Why go to Las Vegas when Shanghai has the stocks???????????????????

Discussion in 'Wall St. News' started by S2007S, Feb 5, 2007.

  1. S2007S


    Why go to Las Vegas when Shanghai has the stocks?
    Published: Monday, 5 February, 2007, 09:18 AM Doha Time

    TOKYO: To say that Chinese love to gamble would be a gross cultural generalisation. Then again, one could be excused for assuming as much, considering how the world’s gaming industry is going after China’s bettors. From Las Vegas to Macau and Monte Carlo to Sydney, gambling magnates are luring more Chinese their way. Gambling, you see, is illegal in mainland China. Then again, who needs baccarat tables and roulette wheels when you have China’s stock market?
    China’s equity exchanges have long had more in common with casinos than markets. Investors were reminded of that on Wednesday, January 31, when China’s stocks tumbled the most in at least 21 months after a lawmaker said shares were overvalued.
    The comments by Cheng Siwei, vice chairman of the National People’s Congress, fuelled speculation the government will act to limit investment. Speaking in Dubai, Cheng said only 30% of companies listed on the Shanghai Stock Exchange are good to invest in by Western standards, and investors in the remaining 70% will probably lose money. His words sent the Shanghai and Shenzhen 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, down 6.5%, the biggest one-day drop since the measure was introduced in April 2005.
    A couple of things are worth considering here. One, when you think about what Cheng said, the biggest surprise is that Chinese stocks didn’t fall more. You have to wonder if his 30/70 comment is too optimistic given China’s lack of corporate transparency and government efforts to slow the economy.
    Two, even after the January 31 plunge, this year’s gain is still 17%. No, that’s not a typographical error. If stocks had ended unchanged on that day, they would be up almost 25% in little more than four weeks. How is that not a bubble?
    Every investor thinks they can win, but many will end up losing, Cheng was quoted as saying in the Financial Times. Cheng’s comments seem reminiscent of ones by Microsoft Corp chief executive officer Steve Ballmer in September 1999. After Ballmer, who was company president at the time, quipped that there’s such an overvaluation of tech stocks that it’s absurd, markets plunged.
    To say irrational exuberance has crept into China would make Alan Greenspan’s catchphrase seem like an understatement. Just as many investors wished they had heeded Ballmer’s warning, bettors may regret not reacting more to Cheng’s.
    The popping of China’s bubble probably won’t hurt global markets the way the Nasdaq Composite Index’s implosion did in 2000. That episode probably has former Federal Reserve Chairman Greenspan wishing he had done more than just raise questions about bubbles in the mid-to-late 1990s. Why the Fed didn’t try to temper that exuberance will long mar Greenspan’s legacy.
    You can bet China’s central bank Governor Zhou Xiaochuan, is thinking about what he can do to return some sobriety to markets. Whatever China ends up doing, the bubble speaks volumes about the cracks in Asia’s No2 economy - and misperceptions about its medium-term outlook.
    Legend has it that Joseph Kennedy, father of former US President John F Kennedy, avoided Wall Street’s 1929 crash thanks to a shoeshine boy. Just before the market collapsed, Kennedy received unsolicited stock advice from a young man polishing his loafers. Kennedy, the story goes, got out of the market the next day, figuring stock enthusiasm had run wild.
    In the late 1990s, similar omens came from New York taxi drivers and Miami bartenders offering stock tips or bragging about their day-trading gains. One hears such conversations in major Chinese cities these days.
    Last month, I sat next to a UK hedge-fund manager on a flight from Tokyo to Bangkok. The day before, while in Shanghai, he was buying DVDs from a salesman who said with a wink: If you don’t own Tsingtao Brewery Co stock, you should get in now. The hedge-fund manager, who refused to be quoted by name, called it his Joe Kennedy moment.
    The Shanghai and Shenzhen 300 Index has more than doubled in the past 12 months as government efforts to make more than $200bn of state-owned stock tradable revived investor demand. Economic growth that has averaged 10% for the last five years also helped boost companies’ earnings.
    China doesn’t need more money rushing into its markets. It needs more mature markets, better transparency and more efficient mechanisms. That explains why China’s potential with institutional investors is yet to be fulfilled while the nation of 1.3bn pulls in most of the world’s foreign direct investment.
    Officials in Beijing and Shanghai should consider something else Ballmer said in 1999, at the peak of the US stock bubble. He said such high stock valuations are bad for the long-term worth of the economy.
    One can argue that after a long period of lackluster performance, China’s share markets are playing catch-up. Yet the idea that a multi-year rally in Chinese shares is afoot lacks support from the underlying economy. Untold numbers of bad loans in banks? No problem, we have growth pushing 11%, Chinese officials seem to be saying.
    Raising hundreds of millions out of poverty? We have rapid growth. Stock exchanges that look more like Ponzi schemes than markets? Again, we’ll grow our way to health. Chinese stocks may one day be a stellar investment. At the moment, they seem more like the casinos that Chinese law forbids. - Bloomberg
  2. S2007S


    January 31, 2007
    China Stock Market Bubble: An Ill Wind From The East

    Even the Chinese are anxious about their surging stock markets. Officials at the Shanghai Stock Exchange are voicing concerns that their infrastructure cannot handle the rising volume and volatility.

    A high-level government official has gone so far as to say that the market has developed a "bubble" and investors may be behaving "irrationally" The mainland stock market rose 130% last year. There are even stories about the Chinese borrowing against their homes to put money into stocks.

    While a collapse in the Chinese markets could clearly do damage to the country's economy, the fall-out would not be limited there. A number of stocks in Chinese-based companies trade on US exchanges. This list begins with several internet companies including Chinese search giant Baidu (BIDU), online media site Sina (SINA), Netease (NTES), Sohu (SOHU) and Tom Online (TOMO). Aside from US individual investors, institutions like Morgan Stanley, Fidelity, and Vanguard have money in these shares.

    The same holds true for some of the large China telecom and financial firms. China Mobile (CHL) trades on the NYSE and currently has a market cap of over $191 billion. That's much higher than Google's (GOOG). China Netcom (CN) and China Unicom (CHU) also trade on the NYSE. China Life (LFC) is traded in the US.

    A big China market collapse could burn investors outside the big Asian country and US investors will not be immune.

    Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

    Posted at 06:22 AM in Interna
  3. s2007s why you stirring up China angst? I still own quite a few names -- none of which you highlighted by the way -- and I'm looking at the 08 Olympics as the end of the ride. Why does the fun have to stop at the first mention of a bubble.? As I remember our market rallied a few times after Greenspan's irrational exuberance comment... Then again the Chinese Gov seems to be hip to stepping in... do they even raise rates over there? Or is it all a crapshoot?
  4. Quark


    Two good reasons to be short:

    1. The rise went exponential and recently cracked the uptrend.

    2. Time magazine noticed there was a bull market in China. Talk about the freakin' kiss of death.

    Please, I don't want to argue "fundamentals" and "reasons" with any of the true believers. It's like the old saying; don't try to teach a bear to dance - it won't work and it annoys the bear.

    What I'd like to know is whether there's a way for US traders to get short (ideally with puts)? My understanding is you have to be a Chineese national to trade the stocks, but since SI has some per his post above, that must not be correct.
  5. ASav


    You can short the ADRs he mentions above or buy puts on them here in the US.