Monday, August 31, 2009

Chinese markets getting moo shu porked

I've observed for the past couple of months that the Shanghai market had become a giant casino game and were ripe for correction last month. Well, the Chinese markets have gone cliff diving again, falling 20% in a matter of weeks and that leads to the question will they lead the US markets lower or will we shrug it off?

"The Shanghai Composite Index, the world’s worst performer in August, may fall another 25 percent as China’s economic recovery isn’t “sustainable,” former Morgan Stanley Asian economist Andy Xie said.

measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world’s third- largest economy. Xie said the index “should be 2000 or less.”

“The market is in deep bubble territory,” Xie, 49, who correctly predicted in April 2007 that China’s equities would tumble, said in an interview with Bloomberg Television. "

More on China.....

“Since 2005, China has generated 73% of the global growth in oil consumption and 77% of the global growth in coal consumption.”

If Chinese growth slows, China will stop boosting the global economy and become a drag.

One could argue that if the Chinese government spending party is over, it will reduce their demand for US$ taking the dollar down and pushing up interest rates. This could take years to unfold, but it is possible that it plays out this way.

I know I'm guilty of focusing on China too much, but we need to remember that the second largest economy in the world is still Japan's and they are going to go through some substantial upheaval after the DJP's landslide victory in yesterday's elections.

Many market observers think that domestic spending will improve prospects for their stock market, but I think there may be more than a few bumps in the road.

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