Whats Up In Chinese Stock Markets ?
If you watch the global stock markets you know that China lately moves on its own a lot. The press has stories about the falling markets in China. In a nutshell the problem in China is the stock market became completely unhinged from fundamentals. Despite falling almost 25% in the last month the Shangai SE Composite is still up 77% over the last 12 months.
If you step back you will see the obvious fallacy that anything in the Chinese economy warranted a near doubling of the market cap over a 12 month period. The crash now is simply the beginning of a return to mean or a return to reality. An investor dollar cost averaging through this will be fine. Its not the end of the world. The reason for a stock price rise on the order we see over the last year in China is typically due to leveraged speculation and lots of money to borrow to buy stocks with.
What is unprecedented is that government banks in China are pouring money into certain “blue chip” companies stocks, buying them with abandon. The theory being offered is this will instill confidence in the market again. It won’t. Reality and current stock prices are still to far apart. What it will do however is allow some people, in favored companies, to unload billions of dollars of stocks now before they fall any further. The Chinese banks will wind up holding the losses instead of whoever currently owns those stocks. Non favored stock owners are still in for a bath.