Bubble Trouble

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The bigger they are…the harder they fall. And there is plenty of talk about a big fall in China’s recently stellar markets (see “Market Highs Come With Wobbles”). According to the FT the bubble is now official:

    “Cheng Siwei, vice-chairman of the National People’s Congress and an influential figure in Beijing financial circles, warned the mainland stock market could be overheating, after a rise of 130 per cent last year.

    “There is a bubble going on. Investors should be concerned about the risks”.

Such strong words are bound to have an impact, and the Globe and mail adds that stocks have just “tumbled the most in at least 21 months” as a result:

    “The Shanghai and Shenzhen 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, plunged 166.55, or 6.5 per cent, to close at 2,385.33, cutting this month’s gain to 17 per cent”.

    “The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 4.9 per cent yesterday to 2786.33, falling by the most since June 7. The Shenzhen Composite Index, which covers the smaller one, declined 5.8 per cent to 655.53. “

Investors – many of whom are day traders, business owners, or regular punters – will be looking at the market, and more official statements, with concern. But, as Andrew Hupert notes on Diligence China, the impact of a stock crash may be widespread – and could have a positive or negative consequences for foreign businesses dealing with China:

    “If the market undergoes a sudden correction, there will almost certainly be a sharp wealth effect. People will feel the immediate loss of paper profits – AND a drop in their ANTICIPATED earnings since many of these guys actually bank on the trend continuing! The immediate result will be a reduction in spending – and probably a drop in real estate prices as the stir-fry mobs try to cover illegal loans…Many of your small and medium sized local competitors are actually being funded or kept afloat by their owner’s market trading gains.”

The opportunity, he notes, will be to put a squeeze on small domestic competitors (whose bosses may have tied up too much in the market) or to up the ante in negotiations with suppliers and potential new staff (who may also be feeling the pinch).

On the downside, the list includes lower consumer spending, falling real estate prices and regional stock markets, and a domino effect from bad debts…

    “But if you are prepared, a market correction could also mean a less cut-throat competitive environment and a friendlier hiring outlook. The catch is that you have to survive the initial economic downturn – and have a plan in place before it happens.”

Thanks for looking on the bright side!

See news soruces:

3 Responses to “Bubble Trouble”

  1. Archive » More Bubble Trouble| China Business Blog Says:

    […] mmon knowledge. Not to mention the fact that the Chinese government made it known (see “Bubble Trouble ”) that the market was overheating in January (when the market fell by 4.9 perc […]

  2. Archive » Boom and…| China Business Blog Says:

    […] ighlights a “central bank warning about the danger of an asset bubble” (which adds to earlier official comment) and notes that the “Shanghai composite index rose 130 per cent last […]

  3. Archive » …boom…| China Business Blog Says:

    […] nk of China, said he was worried that a bubble might be developing in the stockmarket.” He is not the first, and will not be the last. See news sources: HK’s China stocks hit reco […]

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