Thailand's Economy And China

[Aujuba]

There have been more and more 'experts' on markets saying that the Chinese stockmarket is set for a large correction. If this happens what will happen to Thailand's economy? Thailand has a lot of links to China. Will Thailand suffer or gain from a correction in China? Thailand economy seems like it has been fairly stagnant. Could things really get any worse here?

[backflip]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

[Aujuba]

Good point Backflip. I'll have to see if I can find a graph of the market. Do you know a good link which will show some history?

Edited May 28, 2007 by Aujuba

[bendix]

dont know of any chart, but the Shanghai correction was followed by a much smaller one in Thailand (2-3% from memory), but it soon recovered.

move along folks . . nothing to see here

[Taggart]

Good point Backflip. I'll have to see if I can find a graph of the market. Do you know a good link which will show some history?

Go to stockcharts.com

At the top of the page, where it says symbol, type in Thailand. That will let you access charts for the SET.

[Naam]

Good point Backflip. I'll have to see if I can find a graph of the market. Do you know a good link which will show some history?

what period would you like to look at? here's the last six months:

[Naam]

SSE - 2 Years:

[backflip]

One thing to consider...the central government of China is divesting itself of many companies (several large banks, most recently). Despite questionable lending tactics, and possible ramifications to the bottom line, the rank-and-file Chinese love them. Relatively free of the government's control, the divested industries are highly prized. Indices of both Shanghia A shares (RMB-based) and B shares (hard currency-based) are roaring. It'll be interesting to see if the viability, and enthusiasm, is long-term.

[VegasVic]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

[ace]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

OK - a 300% rise in 2 years is....exuberant, but is the comparison to the USA accurate? How long has Shanghai been trading? How long has China been a market(ish) economy? Perhaps we are looking at wealth creation similar to Russia post-Soviet era (but better managed and a bit more shared around)? Is there any validity in that assesment?

Ace

[VegasVic]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

OK - a 300% rise in 2 years is....exuberant, but is the comparison to the USA accurate? How long has Shanghai been trading? How long has China been a market(ish) economy? Perhaps we are looking at wealth creation similar to Russia post-Soviet era (but better managed and a bit more shared around)? Is there any validity in that assesment?

Ace

You are quite right a comparison to the U.S. would not be accurate as the US economy is a true market economy and the Chineese (experiment) economy is marketish(good description) at best, all the more reason for the eventual tumble in Shanghai to be greater than the NASDAQ in the states 7 years ago. The best indicator is not the Chineese economists predicting the crash or Allen Greenspans comments recently, but the fact that many upper middle class Chineese families are borrowing money against their homes to play the market, all in all if a comparison was to be made to the U.S. it would be that the Chineese stock markets are currently in about the same place that the U.S. stock markets were in, about the middle of the summer of 1929!

[bowthai]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

OK - a 300% rise in 2 years is....exuberant, but is the comparison to the USA accurate? How long has Shanghai been trading? How long has China been a market(ish) economy? Perhaps we are looking at wealth creation similar to Russia post-Soviet era (but better managed and a bit more shared around)? Is there any validity in that assesment?

Ace

this will be the chinese century and wouldn't worry about the chinese market in the long term.i would worry about america's economy in the short term though.

every hot and frothy market has its corrections,downturns,profit-taking,etc.,but the long term trend is china wll be like a thousand hong kongs and singapores and shanghai will be the economic capital of the world.

unfortunately in america's case,it is saddled with the most debt in world history,an insurance policy and big mac selling service economy,an illiterate and uneducated society,and a corrupt and bloated government.printing out dollars by the truckload,not releasing m3 figures,military overreach,anti-americanism,etc., will lead to the eventual socio-economic collapse of america into just another third world banana republic in the americas.one can just look at history and see where america is going and see shades of weimar germany and the collapse of rome and the british empire in its future.

china is producing products the world buys and its citizens are strong savers.america buys products from china and its citizens are negative savers.

i'd bet on the banker with the surplus over the borrower with debt.

[sfokevin]

So if one were to think the China market will fall by 1/2 its value in the near future where and what would one invest in now to take advantage of the fall?

Edited May 29, 2007 by sfokevin

[cclub75]

So if one were to think the China market will fall by 1/2 its value in the near future where and what would one invest in now to take advantage of the fall?

You have to put the value of Shangai market in perspective...

Then, consider the nature of the chinese gvt and the huge USD reserve at its fingertips.

Do you really believe that the chinese gvt will let the crash unfold and destabilize the economy... ? Of course not.

They will buy. It is as simple as that.

But step by step. So overall, of course we are going to have a string of corrections (compulsory so the chineses gamblers can learn some hard lesson). But no way, a panic sell off and -50 %.

Damage control : they have the means, the brain for it, and the political will.

[Momo8]

China is BOOMING as one who has lived there for many years has seen.The Chinese don't like to blow their horn case of the "Crouching Tiger,Hidden Dragon" and don't forget it's still a 'closed' country.In terms of the property market prices are continully rising and Shangers has got to be home to 20% of the world's cranes.Why would do many foreign companies set up shop in China,Buik,Voltzwagen,GM to name a few if the economy wasn't great?

Now the US is putting pressure on the yuan and corrections etc. but China is here to stay in terms of a great economy,continually getting stronger.

[backflip]

"unfortunately in america's case,it is saddled with the most debt in world history,an insurance policy and big mac selling service economy,an illiterate and uneducated society,and a corrupt and bloated government.printing out dollars by the truckload,not releasing m3 figures,military overreach,anti-americanism,etc., will lead to the eventual socio-economic collapse of america into just another third world banana republic in the americas.one can just look at history and see where america is going and see shades of weimar germany and the collapse of rome and the british empire in its future."

Someone woke up on the wrong side of the barstool this morning. As for uneducated and illiterate, your post is an excellent example.

[bowthai]

"unfortunately in america's case,it is saddled with the most debt in world history,an insurance policy and big mac selling service economy,an illiterate and uneducated society,and a corrupt and bloated government.printing out dollars by the truckload,not releasing m3 figures,military overreach,anti-americanism,etc., will lead to the eventual socio-economic collapse of america into just another third world banana republic in the americas.one can just look at history and see where america is going and see shades of weimar germany and the collapse of rome and the british empire in its future."

Someone woke up on the wrong side of the barstool this morning. As for uneducated and illiterate, your post is an excellent example.

just calling it like it is and fortunately didn't attend american public schools.watch what happens to america probably this year or next year at the most.

[VegasVic]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

OK - a 300% rise in 2 years is....exuberant, but is the comparison to the USA accurate? How long has Shanghai been trading? How long has China been a market(ish) economy? Perhaps we are looking at wealth creation similar to Russia post-Soviet era (but better managed and a bit more shared around)? Is there any validity in that assesment?

Ace

this will be the chinese century and wouldn't worry about the chinese market in the long term.i would worry about america's economy in the short term though.

every hot and frothy market has its corrections,downturns,profit-taking,etc.,but the long term trend is china wll be like a thousand hong kongs and singapores and shanghai will be the economic capital of the world.

unfortunately in america's case,it is saddled with the most debt in world history,an insurance policy and big mac selling service economy,an illiterate and uneducated society,and a corrupt and bloated government.printing out dollars by the truckload,not releasing m3 figures,military overreach,anti-americanism,etc., will lead to the eventual socio-economic collapse of america into just another third world banana republic in the americas.one can just look at history and see where america is going and see shades of weimar germany and the collapse of rome and the british empire in its future.

china is producing products the world buys and its citizens are strong savers.america buys products from china and its citizens are negative savers.

i'd bet on the banker with the surplus over the borrower with debt.

Looks like somebody wishes that they had the opportunity to grow up in the good old USA! I guess that country envy is a lot like p**is envy, are you tipping your hand there bowthai? OK back to reality here folks, the fact is that the Chineese stock market (bubble ) will crash and the Chineese government will not likely intervene, after all isn't the whole idea of a market economy the fact that the governmenbt stays out? The quickest way for the Chineese market(ish) system to loose investor confidence worldwide would be if the Chineese government proped up the stock market artificially, and the Chineese leaders and economists are certainly not fools after all many of them were educated in (you guessed it) the good old USA. Now we move on to what will happen to China after the crash, they will recover and within ten years will surpass Japan and become the second largest market economy in the world. Now we move on to that illiterate, uneducated society that has mortgaged its future selling all those treasury instuments to China, starting wars and is printing money like it is going out of style ect. ect . ect.. The only problem with these arguments is that they just don't hold water,look at education first: wealthy families(and some not so wealthy families) in Europe, Africa, the middle east, Asia minor the orient and pretty much the rest of the world make scrifices so that their children can get an education in (you guessed it) the good old USA. Now as far as China holding all that debt that will eventually crush the USA, well there again it is just another fantasy, the truth is that the ammount of US debt instuments that China holds(while enormous compared to the rest of the world economies) equates to a little more than a days trading volume in the New York government securites market. Now we move on to those currency printing presses working 24/7 at the bureau of engraving. I actuallywish this one was true as I would like to see Mr. Bernanke raise interst rates a little, however there is not even a wiff of inflation(outside of the energy sector) in the USA these days and so my hopes of higher interest rates have been dashed at every FOMC meeting so far this year. WOW, refuting this nonsense is getting a bit tiring, oh yea now on to the inevitable comparison of the USA to the great Roman civilization. Lets see now the Roman empire lasted nearly 1000 years so I guess if I follow your rather convoluted thinking, that means the USA has about 750 years left before its demise-OK I guess I can live with that. Now for the most hurtfull part of bowthais post, that whole bit about the USA becoming a banana republic, I mean really DUDE do you realize that the only places that you can even grow bananas in the states is part of Florida and Hawaii, the USA would be a really bad place to start a bannana republic! Yes the market in Shanghai will crash, but China will learn from this(as they always do) and while the levels on the Shanghai exchange may not see a new high for many years to come the overall economy in China will continue to strenghten, the regional economies may have a tougher go at it after the crash but I imagine that eventually they too will get back on track. Now I have an overwhelming craving for a banana split, so I will have to leave you good folks and head down to DQ!

[ace]

......... OK back to reality here folks, the fact is that the Chineese stock market (bubble ) will crash and the Chineese government will not likely intervene,

--Just did.

..... oh yea now on to the inevitable comparison of the USA to the great Roman civilization. Lets see now the Roman empire lasted nearly 1000 years so I guess if I follow your rather convoluted thinking, that means the USA has about 750 years left before its demise-OK I guess I can live with that.

--More like 900 I think, empire was all about Britain up to the end of the 19th C.

We invented empires.

Apart from that I'm agreeing. Actualy thinking of dropping the ISA (401k) into USA stocks, especially at 2 for the price of 1....

Ace

[thai1on]

History is accelerating at a pace a thousand times faster than in Roman times and a hundred times faster than in British empire times.

Consider the US economic and financial position today and face the facts about the dollar, the budget and trade deficits, the seemingly unlimitable costs of entitlement programs,plus many billions more for the war and the military.

Edward Gibbons wrote his classic 'Decline and Fall of the Roman Empire,' the first volume of which was published in 1776,the year of the signing of the American Declaration of independence.

In that book Gibbon made the case that most historic empires last for just about 200 years before eventual decline and collapse.

By that measure, the American Empire is 31 years past due.

But what really matters in the long term is how the world remembers America and how the human race remembers Americans and my sympathies to Americans for their historical legacy.

The new Scarlet Letter is A for American and after what happens to America,Americans around the world will be going into hiding like Anne Frank.

Ironic that The first country in world history to be hated by the entire world would be considered controlled by the Jews.

Anti-Americanism and Anti-Semitism.

Centuries of Europe's hatred of the Jews.

Decades of the world's hatred of Jewish Israel and Jewish-controlled America.

Brownshirts and terrorists.

The future of the 2 Jews in a Nazi world is written in WW2.

RIP!

Edited May 30, 2007 by thai1on

[LaoPo]

Back to the OP's topic:

"Thailand's Economy And China, What will the effect be?"

It's hard to say but with a strong decline on the Chinese Stock markets the effects will be felt, worldwide, and also in Thailand. Today -Wednesday- the western markets were nervous about that already.

Today the Chinese stock-market dropped by close to 7% because the Ministry of Finance announced a hike in the stamp tax on stock trading to 0.3 percent from 0.1 percent.

That's huge.*

"More than 1,200 stocks fell on the Shanghai and Shenzhen stock exchanges, with over 800 tumbling to their daily limits of 10 percent. Only 66 stocks rose in the two bourses." see link below.

The Chinese are doing their utmost to try and cool the market; they raised interest rates 2 times this year so far.

We shouldn't forget that there are now 100 Million (!) players on the Chinese stockmarkets (A & B Shares)....last week alone, more than 300,000 PER DAY NEW individuals opened special accounts in order to put -and play with- there savings into the stockmaket without having knowledge of what's going on...

I don't think there's any other single country in the world where so many people put their money in the stockmarket in such a short period.

It's scary.....

There's a minor positive point in all this: the market cannot go down with more than 10% per day and IF it goes down too fast in a few days in a row I think the government will step-in with special measures to avoid chaos, and thus panic, amongst the private individual 'players'.

* History of stamp tax

In the 17-year history of China's stock market, a stamp tax hike usually led to a slump in the market.

China started collecting a stamp tax on the Shenzhen Stock Exchange in July, 1990, but only levied on sellers at 0.6 percent. Four months later, buyers were also subjected to the tax.

The tax triggered a downturn in the Shenzhen market, forcing authorities to cut it in half to 0.3 percent in October 1991. At the same time, the Shanghai Stock Exchange also began collecting duty on both sides of trades.

On May 10, 1997, the tax rate was upped to 0.5 percent, which may have caused a bear market that lasted until mid-1999. The rate was lowered to 0.4 percent in June, 1998 before being adjusted to 0.3 percent one year later and then to 0.2 percent in 2001.

Regulators further lowered the duty in January 2005 to 0.1 percent in order to boost stock prices during a market slump lasting from 2001 to 2005.

Source:

http://chinadaily.com.cn/china/2007-05/30/content_883249.htm

LaoPo

[VegasVic]

......... OK back to reality here folks, the fact is that the Chineese stock market (bubble ) will crash and the Chineese government will not likely intervene,

--Just did.

..... oh yea now on to the inevitable comparison of the USA to the great Roman civilization. Lets see now the Roman empire lasted nearly 1000 years so I guess if I follow your rather convoluted thinking, that means the USA has about 750 years left before its demise-OK I guess I can live with that.

--More like 900 I think, empire was all about Britain up to the end of the 19th C.

We invented empires.

Apart from that I'm agreeing. Actualy thinking of dropping the ISA (401k) into USA stocks, especially at 2 for the price of 1....

You are correct Ace they did intervene yesterday, the Chinese government has been warning the investing public about investing in the stock market over there for some time now to no avail, so in order to try and cool things off a bit they did raise the stamp tax yesterday and the Shanghai index droped over 6.5%. The Chinese government sees the extreme froth and speculation in the market and they are doing their best to ensure that the crash does not occur before the Olympics next summer(very wishfull thinking) because they would lose face in the worlds eyes, but even this latest move is just like the dutch boy putting his finger in the dike. My intent when I mentioned intervention, was that if the Chinese government were to intervene to artificially support the market once the crash begins in earnest then they will lose investor confidence for years to come so I don't see that happening. They could certainly tighten trading controls so that the eventual crash takes weeks and not days to occur, but to actually go into the open market and buy up falling shares to support prices like some illinformed posters here have suggested just will not happen. The Shanghai exchange is currently more like a ponzi scheme than a stock market and the greater fool theory is definately in full effect. In contrast to the debacle in China yesterday, the markets just closed in New York a couple of hours ago and the Russel 2000, the NYSE index, the Dow Jones industrials and yes even the S&P 500 all closed at record levels, and the NASDAQ closed at a 6 year high. Now for comparisons, the current PE ratio on the S&P 500 is just barely above 18 (the historic 25 year average for the S&P is 17.7) even with the record close today, while the best case scenario on the Shanghai exchange even taking the forward PE ratio is still above 60! If the Chinese stock market were to lose 70% of its value tomorrow it would still be more expensive than the S&P 500. In the U.S. you currently have historically low levels of unemployment, inflation is basically non existant and a standard of living that is evied the world over(yep you sure got out of the states at the right time there bowthai). I guess we will just have to wait a few hundred years for the banana republic idea to take hold here in the states! Andover and Princeton(hehehehe), try Choate and MIT.

Ace

[shochu]

Bowthai,

has in brief oulined the problems as they exist- and I concur.

VegasVic,

has also outlined what will probably happen - in china - but the question is when - cann they hold it until after the olympics? Do the U.S. want to do it to teach them a lesson in humility or are they also trying to hold it off to keep from having a heart attack themselves??

One can say for certainty that if china falls - the U.S. will have a heart attack.

One clear and evident thing about the U.S. these days - is the visible group of elderly who should be retired BUT are working in minimum wage jobs all over the country - a very sad fact.

Also - have you ever been in a wokring class and/or balck community such as in baltimore, or detroit and its suburbs like ypsilanti (spelling) - I had the misforutne of stopping there for gas once thinking hey suburb = safe - right ---WRONG. Almost never made it out alive. These places exist all over the U.S. - you just have to get out of the nice little enclaves in the major cities.

I for one do not want to live there although I do miss N.Y. a lot!

Timeline - how much longer can the PPT hold it off!

[somtaamgaiyang]

A couple months ago, the Shanghia stock market had a 10% correction. Did the Thai economy change then?

That 10% correction a few months back was just a little hiccup, however it was also a foreshadowing of things to come. When the bubble bursts in Shanghai it will look more like the NASDAQ meltdown in the US, and the loss will likely be 50%+. Markets all over the world will feel the effect but they will be rather short lived. The effect on the asian rim markets and economies will however be more severe and last quite a bit longer. Thailand in particular is in a weakened state both politically and economically so I would imagine that it could get hit worse than some of the other regional economies. I did notice that the BOT lowered interest rates by 50 basis points last week, just as I predicted a month ago. As far as guessing exactly when the Chineese market will colapse in on itself its anybodys guess, but with the average forward PE ratios currently above 60 for the Shaghai exchange I doubt that we will have to wait too much longer. Now I imagine that backflip and a few others in the rose colored glasses brigade will assail this post unmercifully, but those of you out there following this situation would be good to mark this post and six months down the road look at it agian and then you will see who on Thai Visa has a better grasp of the situation at hand, not that it takes a rocket scientist or a fortune teller to observe the signs and envision what is coming down the road for the Chineese stock market.

OK - a 300% rise in 2 years is....exuberant, but is the comparison to the USA accurate? How long has Shanghai been trading? How long has China been a market(ish) economy? Perhaps we are looking at wealth creation similar to Russia post-Soviet era (but better managed and a bit more shared around)? Is there any validity in that assesment?

Ace

You are quite right a comparison to the U.S. would not be accurate as the US economy is a true market economy and the Chineese (experiment) economy is marketish(good description) at best, all the more reason for the eventual tumble in Shanghai to be greater than the NASDAQ in the states 7 years ago. The best indicator is not the Chineese economists predicting the crash or Allen Greenspans comments recently, but the fact that many upper middle class Chineese families are borrowing money against their homes to play the market, all in all if a comparison was to be made to the U.S. it would be that the Chineese stock markets are currently in about the same place that the U.S. stock markets were in, about the middle of the summer of 1929!

I understood that borrowing money against property is very difficult to do in China. The scary thing is that millions of very small investors are investing their savings in the market because real interest rates are so low in China. There is a large spread between borrowing and lending rates because of the massive amount of NPL in the market. That is what you get for a command economy. If they get wiped out, there could be a political meltdown in China.

After yesterdays little blip it is obvious that the Chinese govt wants to pull the pressure out of the stock market which is already massively overvalued at EPS ratios. They have tried to cool down the property market (not very effectively) and now they are trying to pull the plug on the stock market. Interesting that this policy has been implemented after a big get together about economic planning with the US last week. If the market collapses in China, the effect on the Thai economy or Asian economies will be serious as it may start a contagion of selling which could spread elsewhere.

The issue is how much of an effect this will have on already slim domestic spending in China. A general correction of the market could devastate the Chinese property market. If there is one thing every Chinese person wants it is property. If their spending is being supported by gains in the stock market, (where is all the money coming from to buy Porshce Cayennes and BMW 7's) it could be a nasty fall for China.

There is a huge problem at the moment with the trade balance and the value of the yuan.Short of selling Alaska to the Chinese, I don't really forsee how the Chinese can spend all these dollars without causing huge problems in the currency market. I hope to God they let Paulson talk to the Chinese without getting to caught up in rhetoric for the elections and protectionism. China needs the US as much if not more than the US needs China.

[ace]

while the best case scenario on the Shanghai exchange even taking the forward PE ratio is still above 60!

Really...That's a bona-fide bubble right there. Sure it's 60x?

Perhaps they should just open up a bunch of (government owned) casinos. Safer I think in the long run.

[sonicdragon]

Making comparisons between China and the US is not very helpful. There are far too many differences.

The main thing that should be borne in mind is, that while there is a bubble in chinese stock markets and some other asset markets which will surely burst, the underlying economy in china is still very strong. Of course it has some weaknesses (and that's one reason why the capital account will remain closed for the foreseeable future). Bursting of the bubble in china will be long-term positive for the economy there. Sure, many people will lose their savings. However china has one of the highest savings rates in the world, around 40% (compared to near zero in the US an many other developed countries), and that is not going to change very quickly.

As for the impact on Thailand when the bubble bursts, it will be negative of course, but it will be short-lived. Of more concern to thailand should be the continued loss of foreign investment to china. Thailand could now be considered to be in a period of long-term structual decline.

[ace]

Those interested in some genuine expert opinion on this subject should check out this article from the Economist magazine:

http://www.economist.com/research/articles...tory_id=9225696

Really fascinating artice. I knew there was a reason I bought this mag every week.

[backflip]

"One can say for certainty that if china falls - the U.S. will have a heart attack."

Since the US is the greatest importer of Chinese goods, what do you think will happen if the US stumbles? Doh! Another poster believes that China will give a "lesson of humility" to the US, and attempt to sabotage the US economy...which would lead to a major disruption of the Chinese economy.

Edited June 7, 2007 by backflip

[LaoPo]

"One can say for certainty that if china falls - the U.S. will have a heart attack."

Since the US is the greatest importer of Chinese goods, what do you think will happen if the US stumbles? Doh! Another poster believes that China will give a "lesson of humility" to the US, and attempt to sabotage the US economy...which would lead to a major disruption of the Chinese economy.

I think there are 2 different issues here:

1. The Chinese stock markets in 'A' and 'B' shares (+ N & H shares) which is mainly a LOCAL affair with Chinese stocks-investors. The outside world will not 'have a heart attack'; maybe a small downfall but not too serious.

2. Another issue is the Chinese economy itself. If THAT drops significantly the worries are much larger than #1.....worldwide.

..."sabotage the US economy..." ?

Hmmm...WHY would the Chinese do that..to shoot themselves in the foot?

It's a Global economy now and every country needs the other(s) one way or another.

LaoPo

[LaoPo]

Tax reprieve lifts Chinese shares

Chinese shares have rebounded after a media blitz by the Beijing government calmed fears of another market tax.

The Shanghai Composite Index closed 3% up at 3,890.8 points after official news sources refuted a rumoured plan for a capital gains tax on stocks.

The number of new share accounts being opened in China's frenetic stock market fell sharply last week and Beijing is concerned to prevent further cooling.

That fall came after the tax on share purchases was increased to 0.3%.

State intervention

The government has been keen to damp down the enthusiasm of private investors who have been transferring personal savings into share accounts at an alarming rate.

But in the last few days, a succession of stories in the state-owned media indicated that Beijing does not wish to see another sharp drop in the market.

In particular, regulatory authorities were quoted in a Shanghai newspaper as saying that rumours that the government planned to introduce a capital gains tax were "baseless."

The shares rally is being attributed to institutional investors returning to the market to buy benchmark stocks.

from:

http://news.bbc.co.uk/2/hi/business/6729385.stm

LaoPo