Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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