Author: greendragon

Reducing the impact of capitalistic slowdown on our citizens. [Copy link] 中文

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Post time 2007-5-21 12:41:28 |Display all floors

Reply #14 nz0324's post

latest from Edge Singapore edition.

P/E in Shanghai bourse is 39x....
almost the same as Amerikan Nasdaq....

According to Economist, 12th May edition.

Market valuation of Shanghai bourse is almost 50% up (since 29th December 2006).
Market value of total China bourses, Shanghai, Shenzen, Hong Kong exceeds Japan's and Uk's!

Seems like market is confident of future CAPITAL VALUE GROWTH, and future PROFIT GROWTH in companies listed on the bourse!

Green Dragon

[ Last edited by greendragon at 2007-5-21 12:42 PM ]

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Post time 2007-5-22 04:41:20 |Display all floors

what is your point?

Originally posted by greendragon at 2007-5-21 12:41
latest from Edge Singapore edition.

P/E in Shanghai bourse is 39x....
almost the same as Amerikan Nasdaq....

According to Economist, 12th May edition.

Market valuation of Shanghai bours ...

as of right now, the latin america's PE is 42.9.

In 1997,  the PE of Hang Sang Index was around 17 until the market crash:

what is your point?

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Post time 2007-5-24 16:20:26 |Display all floors

Today's board market drop was due to Greenspan's comment

Immediately after i received the following note regarding Greenspan's comment, the world markets went south yesterday and the whole Wall Street started chanting for "China Bubbles". This time, I have no idea why Greenspan's comment could could trigger sell-off in the Chinese A-share market to this extent.

Live In Play

Greenspan sees dramatic drop in Chinese stocks - reports former U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday he feared a "dramatic contraction" in Chinese stocks but said the global economy may be able to shrug off a drop in asset prices. Addressing a meeting in Madrid via teleconference, Greenspan said the recent boom in Chinese stocks could not last. "It is clearly unsustainable," he said "There's going to be a dramatic contraction at some point." Greenspan also said a correction could cause problems for Chinese personal wealth. Some analysts have speculated that the Chinese government could be tempted to dip into its reserves to bail out any stung investors and avoid social unrest.

( To Greendragon: I appreciate your comment regarding the valuation of the Chinese stock market. Like you, I believe that the PE of the A-share market is a bit excessive. But the world markets are heavily indexed, and it is this heavy indexing that moves stock markets together. Regardless of the fundamental factors, markets as different as Japan and Canada tend to rise and fall together. The volatile time in May 2006 and Febuary 2007 provided no evidence to suggest that a country with good fundamental is immune from a global market selloff. Remember that Brazil is now considered as a bubble in Wall Street, but its stock index has been trading at PE < 12 for many years.

During the dot-com bubble in 2000, the US government unloaded its equity holdings to repay its debts. Perhaps, you could tell governments of countries with large market capitalization to do something similar.)

[ Last edited by nz0324 at 2007-5-24 04:23 PM ]

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Post time 2007-5-24 23:31:53 |Display all floors
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Post time 2007-5-25 01:37:59 |Display all floors

Whether this market is a huge promise for shrewd investors or not, this "China  correction" has been staged quite a few months ago. NASDAQ was not the target. The crash of the NASDAQ was the result of heavy indexing.

Many Wall Street people I talked to are betting on "collapse of China bubbles" and have accumulated huge short positons on all Chinese equities and exchange traded funds since last January.  They don't really care about the fundamental. They complained about the hugh gain which the Shanghai Composite Index achieved last year. They just want to profit from a market crash on China.

This attack is not very different from the 1997 Asia Financial crisis. The hedge funds simply chose to attack the Asia markets. During the 1997 Asia Financial crisis, there were only 699,000 retail investors in Hongkong and this figure was simply too small to provide buying pressure to support the falling market.

If the China can protect their A-share market from any external turmoil, its a time for us to change our attitude towards the Chinese stock market and its economy.

[ Last edited by nz0324 at 2007-5-25 01:45 AM ]

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Post time 2007-5-25 02:58:44 |Display all floors

What father of EURO recently said ... 7_855706_page_2.htm

What should China's number one priority in macroeconomic management be?

The first thing China needs to do is bring its balance of payments into equilibrium. How they do this should be up to China, not the rest of the world. But they can't go on accumulating $200 billion a year in foreign exchange.

In my opinion, it would be vastly better to bring it into equilibrium around the current exchange rate without a sharp appreciation that would upset their whole macroeconomic strategy of maintaining strong growth with low inflation. China had a fixed exchange rate from 1997 to 2005, and it made a change towards slow, steady appreciation around 3% to 5% per year. I think that policy is not the right one.

So how should China bring its balance of payments into balance?

First it should move in the direction of relaxing exchange controls and in the direction of convertibility without going all the way. Second it should stop sterilizing the monetary effects of purchasing foreign exchange [by selling bonds to mop up the increased money supply]. This will increase absorption [total spending], imports, and total spending by people in China.

Would this affect inflation?

It's a mistake to think it is inflationary. The risk of inflation is very slight because the supply potential is enormous if you expand demand. Part of total spending will fall on imports and on exportable products to the extent Chinese buy more of their own goods instead of sending them abroad.

Why are the Chinese such huge savers?

The large savings comes about through population policy. Historically, Chinese had children as durable goods to provide for retirement. When the one-child policy was introduced, it cut off this form of social security so the Chinese turned to high savings—instead of investing in children, they invested in savings for their old age.

How does the current situation affect asset prices of things like property and stocks?

The disequilibrium in China is a balance-of-payments surplus—…excess demand for money, and sterilization frustrates it, and stores up excess demand for money for next year and perpetuates the disequilibrium. If you satisfy excess demand for money, this doesn't create a change in demand for assets. However, the long-term trend is up in a rapidly growing economy.

It's sometimes believed that the U.S. is at fault for spending too much and saving too little—do you agree?

People don't necessarily spend beyond their means without realizing they have to pay it back. In the U.S. it's a great big supermarket of future income streams from capital assets, stocks, and bonds people that have. It offers the best income streams in the world, and everyone wants to get into them. When the rest of the world buys more of those [assets] than Americans buy from the rest of the world, this imposes on the U.S. that excess of spending over income that is the current account deficit.

What advice would you have for Vice-Premier Wu Yi when she meets with [U.S. Treasury Secretary] Hank Paulson in Washington later this month, given the current sentiment of protection in the U.S.?

I would advise her to do something to stabilize the U.S. balance of payments and do it in a way that's good for China. You could appreciate the exchange rate but that's bad for China.
Also, tell her to do the best she can to meet the objections and complaints about intellectual property rights and treat very seriously issues such as food supply chain.

What would happen if China stopped buying U.S. treasuries with its additional reserves?

This would have a little impact possibly on interest rates—a small impact. If China stopped buying foreign exchange assets, the balance-of-payments situation would change. The U.S. has a deficit in large part because other countries finance it. If the rest of the world stops financing it, the deficit will go away.

But I don't want the U.S. deficit to go away, because the U.S. deficit is very good for the rest of the world. Right now, it's fuel for growth of the world economy and supplies liquidity to the world. But in the long run we have to take some burden off the United States from the dollar's role as the global currency.

How much longer will the dollar remain the principal global currency?

The dollar has been the major world currency since early World War I, when it replaced pound sterling—and it's going to continue for a long time to come, as long as the U.S. remains the No. 1 power and the most innovative power, and as long as the U.S. economy is strong.

When will China become the most dominant economy?

It will be a long time before China's s standard of living will approach the U.S. It might be 100 years; I see the dollar era lasting another century.

What do you think of China's building up a fund like Singapore's Temasek to spend its huge hoard of reserves? (See, 3/12/07, "China's Giant New Investment Agency".)

China has built up $900 billion in foreign exchange reserves in the past decade, vastly more than any other country in history. The rest of the world, and particularly the U.S., has allowed China to do this. It's absolutely important that China use these reserves responsibly.

What does responsible investment mean?

The whole question of using it as a way to take over companies—if not done responsibly—would be rejected in many countries and they would be shut out. The whole spirit of the world economy would be lost.

Isn't there too much paranoia about the rise of China and that was why its oil company, CNOOC, was thwarted from buying Unocal?

Yes, this example was a warning that this issue is a very sensitive one to the rest of the world.

How does that compare to the rise of Japan and its purchase of Manhattan real estate properties and media companies in the 1980s?

There was [some] fear of Japan buying too many properties and increasing control in the 1980s, and the U.S. reaction was the Plaza Accord when they forced Japan to appreciate the yen [leading to] serious damage to the Japanese economy. China should look at the example carefully. That's why it's not in China's interest to have a big appreciation forced upon it.

Finally, what do you make of the big discrepancy in prices for Chinese shares with dual listings which are so much higher in China than in Hong Kong?

This big gap between prices of shares in Hong Kong and China is an element of the lack of financial integration and the fact that the yuan is not convertible. It's waving the flag that shows China's financial development is still immature.

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Post time 2007-5-25 12:01:48 |Display all floors

Reply #20 nz0324's post

All that you have said is good and to the point!

I just got to add.
(1) markets can move from fundalmentals to "speculative" based on "charts" and "rumours". This is not sustainable. Market can used such bubbles to clear excessive liquidity but it should not cause long term headaches.
(2) Cost of onset of sudden critical illness, loss of income via disabilities, accidents, damages to productive assets via fire or burglary can be solved by INSURANCE.
(3) this is great opportunity for the CITIZEN to understand better the practical mechanics of supply, demand and pricing.


Green Dragon
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