Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

What the media isn't saying about China's Stock Market Plunge

Stock-Markets / Chinese Stock Market Mar 06, 2007 - 11:40 AM GMT

By: Money_and_Markets

Stock-Markets

The Shenzhen/Shanghai Index of 300 stocks fell 9.2% last Tuesday.

Why? Because the State Council, China's highest ruling body, said it started a special task force to clamp down on illegal share offerings and other banned activities. Investors were worried that the government's zeal could damage the whole stock market.

There's no question that 9.2% is a big single-day drop. However, just looking at that one day doesn't tell the whole story. In the previous six days, the same index had jumped 13%. That means that, despite the big drop, the index was still up 3.8% in seven trading days. I'd hardly call that a disaster.

Regardless, a parade of market watchers has been bad-mouthing Chinese stocks, blaming them for the Dow's plunge, and more. Today, I want to tell you some things that you're not hearing from these so-called experts.


In short, I want to tell you why the Chinese stock market is very different from the Dow or even European markets ...

Chinese Government Provides Built-in Safety Nets for Its Stocks

Given all the furious capitalism and all the economic growth happening in China, it's easy to forget that the country is still a command economy controlled by the Communist Party.

But it is , and that brings with it all kinds of implications that many Western investors aren't used to ...

First, the Chinese government is the largest shareholder of Chinese stocks in the world. In fact, a majority of the listed companies are state-owned enterprises — China Mobile, CNOOC, China Aluminum, Sinopec Petroleum, Yanzhou Coal, China Life, Bank of China, etc.

The government also controls several of the largest brokerage firms, banks, insurance companies, and pension funds. If the Chinese market falls, the government stands to lose a very substantial portion of its asset value.

Second, the world is watching and Beijing doesn't want to be embarrassed. The concept of “saving face” may not mean a whole lot in the U.S., but it's a crucial part of Asian culture. Do you think the Chinese government will stand by idly while its markets go into a freefall now that it has the world's attention? I don't.

Government officials certainly don't want a repeat of previous bear markets when a large crowd of disgruntled investors hurled stones at the Shenzhen Stock Exchange ... or when angry investors protested outside the offices of Beijing regulators.

Third, the government has an ace in the hole that can go a long way to help offset declining prices. If Beijing wanted to prop up the Chinese stock market, it could mobilize a portion of its $1 trillion in foreign currency reserves. Even a small fraction of that war chest would make a significant difference – not only symbolically, but in substance as well.

Fourth, the government still controls the media in China. To a U.S. citizen, this might be disturbing. But it does give the authorities greater control over the flow of news that might impact the market.

For example, after the 9.2% drop in the Shanghai/Shenzhen 300, the lead story on the front page of the Shanghai Daily — the city's English-language daily — was “Wheat Scientist Wins Top Research Honors.”

Even the lead story of the business section was “Buying Stampede Greets Return of Mutual Funds.” The information about the stock market drubbing was buried in the middle of the paper.

Am I saying state-controlled media is a good thing? Of course not. But as a very practical matter, it helps buffer the markets from the investor frenzy that might otherwise be more likely.

Nor am I saying that Chinese stocks can never go down. They can and they do.

Rather, there are many reasons to expect the damage to be limited. The most fundamental of these: The market's action doesn't do a single thing to change China's juggernaut economic growth.

The same goes for other Asian markets …

Why I Believe the Weakness in Stocks Across the Pacific Is a Knee-Jerk Reaction

It's not just U.S. and European markets that fell in the wake of China's big sell-off. Singapore, Tokyo, India, Taiwan, Malaysia, Indonesia, and South Korea have also suffered.

I believe this is an unwarranted knee-jerk reaction. But it's also a good thing for longer-term investors. There are dozens of Asian blue chip stocks that have now come back down to levels that look pretty darn appealing to me.

Meanwhile, the underlying economies of these other Asian tigers are growing like mad. Just three examples:

  • Hong Kong's economy expanded 6.8% in 2006, and according to the just-released forecast from Financial Secretary Henry Tang, it should rise between 4.5% and 5.5% in 2007.
  • Singapore's economy gained 7.9% in 2006. The Ministry of Trade expects another 6.5% rise in 2007.
  • And the Indian government expects GDP to grow 9.2% in 2007 — the fastest pace in 18 years!

Now, compare those numbers to the U.S.:

Last week, the Commerce Department released its new, revised fourth-quarter GDP numbers. They showed that our economy expanded at a real annual rate of 2.2% in the last three months of 2006. That's the third quarter in a row of sub-3% growth.

Meanwhile, former Federal Reserve Chairman Alan Greenspan visited Hong Kong last week and suggested that the U.S. economy was headed for a recession.

According to Greenspan,

“When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign. For example, in the U.S. profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle.”

My point is simple: It's healthy to be worried about risk. But in my opinion, the riskiest place to invest is in a country with a rapidly slowing economy.

Headline-grabbing declines just sow the seeds to big gains down the road ... as long as you know where to look. Right now, I think many of the juiciest bargains can be found in China's neighboring countries.

Best wishes,

By Tony Sagami

Editor's note: We're putting out a long-awaited “buy signal” on our favorite Asian ETF today . In our opinion, the timing is just right; the fundamentals are powerful; and the potential — similar to China's last year — is unbeatable. It's too late for online orders. But if you call 1-800-735-6260 before noon, you can still jump in.

© 2007 by Weiss Research, Inc. All rights reserved.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.MoneyandMarkets.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules