Wednesday, February 28, 2007

Chinese Stocks Bounce Back

After the bank run in Shanghai and Shenzhen yesterday, where the stock markets were both down 9%, the up bounce happened today. The markets in China were back up 4% today. Check out the article on it.

The first thing that I thought when i heard about the "black Tuesday" in China was perfect, now i can get in on the dip. As I posted previously, all the people I know in China know it is going to be a great year for stocks. Everyone is going to buy in and make money. This might be a bubble, but it's not going to burst anytime soon. People just saw other people selling and decided to sell themselves. Although it seems that the central bank is going to institute more profit taxes as well as other measures to slow down the Chinese markets, it will not deter the investors. Here's how CNN Money saw it:

Analysts noted factors which boosted the index 130 percent last year and a further 14 percent to this year's peak - such as strong corporate earnings growth and billions of dollars waiting to be invested by newly created mutual funds - remained.

Many Chinese shares are valued at over twice the prices they might command in foreign markets, so fears that a "bubble" could be bursting have accompanied every big fall this year.

But analysts and fund managers argue that the vast demand for equities in China, as well as its isolation from international markets due to capital controls, mean the market as a whole is not prohibitively expensive.

"The mainland's ample liquidity remains fundamentally happy at these [high] A-share valuations and prospects for China growth," said Green.

Although foreign investors continued switching out of richly valued financial stocks this week, there was no sign in the stock or currency markets on Wednesday that they were pulling large amounts of money out of China.

In the big city brokerage trading rooms, where hundreds of thousands of individual Chinese have poured money into stocks over the past nine months, the mood was calm.

I commented on my own post last night in response to my friend wang's post.
However, i don't think today's 400 point drop in the dow was the direct result of any selling of treasury bills by china or a quick de-evaluation of the Chinese yuan (like what happen in Thailand in 1997). It was based on speculation created from fear and uncertainty. That is the only reason why awesome companies with great fundamentals and great earnings fell with everything else today.
Again, there was, and is nothing fundamentally wrong with the Chinese market. It's just a one day scare. The primary victim in this scare: the West.

People in the West have no idea what is going on in China. They are unsure, intimidated and even scared of China. That is main reason why the Dow fell so much yesterday. It will be interesting how the western markets mature in their view of the Chinese market after this jolt. Let's also hope China stops messing with the West's head and emotions.

1 comment:

Wang said...

No no, let's not get my comment twisted. I didn't say that the 400 point drop was caused by any selling of US treasury bonds or devaluation of currency.

US debt is intimately tied to China and Japan. That is a fact. You were absolutely correct when we talked and you said that China is not well understood by American investors. The 9+% downturn of the Chinese stock market created a spike in uncertainty about the Chinese stock market. The US stock market is absolutely controlled by speculation and future valuation; if the US stock slide showed anything, it was that American investors recognize the importance of a stable Chinese market. It also showed that Americans and the Chinese didn't learn much from previous US stock market crashes and bank runs, they saw the downturn and ran to sell. Where is the self control?

China's economy is going to get stronger and stronger. The Chinese stock market may not double again like last year, but it will march forward.

However, America should be weary about having one country paying for so much of its debt. It is difficult for me to see America "diversifying its portfolio" of debt holders, as the Bush administration has left a bad taste in a lot of foreign nations' mouths. A bad taste that is easily cleansed by a better tasting Euro.