The chart compares the Shanghai Composite with the Hang Seng Index and the S&P 500. While China clearly has excesses galore and issues to work out is bubble the best way to think of the Chinese equity market given that the Shanghai is 50% below its peak and that the Hang Seng is almost 25% below its peak?
What do you think?
13 comments:
I was thinking last night about China, US and Europe. My wife was talking to a swiss banker and he seems to think so. But here is an interesting chart about our federal dept with regard to Faber and Schiff - we are printing money non stop: http://tinyurl.com/3a2zdlt
In order to be in a bubble there has to be lots of credit available. When the credit is saturated then a callaps is emminent. I see in the market with the printing of money and 1% return on cash, everyone is scramblaling to invest in something. Faber thinks that if china burst it would be bad for Canada, Australia and hard commodities. Taleb thinks that we should bet on Hiper Inflation. I am going for the ride. I do not think we are in for a final top, perhaps an intermidiate one. There is too much money and the vilocity is picking up. Sentiment wise we are close to the jan/2010 top. Looking for a US intermidiate top at 1228-1300.
Best,
Jeff from Milan, Italy
I think the term "bubble" is the hip term all the cool investing kids are using and if you want to be cool then you better use it on anything and everything.
If we are to use the term bubble to mean an increase in value and/or influence of something over the markets beyond what it should be then I see two bubbles in China. Probably not what most people would consider a bubble but its a Friday so lets try to get some good conversation going...
1: Governmental power. With only one party, whose party members control much of the companies in China not to mention the banking system, they have a lot more power over what happens. It would be like only having the dems or repubs in America, that are the CEOs of the too big to fail banks, going into the subprime mortgage crisis. It would be even easier to kick the can down the road so the problem occurs later. For example if its true that the Chinese government is counting construction towards GDP then why not just build empty buildings that don't do anything but pump up the GDP numbers? I know that's a popular conspiracy theory going around. I honestly don't know if its true or not but that is part of bubble #2...
2: Economic information. There is no counter political party in China nor any watch dog type groups. Any dissenting or contradictory information can be blocked or removed.
Both of these aren't bubbles in the traditional sense of a dollar value increase in something. However the danger is that they could make normal problems into bubbles or perhaps a true bubble into a much bigger one.
I abhor the word bubble and the headline grabbers who rely on it for pixels. I much prefer to let the facts speak for themselves (both here and abroad) so, based on the chart you've supplied, the answer to your question is no. To use a phrase I also abhor, it is what it is.
How can one really know? Supposedly financial reporting in the United States is transparent with strict regulatory oversight, yet we seem to have shenanigans here with regularity.
Now you're asking about a country whose government censors everything. Do you have any confidence in the financial reports coming from China? They are communists after all.
Passive investing in China is the only prudent way for the average investor to have exposure. In the big scheme of things, readers here are average investors.
He can be something of a pessimist but Michael Pettis at mpettis.com remains an authority on China's financial markets and, although I sometimes disagree with his conclusions, I always consider his data and analysis carefully; e.g., like many other parts of the world, China has significant problems with non-performing loans, a problem that a decade ago cost them roughly 40% of GDP to clean up.
This 'collapse' was not particularly big news at the time as I recall, probably because (as other commenters have intimated) China did not want it to be big news, suppressing information and persons accordingly. Currently overcapacity is adding to the NPL woes and inflation could be a bigger problem too.
Regardless China's centralized control has been quite successful thus far and has succeeded in recruiting entrepreneurs including many who are not in the party. Adaptability is constrained both as a matter of ideology and as a matter of deflecting any change that could reduce enforcement power as is typically the case for authoritarian systems but, for the time being at least, that can be read as both bad and good: Bad if you are a citizen and believe in transparency and independence of capital, 'good' if you are an outside investor who believes Chinese authorities can and will hold any line they deem expedient, by guile or main force as necessary.
JMO
Back that China chart out about 6 more months or a year and it's a great chart definition of a bubble.
Much of the "bubble" talk I see these days referring to China is on the property market; I don't see as much these days on the equity market.
I agree with SD. Property bubble in big coastal cities, yes. Equity bubble, no.
The problem is, as we saw in the US, the bursting of a property bubble can and does spill over into other asset classes.
For now I've still got some China exposure, as the China ETFs are still under buy signals in my model. But, they look relatively weak compared to other country ETFs. It definitely bears watching and I will take defensive measures if and when appropriate.
A bubble, perhaps not.
A fart, likely.
Roger, a few days ago you blogged about the using practices like attending a seminar on timeshares as an income booster during retirement. I was speaking to a traveller on a recent plane connection who boasted of a friend who bought buy one ,get one free sales at the grocery store in Cal., returned the"paid for" item, and netted $50,000/yr. from the purchases. When do the practices become unethical, or even illegal, when the intent is to steal from someone else? Does it matter if you are taking a free dinner, $300, a free weekend vacation, or returning a purchase and keeping the other "free" goods. Why don't these practices bother you?
I believe there is a difference between the two. Returning something to a store in the manner you outline strikes me as dishonest and I do not believe i have ever advocated something dishonest.
Timeshare and annuity companies have marketing budgets and sales models that rely on making presentations to as many people as possible.
I have to believe that a successful salesman of either product truly believes in their product and even if you are not a buyer they would think that presenting to a lot of non-buyers will generate some word of mouth referrals.
maybe you agree and maybe not but i do think the two are different.
Roger,
As others mentioned, RE is richly valued and not affordable to the average person, but hard to say bubble (apart from high end). China is a very strange market since capital account is closed. Savers have basically 3 investment choices - bank deposits with negative real rates, local (shanghai or Shenzhen) stock markets which trades like a casino and real estate. And when you combine this with the rich/poor gap being huge and the underground economy being large there is even greater a distortion.
So RE has become a store of value and seculating tool as much as a place to live.
If you look at china property companies listed in HK, you see they are trading at 30-50% discounts to NAVs. Certainly, not a bubble, unless there is a coming crash. I wish there were a way to short physical and long well capitalized public companies.
The difference between china a G7 economies in the last decade is that growth rates have been close double digits and will probably average 6-8% for the next decade. Income growth is in the same magnetude as well. So there is a larger possiblity to "grow" there way out.
AI
PS A Large reason why the HSI is so far down is the overhanging of captial raisings from chinese banks and fear of bad loans from the 4Trn RMB loaned out last year...
Re6:58, you have never in my reading of your blog indicated that you were dishonest or endorsed dishonest behavior. Hence my question. I do believe that intent to deceive is a form of dishonest behavior, and that false representation at annuity dinners, timeshares, and the other two fer one scam I referenced fall under that description. The fact that the marketers are using greed as a tool does not free the intended from responsibility for their actions (just my opinion).
if next week the dj was at 13900, would you be buying because the market was still below its all time high or would you be selling because it made no sense that the market was at 13900? bubbles are about today not about the past.
china is dependent on higher property values. local governments borrow vast amounts based on property values. property values of empty cities that china has built as well as empty office buildings, empty shopping malls, empty olympic stadiums, all on a such a grand scale that it just has no basis in reality. build it and gdp will go up. knock it down and build it again and gdp will go up even more. tom friedman may think china is run by enlightened people but reality hurts. oh by the way, how many companies in china stopped investing in their businesses and started investing in real estate? how many loans over the last year went to private companies in china that provide jobs and real growth vs government run corporations that are really black holes that soak up all money in the known universe.
china is the new boston market, krispy kreme, sub prime mortgage & jumbo mortgage markets all wrapped into one. it is the black swan. it is just too corrupt and incompetent, in a chicago kind of way, to keep this charade going on forever. over capacity, pollution on an ugly scale, a docile population that sold its soul for a piss poor but slightly rising standard of living. but it will fall when you do not expect it to or long after when logic says it should have done so long ago. short it now, be prepared for a wild ride.
Post a Comment