May 15, 2007

The China (Shanghai) stock bubble and frenzy

Have you read the stories about Chinese lining up at brokerages to get accounts? 50% rise so far this year, 130% last year, millions of new accounts monthly, and a mania sweeping the country, with farmers and monks putting in everything they got? P/E ratio? Fundamentals? Balance sheets? Forget about it - everyone's getting rich!

This one could get interesting. Really interesting. Textbook interesting. South Sea Bubble interesting. Tulip interesting. Phoenix investment condo interesting.

BEIJING (AP) -- After watching Chinese stock prices gallop upward for months, Ding Xiurui wanted a piece of the action.The 45-year-old office worker stood in line at a bustling brokerage Friday to open her first trading account. She brought her sister, who opened an account too. They joined millions of other novice investors who are jumping into a market that has soared to dizzying heights, with prices up nearly 50 percent this year.

"We still can make money," Ding said as she stood at the counter at Tiantong Securities with the paperwork for her new account. Asked what stocks she would buy, Ding said, "I don't know. I'm still learning."

China is in the grip of stock market fever. Shares are changing hands in record numbers as first-timers pour in new money. Some are mortgaging their homes or dipping into retirement savings to finance a frenzy of trading known as "chao gu," or "stir-frying stocks."

Here's the government putting out a warning. Next step is to crush it, and if they don't, oh, man, will this end ugly.

BEIJING (XFN-ASIA) - The China Securities Regulatory Commission (CSRC) has given a stern warning about the risks of investing in the stock market.

The commission said in a statement posted on its website Friday: 'Investors should be fully aware that there exists no stock on earth whose prices only surge and never slump, neither can they expect investment instruments which will only bring in money and do not cause losses.'

The statement continued: 'Investors ... should understand and bear in mind all the time that they will have to be responsible on their own for whatever the consequences are of their investments, and manage their personal wealth with a sober mind by giving the security of their funds priority.'

And here's a report of Chinese draining their savings accounts to put into the Ponzi Scheme:

Reduced bank deposits by Chinese households suggest that a large amount of money is being invested in the capital market, according to the central bank.

Household deposits decreased by 167.4 billion yuan ($21.7 billion) in April. In contrast, they increased by 60.6 billion yuan ($7.9 billion) at the same time last year, the People's Bank of China said on its website yesterday.

The high growth rate of M1-a narrow measure of money supply that includes cash and demand deposits - plus diminishing household deposits suggests Chinese households are keeping money on tap for investment in the capital market. The red-hot stock market has grown by more than 50 percent this year after doubling last year.

Stock mania is sweeping the country despite warnings of a speculative bubble but small investors are rushing to pull out money from bank savings accounts and deposits to pump them into the share market.

Some are even mortgaging their houses or dipping into retirement savings to feed the frenzy.

31 comments:

Frank said...

Sounds like DOT-BOMB all over again to me.

Anonymous said...

The China (CSRC),gave a stern warning about the risks of investing in the stock market .

You mean the China (CSRC) didn't say to their people that "the stock market always goes up ", "their running out of stock ", "buy now or be priced out of the stock market forever ?"

keith said...

Welcome to capitalism comrades. Thank you for investing blindly in the stock market.

Now's the time where you lose everything and can no longer afford to eat

Alain Miller said...

Of course, now that we're in a global economy it would be foolish to think our markets are NOT going to be effected by this over-exuberance, as leveraging to get into "investments" is what got us into trouble back in 1929.

So what'll be the event that triggers a sudden simultaneous wake-up call worldwide, with a massive sell-off and panic to follow?

I'm guessing it'll be some event pertaining to oil, e.g. a skirmish in the Straight of Hormuz involving the U.S. (or Israel) and Iran. Israel will NOT tolerate Iran having nukes.

The growing and established economies of the world are so dependent on fossil fuel (Japan is 100% dependent on imported oil), that any disruption in flow will create MAJOR tremors.

Anonymous said...

This story isn't real is it? It looks like it's from 1929

michael said...

"The growing and established economies of the world are so dependent on fossil fuel (Japan is 100% dependent on imported oil), that any disruption in flow will create MAJOR tremors."

"he who controls the spice, controls the universe"

Anonymous said...

AL-QWEEFIE,

Didn't you say something about a Dow Jones bubble last year too? Remind me how that prediction turned out.

All these supposed bubbles never seem to pop.

Anonymous said...

U.S. hedge funds and money center banks with trading desks are borrowing like mad from Japan and plowing it into the Chinese stock market. They're the pros, while the little gu Chinese investors are new to the game and will get hosed. Then we'll have a billion and a half pissed off Chinese coming to kick our *$$.

Anonymous said...

http://china.seekingalpha.com/article/35473?source=feed

As usual Al-Qweefie is nothing but hot air. No analysis just tabloid style headlines. Or is it that like with housing, you missed out on the China boom and now are bitter and hoping for a crash?

Anonymous said...

BEIJING (XFN-ASIA) - The China Securities Regulatory Commission (CSRC) has given a stern warning about the risks of investing in the stock market.

The commission said in a statement posted on its website Friday: 'Investors should be fully aware that there exists no stock on earth whose prices only surge and never slump, neither can they expect investment instruments which will only bring in money and do not cause losses.'

----------

pfffffffffft, please! AMERICANS know better.

Anonymous said...

Alain Miller said...
Of course, now that we're in a global economy it would be foolish to think our markets are NOT going to be effected by this over-exuberance, as leveraging to get into "investments" is what got us into trouble back in 1929.


BUY GOLD!

showmenouns said...

This could add another 5 - 10 years to the wait for the major 'realignment'.


.

blue balls said...

Gambleing 101 all over again.don't the asians really like to gamble antway.They will learn the hard way just like we did in 2000.People never learn.Always a get rich quick scheme going on somewhere.I am out of the market totally.Cash is king.

SPECTRE of Deflation said...

They may blow up before we do, and where will the world want to put it's money? One guess is all that's allowed.

Anonymous said...

oh man, this is how Bush saves the USA.

the chineese have our money in savings, we have tons of debt. right.

they get greedy and buy stocks. hank and team keep the pump going and when all the savings in in the market, BAM they pull the rug.

The chineese have no mo money, we no longer have the sword over our heads and Goldman is even richer.

The chineese then become wage slaves.

Pete said...

How many Chinese have to get burned before they go back to true Communism? A crash is inevitable over there. In its aftermath will they continue w/ free-market Capitalism, or will they seek safety in Mao's Red China of the past?

fish said...

Remember, when the Chinese lose money, the first thing that is on their minds is generally murder! This should be fun!

Mark in San Diego said...

The only question is. . .are we at 1928 or 1929. This whole stock Ponzi scheme might have another year to go - China is allowing capital to move abroad and invest in world markets, and KKR and other takeover firms are doing almost a deal a day. Companies are buying back stock at record rates. . .even I sometimes wonder if globalization (China and India consumers buying everything in sight) won't carry us for a while. . .as for US housing - essentially until New York money center people start feeling some pain, it doesn't exist. . .they probably read this blog, and laugh at the poor suckers in Phoenix, while they call their decorator to redo their new 5 million dollar Park Ave. penthouse. . .

jymkata said...

Don't you know that the Chinese stock market only goes up?

Forget real estate - this is where you want to put your money now (if you have any left)!

Dr Wingnut said...

I read this article a couple years back. I would like to see what happens when a giant ponzi bubble is placed on top of these underlining problems that will stress the Chinese Economy....

China and the 3 No's

(No Water, No Women, and No Banks)

Chinese are fond of compressing a social, political, or economic issue into a set of bullet points designated by the number of them. One of the most famous was “The Three Rounds,” encapsulating Chinese material dreams as they began emerging from the horror of Mao Tse Tung.

You were wealthy in post-Mao China if you possessed a watch, a bicycle, and a sewing machine -- the three “rounds.”

That was a quarter-century ago. Comparing the dream of having The Three Rounds to China’s economy today gives you an idea of how amazingly far China has traveled in that period. China has been speeding along a highway of wealth creation that has few parallels in history - yet now it looks like it is going to drive right off a cliff.

What is transforming the Chinese economy from a dream to a nightmare are The Three No’s: No Water, No Wives, and No Banks.

Northern China is becoming a Dust Bowl. Southern China is green, with rivers all over the place. Northern China is brown and the rivers are drying up. Xinhua, the China News Agency, revealed in a story datelined April 23 that 600 Chinese cities are suffering water shortages. Most of these are in the north, but big cities in the south, such as Shanghai, Nanjing, Suzhou and Wuxi, are also included.

China’s population and economy have simply outstripped water supply, and what water remains is increasingly polluted. Urban water prices are skyrocketing, gigantic water reclamation and river diversion projects costing countless billions are planned.

Professor Liu Yonggong of China Agricultural University in Beijing reports that the water table beneath much of the North China Plain, a region that produces some 40 percent of China's grain, has been falling an average of 1.5 meters (roughly 5 feet) per year over the past decade. A joint Sino-Japanese analysis of China's agricultural prospects reports that water tables are falling almost everywhere in China that the land is flat.

Growing an economy, growing enough food to eat, is hard to do when you’re running out of water. It’s even harder if men are running out of women to marry.

China’s “one child per family” law has had disastrous demographic consequences, grossly compounded by the Chinese pathology for wanting only sons and resultant mass female infanticide. There are already scores of millions of young men in China who will never get married, with tens of millions more added every year.

Marriage civilizes men, causing them to devote their energies to productive work and raising a family. Vast swarms of unmarried males can be lethally dangerous to social stability and economic growth. There are few things worse than no wives -- or no water. One of them would be… no money.

One of the world’s worst kept financial secrets is that Chinese banks are broke, because the government forces them to prop up SOEs (state-owned-enterprises) with loans that will never be paid back. The entire global financial community is in desperate denial over this - which was made more difficult when China’s Regulatory Banking Commission (CRBC) briefly suspended all bank lending last month.

The CRBC withdrew the suspension three days later then denied it was ever issued. The very next day (April 28), the CRBC sent out a report that Chinese banks were enjoying “surging profits” - with first quarter 2004 profits “soaring” 54 percent over a year earlier!

This, like most all economic stats produced by the Chicoms, is a lie - a classic Chinese lie, which is a lie told straight to your face when everyone from issuer to recipients knows it isn’t true. In this case, the profit stats are totally phony because they don’t include non-performing loans.

How much longer can the Chicom Mandarins continue to live in Oz and demand the world pay no attention to the bankrupt banks behind the curtain?

Anonymous said...

U.S. hedge funds and money center banks with trading desks are borrowing like mad from Japan and plowing it into the Chinese stock market. They're the pros, while the little gu Chinese investors are new to the game and will get hosed.
____________________

++++++Oh, great. Now when the Chinese stock market crashes, Wall Street will be sure to crash as well. What fun....

Anonymous said...

Dr. Wingnut - all your points about China reveal why in 30 or 40 years they will be nothing to worry about. Once these problems reach a critical mass, China will collapse into a revolutionary black-hole where all concepts of money, wealth, capitalism, and globalization evaporate. The international companies making money off China right now will reduce exposure as the collapse approaches.

China's 15 minutes are now about 9 left - it's probably all downhill after the 2008 Olympics.

Why do you think a 5000 year old civilization has never risen to global empire status, like Rome, Britain, or the United States?

Because they can't.

Anonymous said...

If you are all conviced the crash in china is coming, profit from it. Short every ETF you can find and you'll be gajillionaires.

Hell borrow $50K and buy some puts. If you're right you'll make millions.

Speaking of such things how are those CFC puts doing for everyone?

Anonymous said...

anon 8:03, that is exactly what I have done altough not with $50K worth, but enough that should a severe crash occur I'll be sitting pretty

chris g said...

I like how the Chinese government comes out and issues a statement that cannot be interpreted in any other way, and is written in plain English (or Chinese, I should say). It basically says "If you lose your ass in the market, you're on your own. Don't come crying to us for help." I wish the doorknobs in the US gov't that can't talk like normal people would make such direct statements as well. But of course, they are competing for political positions, unlike China which will have communism in power regardless of what happens. Must be nice not to cater to the people in order to hold a political office.

Hayley said...

HP Resident Posters: 50%
Anons: 50%

I think that's an improvement...

Leave the anons to the trolls, and besides, (if I can appeal to your self interest here) it's easier to find your posts later if you name them...

Anyway, stuff like this always cracks me up "investors should understand and bear in mind all the time that they will have to be responsible on their own for whatever the consequences are of their investments, and manage their personal wealth with a sober mind by giving the security of their funds priority."

Yes thats very nice, but these dire warnings are the stuff that meltdowns are made of. Because if you think about it you really have no power to isolate yourself from other people's consequences. You can warn the guy next door not to get the neg am mortgage, but when he goes broke, you end up indirectly picking up all his costs to live in a civilized society.

Shakola said...

Ding?What the-is she a Blonde?

Anonymous said...

Gotta love it.

Communist Chinese Government's straight talk to it's citizens:

"The market is dangerous. Use prudence with your finances. The Government will not help you if you make mistakes."

American Politicians to U.S. citizens:

"Poor babies. You were a fool when you bought that overinflated home. But don't worry, Daddie's here to help."

Anonymous said...

Did'nt i read something last week about canada saying keep you hands off our water, while i was calculating the mineral movement cost of profit in the trenchlines and pipings used to supply mexico and central america waters, not also only the parched deserts of the southwest and mid centrals, whats the story about, and method of retreivals in central asia from like siberia also?

Anonymous said...

Central planers/ communists/ public services privatizations/ before and after the infrastructure carry cost slaverys, and taxations/ government make work project/ depressions, non depressions/ bi-partisan tests failsafes?????/

Anonymous said...

market costs in emerging economys and markets/ as/ vrs/ non market societies