Shanghai, China
I don’t usually post about business because I understand it very little and like it even less, but events on the other side of the world merit a brief mention (also I can’t think of anything truly worthwhile to write about today). The SSE Composite Index is a stock market index of all the shares traded on the Shanghai Stock Exchange (well actually all A and B shares). Since June of 2014 this index has shot up by 40% pushing it to heights not seen for 3 years. The news is all the more baffling considering that a consortium of experts agree that nothing in the actual Chinese economy supports this rampant bull market. Sophie Yan from CNN Money describes the Chinese economy in somewhat bleak terms: “factory activity is at an eight-month low, the real estate sector is shaky and the economy just saw its worst quarter since the financial crisis.”
So why are stocks surging upward with no relation to the real news? Well, America’s economy is doing better than it has for a long while and China sells a lot of goods across the Pacific Ocean. Also ordinary Chinese small holders seem to finally be digging up jars of coins and investing them in the stock market (the average Chinese householder has been wary of investing savings in institutions or businesses for obvious historical reasons). But, it seems obvious that the real answer is that this is a speculative bubble.
Like I said at the top, I do not understand business: perhaps secret unknown market forces are privy to information which nobody else knows about…or maybe the rules of human economics have been eternally suspended. However barring those potentialities, the SSE is full of froth and is about to pop (in fact, on Tuesday, AKA yesterday, the index shed 5% in a day…and then bounced back). I wonder how high it will go before it falls and I wonder how far the fallout from a correction will go. Our own market seems a tad frothy too…but Americans have a proud ability to willfully ignore what everyone else in the world is up to. Whatever happens, it should be an interesting few months for volatile speculative craziness in Shanghai.
12 comments
Comments feed for this article
December 10, 2014 at 11:40 PM
A Man Called Da-da (@AManCalledDada)
Perhaps it’s because the Chinese have a secret: several very productive gold mines, as well as a massive stockpile of gold, which is what we in the Royal Navy call a, “tangible asset.” When you compare that to the mass of worthless paper and debt the U.S. maintains, and the fact that our gold reserves have been looted (yup, Fort Knox and the NY Fed are empty), when coupled with the death of the Petrodollar… America’s days as a superpower are over. Welcome to the marginal existence of Second Empire status — at least until a real leader emerges with a real plan, hinged on the truth and not on theft and murder and conspiracy. Don’t worry, the cavalry are already here. Stay tuned!
December 10, 2014 at 11:54 PM
Wayne
Sounds plausible I guess..except maybe for the bit where the Chinese gold stockpiles remains unplundered by China’s leaders…
December 11, 2014 at 3:11 AM
Wayne
Oh…I guess there is lots of cheap oil out there right now too. Thanks OPEC! Keep up the price war!
December 11, 2014 at 9:35 AM
tobadzistsini
Here’s how I see it.
China’s economy overheats, the bubble expands, collapses, leaving them without a pot to piss in, nor a way to print yuan for a “bailout”.
China comes to the USA, begging for help, we shrug and ask them to forgive our massive debt burden. What they do receive is a token amount, but not enough to be meaningful. Their regime may fall, being replaced with something completely different. Not a bad thing, since the PRC has been primed for capitalism, and democracy after a fashion, since the early 1990’s.
Of course this implies the fiasco was in the cards all along, with some previous POTUS rubbing their hands, muttering “Just as planned” when it’s just dumb luck.
December 11, 2014 at 1:37 PM
Wayne
Wow tobadzistini, that idea involves real transition! Instead, I imagine it will shake out the same way bubbles do in the west: all of the smallholders will lose their money (and all interest in stocks until they begin to overheat next time). The marketmakers will shrug and buy SSE stocks at historic lows…and wait for the cycle to start again.
December 12, 2014 at 2:28 PM
Zeke
These time series data visualizations can be quite misleading depending on how the time period is set. If you look back to 1990, the current growth rate of the SSE does not look so crazy. Keep in mind that the SSE is still far less representative of the overall Chinese economy than the S&P is of the US economy. The fallacy is similar to measuring standardized test scores between states. You’ll find that the average SAT score in Wisconsin (at least, back when I was a boy) was much higher than in New York. From this you could conclude that the schools are better in Wisconsin. Perhaps they are, but there’s another force at work as well, which is that the group of students who even know about the SAT in Wisconsin is much smaller and more elite than out East, where everyone takes this test.
December 12, 2014 at 3:24 PM
Wayne
Well that’s true and eloquently said, but I didn’t mention it because (A) it would have robbed an already thin post of all vitality, & (B) I couldn’t immediately copy the data you are talking about. Speaking of which, here is the data you are talking about. I actually got inspired to screengrab it and paste it into MS Paint and make a JPEG…but after all of that, it still would not paste properly into this comment, so a link is all you get. Clearly the data was not meant to be properly seen (a shame, since it negates my sensationalist and spurious conclusions).
December 12, 2014 at 3:35 PM
Wayne
On the plus side, this post did inveigle you out of silence and into writing a pellucid comment about metrics.
December 15, 2014 at 3:45 PM
Zeke
I wouldn’t say you’re wrong, but the timing of when you’ll eventually be right may be a little further in the future…
December 16, 2014 at 5:21 PM
Wayne
Cancel those short sales!
December 14, 2014 at 8:44 AM
Beatrix
Bring on the Chinese!
“Chinese arrivals to Nepal jump two-fold in 3 years”
“According to the Nepali Tourism Ministry, the number of Chinese visitors to NEPAL jumped to 89,509 in 2013, up from 46,360 in 2010. (Arrivals from China in 2012 amounted to 71,861.)”
Spend! Spend! Spend!
“Tour operators expect this to contribute to a healthy growth in tourism earnings. Spending by Chinese tourists has increased to an average of $100 a day. Three years ago, each Chinese would spend $50-60 a day.”
“China has been investing heavily in Nepal’s infrastructure-airports, hydropower, roads and tourism, and this trend is likely to grow in the future.”
-from ekantipur.com
Yee HAW!
December 16, 2014 at 5:19 PM
Wayne
Nice! Maybe I need to work on figuring out what to sell to the Chinese too…or I could trade Brooklyn for Nepal…