Will a China trigger off a global recession like the dot com bubble ?
The correction which many the Doomsayers predicted, never materialized. The nervous market flipped and hiccup whenever bad news reached the market. The biggest attraction for the month of May is not oil or property market. The biggest star at the moment is the foaming china market.
The China Bubble
The China stock market has appreciated 65% since the start of the year. There has been news of blue collar workers mortgaging their house and using the funds to invest into the stock market. Instead of investing based on fundamental and the profitability of the companies, investors are investing based on the strategy of dice betting. Roll the dice and that will be the stock to invest! The Shanghai Composite Index is currently trading at 50 PE. This means that you will need to take 50 years, for the stock market to double the capital. Compare that to 18 PE in Singapore and 16 PE in US, it seems that the China market is running ahead of itself.
The Psychology of the Chinese Investors
During the last month, there are many well regarded economists & successful businessman who stepped forward to address concern on the ballooning china stock market bubble. From Hong Kong Billionaire Li Ka Shin to former US federal reserve chairman, Alan Greenspan. The Chinese government, in a bid to cool the market, raise the interest rates and capital reserves of national banks. Despite laying barriers after barriers, the China stock market continues to defy gravity and continue to appreciate. One of the theory is that national pride is helping in creating a irrational exuberance in investors. Chatrooms in China have the ability to "talk the market up". One forumer claims that Alan Greenspan is trying to "talk the market down" because he missed out an opportunity to invest in China and would love to buy it cheap when the correction occurs! Other forumers are arguing that as Chinese, they should band together to fight off "foreign effects" and support the stock market!
The Eyes to US
Despite all the talk of global market “interconnectedness,” the Chinese stock market doesn’t really account for a lot of world capitalization. Less than 5 percent, not counting Hong Kong. And not a lot of institutional money. The bull run there has been fueled by individual investors using borrowed money and, according to one Wall Street Journal report, lucky number stock-picking strategies. The economic condition of the US economy may proved to have a greater effect on the stock market than the China stock market. The latest GDP report shows that US is currently at zero growth. This may be a positive sign as it may induce the Federal Reserves to reduce interest rates in the bid to boost the economy.
I would advocate the use of a balance portfolio at this point of time until the scenarios become clearer. Expect sharp drops and bumps along the way. We are in blurry waters now with the US risking stagflation and China market risking a bubble scenario.
The correction which many the Doomsayers predicted, never materialized. The nervous market flipped and hiccup whenever bad news reached the market. The biggest attraction for the month of May is not oil or property market. The biggest star at the moment is the foaming china market.
The China Bubble
The China stock market has appreciated 65% since the start of the year. There has been news of blue collar workers mortgaging their house and using the funds to invest into the stock market. Instead of investing based on fundamental and the profitability of the companies, investors are investing based on the strategy of dice betting. Roll the dice and that will be the stock to invest! The Shanghai Composite Index is currently trading at 50 PE. This means that you will need to take 50 years, for the stock market to double the capital. Compare that to 18 PE in Singapore and 16 PE in US, it seems that the China market is running ahead of itself.
The Psychology of the Chinese Investors
During the last month, there are many well regarded economists & successful businessman who stepped forward to address concern on the ballooning china stock market bubble. From Hong Kong Billionaire Li Ka Shin to former US federal reserve chairman, Alan Greenspan. The Chinese government, in a bid to cool the market, raise the interest rates and capital reserves of national banks. Despite laying barriers after barriers, the China stock market continues to defy gravity and continue to appreciate. One of the theory is that national pride is helping in creating a irrational exuberance in investors. Chatrooms in China have the ability to "talk the market up". One forumer claims that Alan Greenspan is trying to "talk the market down" because he missed out an opportunity to invest in China and would love to buy it cheap when the correction occurs! Other forumers are arguing that as Chinese, they should band together to fight off "foreign effects" and support the stock market!
The Eyes to US
Despite all the talk of global market “interconnectedness,” the Chinese stock market doesn’t really account for a lot of world capitalization. Less than 5 percent, not counting Hong Kong. And not a lot of institutional money. The bull run there has been fueled by individual investors using borrowed money and, according to one Wall Street Journal report, lucky number stock-picking strategies. The economic condition of the US economy may proved to have a greater effect on the stock market than the China stock market. The latest GDP report shows that US is currently at zero growth. This may be a positive sign as it may induce the Federal Reserves to reduce interest rates in the bid to boost the economy.
I would advocate the use of a balance portfolio at this point of time until the scenarios become clearer. Expect sharp drops and bumps along the way. We are in blurry waters now with the US risking stagflation and China market risking a bubble scenario.
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