# Chinese market



## radioactivem (19 May 2007)

Hi Does anybody know what the general outlook is for the chinese market?  If there is a correction what would be the worst case scenario (i.e. could it be in the range of 50% or more?) Is the current index of ~4000 on the composite index  (http://finance.yahoo.com/q?s=^SSEC) sustainable at all? 
I'm looking at investing a given amount in a china linked fund over the long term but am wondering if it would be better to hold off just for the moment until things become more stable. 
thanks!


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## verbatim (19 May 2007)

I'm don't know much about Chinese stocks, but I did hear that Price-to-earnings ratios were about 50 on average for one particular index, in Europe and the US they are about 15-20.

Also the government seems to want to take some heat out of the market, this week they announced they would let the yuan appreciate at a slightly faster speed.


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## longarrow (24 May 2007)

Well, I am quite familiar with chinese stock market, since some money has been involved. As you said, now the index is above 4000, which is the peak along the history. The reason for this probably could be traced back to the international hot money inflowing, which aims to bid the yuan appreciation.


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## room305 (25 May 2007)

longarrow said:


> Well, I am quite familiar with chinese stock market, since some money has been involved. As you said, now the index is above 4000, which is the peak along the history. The reason for this probably could be traced back to the international hot money inflowing, which aims to bid the yuan appreciation.



Given your familiarity I would have expected you to realise that the opportunity to invest in the Shanghai Composite index is available only to Chinese citizens. Not to foreigners. Although I believe the rules might be sufficiently relaxed that you can apply for special dispensation from the government to invest there.

Many of the companies on the index are dual-listed on the Hang Seng index but the companies trade at a premium on the Shanghai Composite.

See more general discussion here: http://www.askaboutmoney.com/showthread.php?t=55099


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## Markjbloggs (25 May 2007)

Greenspan thinks the Chinese market is in for a big fall - 

 [broken link removed]

With all the other warnings, I personally would not touch it with a bargepole!


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## diarmuidc (25 May 2007)

Markjbloggs said:


> With all the other warnings, I personally would not touch it with a bargepole!


Do you think the US/EU markets will also feel a substantial fallout if it does burst?


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## z108 (25 May 2007)

room305 said:


> the Shanghai Composite index is available only to Chinese citizens.



I'm looking at this from the point of view of a non Chinese investor.

How would a fall in the Shanghai Composite index affect the indices available to Westerners  such as the Xinhua China 25 in particular ?

Is the apparent 'bubble' greater in the  Shanghai Composite index  or are all Chinese based indexes in trouble  if  the  Shanghai Composite index  crashes?


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## room305 (25 May 2007)

sign said:


> I'm looking at this from the point of view of a non Chinese investor.
> 
> How would a fall in the Shanghai Composite index affect the indices available to Westerners  such as the Xinhua China 25 in particular ?
> 
> Is the apparent 'bubble' greater in the  Shanghai Composite index  or are all Chinese based indexes in trouble  if  the  Shanghai Composite index  crashes?



Other Chinese indices have not enjoyed the same gains so they probably won't fall as hard. However, it is hard to imagine they will emerge unscathed, for reasons of sentiment if nothing else.

Whether this presents an opportunity or not will depend on your longer term view of Chinese equities and the Chinese economy.


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## Privinv (29 May 2007)

Alan Greenspan is predicting a bust in the chinese stockmarket. This would have a big negative impact on US/EU markets similiar to last year.


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## room305 (29 May 2007)

Privinv said:


> Alan Greenspan is predicting a bust in the chinese stockmarket. This would have a big negative impact on US/EU markets similiar to last year.



I am less inclined to think so given the massive media coverage. Market sell-offs rarely occur in reaction to 'expected' events.

See more discussion here: http://www.askaboutmoney.com/showthread.php?t=55099


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## Sarsfield (29 May 2007)

According to Bloomberg TV last night, the big investment firms are reducing their exposure to China while average Joe's are piling in.  Isn't that generally considered to be a sign of imminent problems?


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## Privinv (29 May 2007)

You miss the point, a fall in US/European markets following a fall in the chinese market.


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## room305 (29 May 2007)

Privinv said:


> You miss the point, a fall in US/European markets following a fall in the chinese market.



Markets are forward discounting mechanisms so abrupt changes usually only occur in response to unexpected events. If investors in the US/EU markets are going to sell in a panic when the Chinese market collapses, then why are they still invested now?


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## allears (29 May 2007)

Is it now a time for spreading some investments elsewhere to avoid a downturn in the chinese market or stick with it ?


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## Sherman (29 May 2007)

[_Begin sarcastic rant_] Hurray for Communist stock markets! Whaddya know?! You _can indeed_ get rich from slavery - those canny good ol' boys in the Deep South back in the day sure knew their stuff! 

Today, we can get rich from the enslavement of an entire people too, only nowadays we just hold stocks which profit from their enslavement, rather than holding the whips and cattle prods of yore! Fantastic. [_Ends_]


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## jbax (29 May 2007)

Sherman said:


> [_Begin sarcastic rant_] Hurray for Communist stock markets! Whaddya know?! You _can indeed_ get rich from slavery - those canny good ol' boys in the Deep South back in the day sure knew their stuff!
> 
> Today, we can get rich from the enslavement of an entire people too, only nowadays we just hold stocks which profit from their enslavement, rather than holding the whips and cattle prods of yore! Fantastic. [_Ends_]



Since when did communism equal slavery?


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## silvamuppet (29 May 2007)

Sherman said:


> Today, we can get rich from the enslavement of an entire people too, only nowadays we just hold stocks which profit from their enslavement, rather than holding the whips and cattle prods of yore! Fantastic.]


 
??? The implication here is that chinese people are being forced to work against their will. If this is the case then it is abhorrent. I think you will find it is not the situation though.


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## room305 (30 May 2007)

6.4% sell-off on Chinese market last night in response to increased taxes on shares. Reaction on US indices in pre-market action can only be described as muted.


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## jbax (30 May 2007)

Sherman said:


> [_Begin sarcastic rant_] Hurray for Communist stock markets! Whaddya know?! You _can indeed_ get rich from slavery - those canny good ol' boys in the Deep South back in the day sure knew their stuff!
> 
> Today, we can get rich from the enslavement of an entire people too, only nowadays we just hold stocks which profit from their enslavement, rather than holding the whips and cattle prods of yore! Fantastic. [_Ends_]



I'm sorry for having to post again, but I've just got to say this is one of the most ignorant pieces of writing of seen on the internet. Ever.


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## z109 (30 May 2007)

jbax said:


> I'm sorry for having to post again, but I've just got to say this is one of the most ignorant pieces of writing of seen on the internet. Ever.



Oh bless. You must be quite new to the internet then? Stick with it, you'll see far worse. Wait until the politicians all have their own blogs


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## Sherman (30 May 2007)

jbax said:


> I'm sorry for having to post again, but I've just got to say this is one of the most ignorant pieces of writing of seen on the internet. Ever.


 
You're entitled to your opinion. As am I.

However, I really do think you should do some more research into the dreadful human rights abuses perpetrated daily by the Chinese government. For instance, look into the brutal repression of trade union or religious campaigns for fairer and safer working conditions. Or take a look at the Amnesty reports on Chinese sweatshops, including the documented use of child labour. Or the forcible removal of thousands of villagers from their ancestral homes in order to build hydro-electric facilities to fuel the insatiable demand for energy created by the great Chinese boom.

Perhaps ask yourself how the Chinese feel about having no say in how their country and its economy are run.

Maybe you might also care to ask yourself whether you feel particularly comfortable investing in a regime whose founding tenet is that all property is the property of the state. Yes, they seem to be softening this stance over the last 5 years. IMHO there remains massive risk to the investor that a more hard-line ideology could very easily be adopted by the Communist party in the next few years.

Ultimately, despite their efforts to control the economy through their heavy-handed interventions, the Chinese government will discover the oldest lesson in the book - the market will always eventually win.

Perhaps I should cheer you on in your dreams of getting rich while helping to prop up the Chinese regime - after all, when the bubble eventually bursts, all those millions of new Chinese capitalists will start demanding the one thing shareholders should be entitled to expect - accountability and the ability to oust an ineffective leadership.

Just my opinion however.


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## room305 (30 May 2007)

Sherman said:


> Perhaps I should cheer you on in your dreams of getting rich while helping to prop up the Chinese regime - after all, when the bubble eventually bursts, all those millions of new Chinese capitalists will start demanding the one thing shareholders should be entitled to expect - accountability and the ability to oust an ineffective leadership.



I remain deeply suspicious of the "China story" and aspects of the zealotry of its converts remind me of the Nasdaq bulls circa 1999. However, I thought I'd chime in here even if I did promise myself I'd simply ignore your oxymoronic rant about "communist stock markets".

The China bubble is mainly being driven by Chinese investors, not foreign investors. The biggest gains have taken place on the Shanghai Composite and Shenzuan exchanges. Access to these exchanges is mostly restricted to Chinese citizens. Foreign investors invest primarily via the Hang Seng index where many Chinese companies maintain a dual-listing and NYSE quoted Chinese ADRs. Stocks on the Shanghai Composite trade at a premium to their counterparts on the Hang Seng.

Furthermore, foreign investors are buying shares in Chinese companies not the Chinese government (although the government typically retains a shareholding in newly listed companies, like the Irish government did with Aer Lingus). You do not seem to be able to distinguish the two.

As for your statement that "the market will always eventually win", this makes little sense. A market is a place where buyers and sellers meet. They cannot both win. What you probably mean is that capitalism will always eventually win. Which is true, it is the single greatest engine of human liberty ever known. Once people taste economic freedom they can no longer tolerate political or religious oppression. This is something the Chinese government are in the process of discovering.

The danger is that this stock market crash could lead to political turmoil and/or a backlash against capitalism causing greater oppression of the Chinese people.


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## jbax (30 May 2007)

Sherman said:


> You're entitled to your opinion. As am I.
> 
> However, I really do think you should do some more research into the dreadful human rights abuses perpetrated daily by the Chinese government. For instance, look into the brutal repression of trade union or religious campaigns for fairer and safer working conditions. Or take a look at the Amnesty reports on Chinese sweatshops, including the documented use of child labour. Or the forcible removal of thousands of villagers from their ancestral homes in order to build hydro-electric facilities to fuel the insatiable demand for energy created by the great Chinese boom.
> 
> ...



You make some good points. But, with respect, human rights abuse does not equate to slavery. If you had used the former instead of the latter, then I would be far more acceptant of what you say.

Then again, I amn't the ruling body which governs what is right and what is not; like you, that is my opinion.


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## Sherman (31 May 2007)

room305 said:


> your oxymoronic rant about "communist stock markets"


 
Did you not see the bit in square brackets at the beginning about it being a sarcastic rant  . Part of my whole point was that having a stock market boom in a tightly-controlled one-party communist state _is _oxymoronic, illogical, and likely to end in tears.



room305 said:


> Furthermore, foreign investors are buying shares in Chinese companies not the Chinese government (although the government typically retains a shareholding in newly listed companies, like the Irish government did with Aer Lingus). You do not seem to be able to distinguish the two.


 
I think you will find that there _is little_ to distinguish the two. In order for a business to succeed in China, it must have very, very close links with the Communist party. Therefore successful Chinese companies are by their very existence complicit in the corruption and repression of the Chinese people by 'their' government.



room305 said:


> Once people taste economic freedom they can no longer tolerate political or religious oppression. This is something the Chinese government are in the process of discovering..


 
My point exactly.



room305 said:


> The danger is that this stock market crash could lead to political turmoil and/or a backlash against capitalism causing greater oppression of the Chinese people.


 
I am the last person who would wish to see the Chinese people suffer any more than they currently do. However I don't think fear of the unknown is a particularly good reason to protect a disastrous status quo.


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## room305 (31 May 2007)

Sherman said:


> Did you not see the bit in square brackets at the beginning about it being a sarcastic rant  . Part of my whole point was that having a stock market boom in a tightly-controlled one-party communist state _is _oxymoronic, illogical, and likely to end in tears.


 
Well then we are very much in agreement.



Sherman said:


> I am the last person who would wish to see the Chinese people suffer any more than they currently do. However I don't think fear of the unknown is a particularly good reason to protect a disastrous status quo.



Who's protecting? One of the reasons for the Chinese stock bubble is that Chinese citizens have few other outlets for investment. Inflation is a _real_ problem over there and the interest rates offered by banks are paltry. Much of this is the result of currency manipulation by the Chinese government to keep export prices low relative to the US dollar and thereby US customers. So unsurprisingly, money pours into the stock market. Similar things have happened to the stock market in Zimbabwe although it garners much less international attention.

However much I would question the logic of foreign investment in China, I think it is a stretch to imagine foreign investors are supporting the Chinese government and suppression of the Chinese people, which is what you seem to be suggesting.


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