below the bank's three percent target on average in 2007, Zhou said that depends on developments in the second half of the year.
The PBOC on April 29 raised the reserve ratio, which determines the amount of money banks must hold with the central bank rather than lend, to 11 percent from 10.5 percent. The move takes effect on May 15.
Reserve ratio adjustments are an ineffective policy tool to control China's monetary expansion since commercial banks have excess reserves that stand at about two percent of deposits, said Hong Liang, an economist with Goldman Sachs.
The 50 basis-point lift in the reserve ratio each time "is simply not binding on banks' capabilities to lend," she said in a note on April 29. An interest rate increase is the key, she added.
China will raise interest rates two more times this year, according to a Bloomberg News survey of economists.
(Source: Shanghai Daily)
Editor: Feng Tao
http://news.xinhuane...ent_6065086.htm
SHANGHAI, May 12 (Xinhua) -- More than 70 billion yuan (9.1 billion U.S. dollars) was transferred from savings accounts in Shanghai to stock trading accounts in the first four months of this year, the Shanghai branch of the People's Bank of China estimated on Saturday.
In April alone, RMB-denominated savings deposits with Chinese banking institutions decreased by 8.5 billion yuan (1.1 billion U.S. dollars).
"Given the continuous bullish stock market, the diversion of savings deposits will persist for a good while yet," said an official with the Shanghai branch of the Industrial and Commercial Bank of China.
Shanghai is far from being an exception. The craze has challenged banking service facilities in some areas.
In Changsha, capital city of central China's Hunan Province, a lady surnamed Wei found tens of thousands of yuan of her money deposited at a local outlet of the China Construction Bank failed to be transferred when she was in a hurry to buy in stocks at around 9:00 a.m. on April 30, the last trading day before the week-long May holiday. Her money was safe but the bank's computer crashed due to an overload of transfer requests.
A similar cases occurred again with the China Construction Bank Changsha branch on May 8, the first trading day after the holiday. Company sources said the bank is testing new computer servers with a larger operating capacity.
The heavy inflow of funds, strong corporate profits, and double-digit economic growth have helped drive up the key Shanghai index by more than 51 percent this year after it soared 130 percent last year.
In the first trading week after the May Day holiday, the combined market value of the two bourses on the Chinese mainland swelled by 4.97 percent from April 30 to 16.89 trillion yuan (2.2 trillion U.S. dollars).
Investors dived into the robust capital market. It is reported that on May 8, the first trading day after the weeklong holiday, the two bourses recorded the opening of 421,831 new stock trading accounts, including 368,400 accounts for the A-share market. This brought the total number of stock trading accounts on the two exchanges to 94.37 million.
According to a monthly report jointly produced by Shanghai Securities Journal and Shenyin Wanguo Securities, in April alone a record 250 billion yuan (32.5 billion U.S. dollars) was added to the capital ready for stock trading, bringing the total on the A-share market to 980 billion yuan (127.3 billion U.S dollars).
The investment spree has aroused concern from the industry watchdog.
In a notice released on Friday, China Securities Regulatory Commission (CSRC) urged stock exchanges, securities dealers and related authorities to educate investors about the risks of stock market investment.
These institutions must make investors understand that stock markets are risky and they should be cautious in entering the market, especially those who use all their savings or pawn their apartments for loans to invest in stocks, the notice said.
Editor: Gao Y
http://news.xinhuane...ent_6090257.htm
PBOC governor hints at reserve increases
www.chinaview.cn 2007-05-07 08:32:42
BEIJING, May 7 -- People's Bank of China Governor Zhou Xiaochuan said there's room to raise commercial banks' reserve requirements further after seven increases in 11 months failed to slow lending and inflation.
"There surely is still room" to raise the reserve requirements, Zhou said in an interview on a flight from Beijing to Frankfurt on Saturday.
Zhou, on his way to a meeting at the Bank for International Settlements in Basel, Switzerland, also said an acceleration in inflation to the fastest pace in two years is "normal" and "not very unexpected," Bloomberg News reported. China's central government is trying to prevent excess cash from a record trade surplus from stoking inflation, fueling wasteful investment and creating more bad loans.
Economic growth accelerated to 11.1 percent in the first quarter from 10.4 percent in the previous three months, driven by a trade surplus that almost doubled to 46.4 billion U.S. dollars.
The PBOC has raised interest rates three times since April last year and sold bills to soak up liquidity in the banking system and stem price increases. Still, inflation accelerated to 3.3 percent in March, the highest rate in more than two years, and banks made 1.4 trillion yuan (180 billion dollars) of new loans in the first quarter alone, nearly half the total for last year.
"The recent acceleration in inflation is normal" because prices of primary goods have increased substantially and labor costs have risen, Zhou said.
Asked whether inflation can be kept below the bank's three percent target on average in 2007, Zhou said that depends on developments in the second half of the year.
The PBOC on April 29 raised the reserve ratio, which determines the amount of money banks must hold with the central bank rather than lend, to 11 percent from 10.5 percent. The move takes effect on May 15.
Reserve ratio adjustments are an ineffective policy tool to control China's monetary expansion since commercial banks have excess reserves that stand at about two percent of deposits, said Hong Liang, an economist with Goldman Sachs.
The 50 basis-point lift in the reserve ratio each time "is simply not binding on banks' capabilities to lend," she said in a note on April 29. An interest rate increase is the key, she added.
China will raise interest rates two more times this year, according to a Bloomberg News survey of economists.
(Source: Shanghai Daily)
Editor: Feng Tao
http://news.xinhuane...ent_6065086.htm
#3
Mtrader
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Posted 13 May 2007 - 12:23 AM
Those poor Chinese Goldman Sach stockbrokers shorted the Chinese stock market and are about to go bankrupt as Chinese stockmarket continues to go up and up and up. Good luck to the GS folks.
You are on your own. This is for demonstration only.
JV
JV
#4
jmicou
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Posted 13 May 2007 - 12:54 AM
Although I do not have the answer, what if the Chinese stock market were to correct? Who would be hurt? What would be the consequences?
According to this article, "Unlike developed markets overseas, individual investors make up a majority of China's stock market, including a lot of retirees who risk losing their hard-earned savings." If this is true, and if it is true that if a correction were to occur it would have a ripple effect, would that then lead to an economic collapse in China and then lead to a bear market in the US?
Or, could it be that the recent strength in the US dollar and the rising US stock market partly presage such a correction, or even a crash, in China as a flight to quality to the US assets? Given the strong cumulative AD lines and some of the COT configurations, it seems unlikely a bear market here is just around the corner. That does not negate that parabolic moves, such as in the Chinese market, have significant counter trend moves. It is just hard sometimes to anticipate when and at what level such moves occur, especially in a stock market that is relatively unsophisticatedly equipped at this juncture, but that will probably change and not in the too distant future relatively speaking.
According to this article, "Unlike developed markets overseas, individual investors make up a majority of China's stock market, including a lot of retirees who risk losing their hard-earned savings." If this is true, and if it is true that if a correction were to occur it would have a ripple effect, would that then lead to an economic collapse in China and then lead to a bear market in the US?
Or, could it be that the recent strength in the US dollar and the rising US stock market partly presage such a correction, or even a crash, in China as a flight to quality to the US assets? Given the strong cumulative AD lines and some of the COT configurations, it seems unlikely a bear market here is just around the corner. That does not negate that parabolic moves, such as in the Chinese market, have significant counter trend moves. It is just hard sometimes to anticipate when and at what level such moves occur, especially in a stock market that is relatively unsophisticatedly equipped at this juncture, but that will probably change and not in the too distant future relatively speaking.
Edited by jmicou, 13 May 2007 - 12:55 AM.
#5
Tor
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Posted 13 May 2007 - 04:41 AM
How can Chinas market be bigger than all of Asian Se's combined including Japan, with Japan also being the second largest exchange in the world??
Seems a contradiction or one of those phrases which are impossible to exist.
Observer
The future is 90% present and 10% vision.
The future is 90% present and 10% vision.
#6
pdx5
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- 9,529 posts
I want return OF my money more than return ON my money
Posted 13 May 2007 - 08:19 PM
Something like 300 million Chinese have opened stock market accounts!
But that means 800 million Chinese still have not gotten around to opening
an account. Granted a lot of those 800 mil can't afford an account. But I
would guess there is millions more who will jump on the frenzy. So it will
take a few more months before the market can crash. I am guessing Sept-Oct.
"Money cannot consistently be made trading every day or every week during the year." ~ Jesse Livermore Trading Rule
#7
jmicou
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Posted 13 May 2007 - 08:52 PM
Quote from Hulbert article: 'I owe the story to Dennis Slothower, editor of a newsletter called On The Money. In his hotline Friday night, he pointed out that the China Banking Regulatory Commission, in an attempt to cool its overheated stock market, had ruled that Chinese banks "can now invest as much as 50 percent of funds in overseas stock markets."'
