Thursday 30 August 2007

China Stock Market Bubble update

It has been a while since we commented on the "Chinese stockmarket bubble".

It is interesting to note that the foreign press only appear to really care when stock prices fall dramatically and they can shout about "crashes" and impending doom for thousands of students and taxi drivers that have been ploughing every penny they earn (or can borrow) into stock prices.

This blog was initially no different although we did stick our neck out and make some predictions at the height of the last 12 sell off a few months ago.

Here are those predictions from the 25th May:

China's Stockmarket - "how does it work"?

Before the article here is my prediction - let time be the judge.

1. Stockmarket will continue to rise perhaps by another 25-30% over the next 6 months to a year. 5000 could be the psychological barrier that is a digit too far. There will be a series of small hiccups on the way.
2. What will follow will be a trigger than may, by itself, seem quite unimportant that will lead to a widespread sell off of Chinese stocks with perhaps a 10-15% one day fall.
3. Over the next year shares will fall by as much as 40-50% off their all time highs before stabilising.
4. The knock on effect on the world markets will not be as great as some commentators fear but there will be some contagion effect on neighbouring exchanges.
5. Internally, real estate prices will fall and many individuals will be wiped out. Given the large share holdings by the Police, Army and state owned enterprises what happens then is anyone's guess but it could conceivably get quite ugly quite quickly.

So far so good, we have just gone above the important 5000 barrier with only a little pause for breath.

For all the doomsayers - those Chinese investors who stuck with their investment instead of being bounced out by a frenzied media have made over 20% in 3 MONTHS. That is a massive return and beats any bank account paying 5% a YEAR.

This is todays update of the China Stockmarket (from ADVFN - see advert in the sidebar - it has stock prices for all Chinese company share and it is all FREE).

A-shares closed higher as large caps rebounded following strong gains on the
Hong Kong bourse and on Wall Street.
The benchmark Shanghai Composite Index closed up 58.46 points or 1.1 pct at
The Shanghai A-share Index was up 60.85 points or 1.1 pct at 5,426.40 and
the Shenzhen A-share Index was up 29.29 points or 2 pct at 1,512.02.
The Shanghai B-share Index rose 8.33 points or 2.7 pct to 322.23 and the
Shenzhen B-share Index was up 20.56 points or 2.9 pct at 737.81.

So where next, I stick by my predictions but suspect we may get as high as 5500 because make no mistake there are fundamental problems in China that will soon undermine stock prices severely. The fundamentals underpinning each individual stock price are flawed. The political ramifications of a full scale collaspe remain very serious.

My blog post cmparing the Chinese stock market with the NASDAQ in 2000 is telling:

Shanghai 2006-2007 vrs Nasdaq 2000-2001

Other posts that you may find of interest:

China 2007 vs. NASDAQ 2000 - ZEAL analysis

Will a savings tax slow the stock market frenzy?

Who is really inflating the bubble II: Warning on illegal Shanghai share deals

"China bubble" - the political dangers ahead

Chinese Stock Market Bubble Deflates a Little

China by numbers: more on the bubble

"Bursting Chinese Bubble" - a contagion effect?

Who is REALLY inflating the "Chinese Stockmarket Bubble"?


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Priya said...

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