As you can see, the parabolic move is over. These type of stock movement generally returns to the
starting point. This is how I determined 3100. When you consider that 255 million people opened
accounts in the last nine months with little market experience, the Shanghai market is just one, big
casino. "Everyone is a genius when the market goes straight up," is an old saying with more than one
meaning. One of the implied meanings is markets usually turn when "dumb" money enters. The Chinese market is 85% retail because it is mostly closed to foreign investors.
Last Year...............................................................................................................................
the Shanghai market got connected to the older, more established Hong Kong market. Next year the smaller, Shenzhen will be added to form a triangle connection. The Shenzhen is composed of newly, private enterprises. This exchange does not have government backing and as you will see in a moment, could be the reason why the three indexes collapse. When you put the above picture into dollar values, the Chinese lost economic wealth to the tune of over $3 trillion in one month. To put that figure into perspective, China's losses are double the size of Australia's entire stock market.
Stop the Bleeding!................................................................................................................
Chinese regulators have come up with a new regulation everyday of the past week to stop the bleeding. The market has rallied up to the 4,000 range, but the fear behind the recent movement is alive and well. China has instituted many old tricks and they even are writing new chapters.
* They've banned short selling.
* They will not allow any investor or any officer in any company or any fund that holds 5% of any company to sell their stock for the next six months regardless of price action.
* They've halted trading on 51% of all Mainland Chinese companies.
* They've lowered their banking interest rate for the fourth time this year.
* They've told all brokers not to liquidate client accounts due margin calls, basically suspending margin requirements.
* They've told "special authorities" to investigate anyone who sold short or is seeking to sell short.
Even with all of the above and who knows what will be added in the coming weeks, debt margin is still over 4% of market cap! In addition, the Chinese government is buying up vacant homes to sell as affordable housing. This sounds like a nice idea except it only spurs more speculation in an already overheated housing market whose bubble is popping.
Adding it up: the Chinese economy is slowing, housing is tethering, oil is already busted and now, questions about investing in the Chinese market will cause many to get out after any rally fearing further restrictions to trading. Eventually, this BEAR MARKET will spread to the region and to the global community. Don't get taken for a ride!
This piece was written before the two completed deals: The nuclear agreement with Iran will eventually add a lot of oil to an already gloated market. Not good. The Greece deal is only kicking the can down the road and each time it gets harder and harder because the can is pretty beat up. This will not end well. Bottom line: Don't Get Shanghaied.
No comments:
Post a Comment