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China the monster.


kahuna1

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In reply to: Wossname on Monday 14/05/07 09:20pm

hahah good timing wossname I was 1 second away from clicking on and posting a chart and noticed yours!

 

I reckon theres 2 days left in it - hence correction time this week. Proposed 12 year was between 4189 and 4231.

 

 

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In reply to: Wossname on Monday 14/05/07 09:20pm

Hi Wossname,

 

These bullmarket type things in rapidly developing superpower countries usually go for longer than you (and everybody else) thinks.

 

During the industrialisation of Japan, the Nikkei went up for about 30-35years. China stockmarket the Shanghai exchange i think its about 16-17 years. Of course Japan had about 100mil people and china more than 1billion.

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Hi Nizar,

 

Until now, Richard Russell saw 2000 as a secular bull market top, as the Dow reached a high then headed down.

 

Thus, when the Dow turned upwards again in 2003, he thought that it was only a bear market rally. However, after four years of watching gains since 2003, he's had to reconsider. Now he thinks that the bull market that began in 1982 is still on, and that the 2000-2003 fall was no more than a large correction.

 

I'm guessing that Russell will continue to watch for any topping out, being aware that the bull has been running for 25 years. However, he may not consider the top to be close by, given how strongly markets are running at the moment.

 

The existence of an ongoing bull market is of course no news to the bulls.

 

I don't know when the secular bull will top out. I do know that the seeds of its destruction have been sown, in the form of excessive leverage, debt, risk, and liquidity. Any of several rogue events could unwind these excesses, rapidly quelling demand in the process. Alternatively, the continuing coordinated interventions of central banks could conceivably delay the implosion for years.

 

A crash, though a painful and memorable setback, is not apocalyptic. It does not spell an enduring end to advancement, unless it triggers warfare. Like a storm, it's damaging, but transitory. Again like storms, market crashes, though rare, are recurrent, and so should be expected.

 

Regardless of grand scale booms and busts, I'm expecting volatility this year. I'm guessing that Shanghai stock prices have got far ahead of fair values, and are too overheated to return smoothly to trend. If so, the resulting correction may send a tremor through world markets, maybe within weeks. A broad scale evaporation of liquidity is conceivable IMO, say if US consumption has weakened beforehand.

 

You say that bull markets in rapidly developing superpowers can go on for longer than I expect. It depends what you mean by "go on". I expect that Chinese GDP and demand could grow at above global average rates for another thirty years or more of industrialisation and modernisation. However, I expect that pauses will happen along the way, and that broad-based pressures for a significant pause are building now.

 

Cheers

 

(Sorry to steal your thunder Sav.)

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Summary:

 

1. Shanghai index seems way overbought. Investor frenzy and stock overvaluations reported.

 

2. NYSE S&P500 somewhat overbought. US economy is slowing.

 

3. We're into traditional May-October (inclusive) doldrums period.

 

4. Conclusion: A correction seems reasonably likely IMO, scale unknown.

 

5. In the background, excessive leverage, debt, risktaking, and liquidity are building worldwide.

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New highs hit as mainland investors ignore warnings

 

Tuesday, May 15, 2007

 

 

China's main stock index climbed 0.61 percent to a record close Monday as investors caught up in the market's bullish sentiment shrugged off a regulator's warning that it would crack down on insider trading and share manipulation.

The Shanghai Composite Index ended at 4,046.39 points after hitting a record intra-day high of 4,081.42.

 

A strongly worded announcement at the weekend by the China Securities Regulatory Commission warned that "market irregularities have increased" during the bull run and many investors did not understand the risks.

 

The CSRC said it would tighten supervision of the market and ordered brokerages and fund managers to pay for efforts to educate investors on risks.

 

Some analysts believe this could be followed by more official action to try to cool the market and prevent a dangerous bubble from forming - for example, steps to slow flows of fresh funds into the market.

 

But with the index up 51 percent this year, bullish individual investors believe they still have time to make big profits before any market pull-back.

 

"The market was led by some of the blue chips, with the banking sector doing well," said Wu Ang, analyst at CITIC Securities, although he added: "Traders became cautious due to the announcement by CSRC at the weekend."

 

The Shanghai index fell 2 percent in the opening minutes in a knee-jerk reaction to the CSRC's statement, but quickly bounced back.

 

Turnover in Shanghai A shares was heavy at a total of 180.9 billion yuan (HK$184.28 billion), although down from ultra-heavy levels above 200 billion yuan seen on three days last week.

 

The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, gained 0.9 percent to 3,734.42 at the close, exceeding the previous record set May 10.

 

The Shenzhen Composite Index increased by 1.2 percent to 1,127.74.

 

A dramatic sign of how little investors in Shanghai worried about the CSRC's warning was a jump in shares of Hangxiao Steel Structure.

 

The company said it had been fined, along with top executives, for failing to properly disclose information about big contracts that caused its shares to more than quadruple. But the stock surged its 10 percent daily limit to 14.88 yuan - apparently on relief that authorities had not acted more harshly.

 

Steel shares were also very strong, with Baosteel climbing 3.75 percent to 13.28 yuan, partly on expectations that it would expand through acquisitions.

 

News that Baosteel would build a US$2.5 billion (HK$19.5 billion) steel mill with Handan Iron and Steel group was taken as a sign that it could eventually acquire major parts of the group.

 

Analysts expected a strong listing today for Bank of Communications, forecasting a rise of 52 percent from its domestic IPO price.

 

The rally in A shares and the yuan's appreciation to a fresh post-revaluation high spurred foreign currency-denominated B shares, led by real estate. Property giant Vanke rose 7.46 percent to 24.06 yuan. Its B shares jumped their daily 10 percent limit to 21.65 yuan.

 

Shanghai's B-share index ballooned 9.54 percent to 316.786 points, rising for a 10th consecutive trading day. Since the end of 2006, the index has climbed 143 percent.

 

But CITIC Securities' Wu said that, while there was room for more gains in B shares, the rally would not necessarily hurt A shares as it was rather complicated to invest in B shares and domestic investors would face risks from the yuan's appreciation.

 

Investors were not dissuaded by the latest sign that foreign investors were worried the market had risen too fast.

 

The official Shanghai Securities News quoted data from Emerging Portfolio Fund Research as showing that international investors withdrew a net US$574 million (HK$4.47 billion) from China-focused stock funds in the second week of May - the first net outflow since mid-January.

 

REUTERS, BLOOMBERG

 

 

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