What might happen if Chinese market ever seriously correct?

[Jim Nickerson]

Re: What might happen if Chinese market ever seriously correct?

http://www.bloomberg.com/apps/news?p...kus&refer=asia

May 30 (Bloomberg) -- Even if former Federal Reserve Chairman Alan Greenspan is right, the "dramatic contraction'' he predicts for Chinese stocks isn't likely to infect the international economy.

That's the conclusion of a number of international economists and former government officials around the globe. They say China's economy shows little correlation with its stock market, foreigners are mostly excluded from owning shares and Chinese participation is limited to less than 10 percent of the population, reducing the effect of a bursting bubble.

"This is a relatively small casino,'' said Edwin Truman, a former director of the Federal Reserve's international finance division and now a senior fellow at the Peterson Institute for International Economics in Washington. "Even the implications for the Chinese economy should be minor.''

[Mega]

Re: What might happen if Chinese market ever seriously correct?

Here's a time table for said event:-
http://www.atimes.com/atimes/China_B.../IE30Cb01.html
Mike

[jk]

Re: What might happen if Chinese market ever seriously correct?

http://www.minyanville.com/articles/index.php?a=12964

1. CHINESE STOCKS COLLAPSE!!!

Shanghai Composite Index Now Up Only 50% Year-to-Date; Just 5% for the Month of May

SHANGHAI -- Chinese stocks collapsed 6.5% in heavy trading as the benchmark Shanghai Composite Index plunged to 4053.09, its lowest level since last Monday, erasing the gains of all six of the previous stock market sessions. It was the worst performance for Chinese stocks since the notorious "Shanghai Surprise" earlier this year.

The 8.8% "Shanghai Surprise" decline on February 27 wiped out a total of seven days' worth of stock market gains, forcing many investors who had intended to retire immediately on that week's massive stock market investment gains to wait a full day-and-a-half to get back to even.

The massive decline caught Chinese stock investors by surprise and many expressed their fear stocks may not recover anytime soon. "Oh dear God, when will this bear market ever end," said one investor who wished to remain anonymous. "At this rate I'll be forced to work well into my 30's," one teenage investor cried bitterly. "Those are supposed to be the golden years."

The disastrous plunge in Chinese stocks was blamed on a decision earlier yesterday by China's finance ministry to triple the stamp tax on stock trades from 0.1% to 0.3%. "This stamp tax increase spells doom for Chinese stocks," an analyst in Beijing said. When asked why the stamp tax spells trouble for stocks, the analyst exclaimed, "Why?! Why!? We have no idea why, but... look at the market! Just look at it!"


The stamp tax on Chinese stocks, first initiated in July 1990, was lowered from 0.2% in June 2001 to 0.1% in January 2005 to help boost stock prices during the four-year 2001-2005 slump.

WARNING: The following image may be shocking.

Shanghai Composite Stock Index

[zoog]

Re: What might happen if Chinese market ever seriously correct?

I enjoyed that Minyanville piece today, made me laugh.

One thing that caught my eye are his graphic examples of the visual difference between log charts and arithmetic charts using the Shanghai Stock Exchange Composite.

That was interesting, and probably one of the most extreme examples available to illustrate the point. I'm now a little less confused about log charts than I was before.:confused:

...Chinese participation is limited to less than 10 percent of the population...

If this is really true, compared to

...stories coming out of China of the butcher, the baker and the candlestick maker getting involved in the market and whole families turning up at the brokerage office...

then I suppose the effects will be minimal, both in China and elsewhere. Though, no matter what percentage of the population is actively involved in the stock market, the psychological effects of a crash will no doubt spread beyond the sandbox.

[blazespinnaker]

Re: What might happen if Chinese market ever seriously corrects?

Clive Maund generally writes about gold and silver, and I have followed his posts on safehaven.com for the past year or so. I ask myself why I am particularly attentive to his posts, and I really don't know that he has been more likely correct than anyone else who prognosticates--I guess I like his posts because they are simple.

He just posted an interesting analysis "China Crash - domino effect on US markets, and collateral effect on resource stocks..." http://www.safehaven.com/article-7641.htm

One thing that caught my eye are his graphic examples of the visual difference between log charts and arithmetic charts using the Shanghai Stock Exchange Composite. If anyone thinks what happened in the US Markets from 1998 to 2000 was impressive with regard to parabolic moves, then look carefully at the SSEC to better understand just how steep a parabolic move can become.

He also makes some possibly pertinent comments on gold stocks, and offers his opinion about stepping out of that market in the event of a "freefall" of world markets. Referencing the HUI, Maund noted, "The action over the past year does look like a large consolidation pattern, and many pundits are touting it as that, yet it hard to see how this index can do anything but get hammered if world markets go into freefall precipitated by a collapse in China."

I think his article is worth reading.

I cannot but believe China has to undergo a correction, if one believes bubbles pop.

Hmmm, well so far, nothing.

[Jim Nickerson]

Re: What might happen if Chinese market ever seriously correct?

Perhaps I posed the question wrong in opening this thread, better stated I might have asked: what happens to China when the rest of the world corrects?

8/6/07 Australia is down ~ 8% from its highs, Hang Seng down ~6.75%, Nikkei down ~8%, Malaysia down ~15%, Philippines down ~14.5%, South Korea down ~8.5%, Singapore down ~10%, Taiwan down ~9%, and the two indices I follow on China that are Dow Jones derived indices are tonight at all time highs.

It seems China is marching to a different beat.

[DemonD]

Re: What might happen if Chinese market ever seriously correct?

hard to be down when your entire country is economically growing 8-11% with no end in sight to growth.

of course we know at some point the scales will tip, but earnings from many chinese enterprises have been stellar in the earnings season this summer (at least many of the chinese companies that trade on US exchanges have been.)

[c1ue]

Re: What might happen if Chinese market ever seriously correct?

Jim,

China IS marching to its own beat.

The beat is - as DD says - a function of their growth.

China will correct, however, if there is a recession in the US.

Loss of consumption is something which all export driven economies will feel, and while Western/Eastern Europe is growing they cannot replace US consumption should the US experience a significant recession.

China's internal consumption - while also growing - will also not compensate as the wealth is distributed extremely unequally. The 60% of household expenditures on food in China comes to mind.

As Galbraith said (and I've noted many times), massively unequal wealth distribution causes much greater oscillations in economic activity because rich people spend on whim vs. middle/lower class spending on survival.