Will China markets take a dive?

[HereWeGo]

I doubt the Chinese stock market will tank any time soon. The Chinese still have a mountain or three of savings to push into the market. Now if the Chinese central bank continues to raise interest rates, that should certainly slow the rate of ascent of the Shanghai market.

The Hang Seng might not be a bad place to put money, now that mainland Chinese are allowed to invest in that market.

[donaldduckmoore]

Have you heard that the Chinese government will keep supporting the stock market until the end of Olympic 08. They still have a while to go.

[kewp]

More conspiracy theories:

http://www.tribune-democrat.com/editorials/local_story_236133107.html

[stockstradr]

I’m going to short the Chinese stock indexes, but I’m still working out the best way to do that. Anyone have ideas, do please post them.

Bottom line: when a stock market moves from 1100 to 5000 in a couple of years, and the banks of that nation own BILLIONS of subprime loans (which are defaulting at rates above 15%) a stock market crash is inevitable. It is only a matter of WHEN.

One must keep in mind that inside China right now almost NOBODY has heard of “subprime” or has any idea Chinese banks are up to their ears in owning subprime backed securities. It could take months before Chinese investors get wise to that. Obviously the government censors are hard at work keeping this topic MUM.

[Ozzie]

There was an article earlier this week in the WSJ with comments from a British analyst who focuses on world markets. He predicted both the dot com and sub prime bubbles. He calls the Chinese market a bubble but warns that it will take many years for it to pop. Bubbles may be easy to identify, but if you short too soon you can get burned just as easily as being long and waiting for it to pop. The economy is still cooking over there and will remain strong at least through the Olympics. That is a very big deal to China. Be careful.

[kewp]

Instead of shorting, it seems to make more sense to get in, get leveraged and get out. As long as you don’t get greedy its a much safer bet then trying to time the crash exactly with a short.

[GoUSC]

The Chinese won’t dump their treasuries and they won’t float their currency. There economy only exists because of our purchasing power and buying their goods.

Let’s put this in a little perspective folks. The US GDP is $13.1 TRILLION dollars. It increased $2.2 trillion from 2003 to 2006. The entire Chinese GDP is $2.07 trillion. Our GDP grew in 3 years by more than the ENTIRE Chinese GDP.

Assuming that the Chinese GDP grew at 8% forever and the US GDP grew at 3% forever, it would take China 40 years to equal our GDP.

Yes there are problems but at the end of the day we are still a huge economy with a lot of life left in it.

[Arty]

I could be wrong on this. From what I know (family investment in China), it is kind of hard to pull cold hard cash directly from China if you want to. The government controlled banks simply don’t allow it. It is easy to wire fund into China but getting it out is a completely different story.

[cr]

I’ve got to agree with radelow.

We fund China’s growth. Their recent threat to unload their reserves after our urging them to revalue the RMB is a hollow threat IMO.

They unload their holdings, we stop buying, their manufacturing hits the brakes hard.

What we should really be afraid of is what they start buying their own products en masse, and in enough volume to support production capacities without exports to America. That’s when they’ll sell their US$, and their economy really takes off. Meanwhile the dollar tanks more, it becomes cheaper to manufacture here, but because anyone in the world can buy here they DO buy up our businesses, but to stop that governments control all business as our social capitalism moves to communism.

Look on the bright side though, at that point we probably have a trade surplus.

[rseiser]

Regarding the shorting, good point with the currency possibly going up. You rather short or buy puts in an account demoninated in RMB or maybe in Singapore dollars. Otherwise, if their market goes down and their currency up, you would still lose on being short a Chinese fund here.

Regarding the overall merit, I have no clue. I don’t even know the price-to-earnings in China. Anectotally, it certainly seems ripe for a correction. My friend is dissapointed with the 17% annual returns he made in the U.S. for the last years, because his China fund went up 60% in 1.5 years. He wants to keep his investment in China because he has a good gut feeling…

Hey, China might grow by 15% and have a few percent in earnings. But that wouldn’t justify any stock returns in excess of 20% annually. So the least I would do is stay out.

[one_muggle]

For better or worse, the Chinese are diversifying: Their monetary holdings, their customers, and their labor markets. One day, and it might take ten or twenty years, they will not be so dependent on our economy. It may seem like a ways off, but I suspect we will begin to feel the effects much sooner. They are working on this very hard, and they have much more patience than does the US.
They are becoming rabid capitalists and have enormous growth potential just from their own citizens. Their economy is small, but is growing far faster than the US. If you are a growth investor it is very attractive, thought there is risk of the economy overheating or the gov’t doing something stupid-but hey, that happens here too!
I wouldn’t short them with my lunch money.

-one muggle

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