Sunday, June 24, 2007

History's Big Bubbles " How does China's bubble compare with previous financial manias?" / Economist

Great take on Greenspan! Probably one of the most overrated people out there. On the other hand i find it perverse to suggest that Chinese stocks have more room to run on the basis that the pe is only 45!

Klasse Kommentar zu Greenspan. Der Typ ist wohl einer der am meisten überschätzten Personen der Finanzgeschichte. Ein Teil seines Erbes wird ja nun gerade in Form der Immobilienkrise sichtbar. Auf der anderen Seite ist es befremdlich hier zu suggerieren/unterstellen das die chinesischen Aktien aufgrund eines verglichen mit Nasdag und Nikkei zu bubblezeiten üblichen KGV´s von 100 noch luft hätten.

ALAN GREENSPAN, the former chairman of America's Federal Reserve, always insisted when in office that it was extremely hard to spot bubbles before they had actually burst. This, he said, is one reason why policymakers should never try to prick them. Today, however, he seems to have no doubts that China's stockmarket is bubbling over. He recently declared that Chinese share prices were “clearly unsustainable”, with a risk of a “dramatic contraction”.

It is curious that China's bubble seems so blindingly obvious to Mr Greenspan and so many other Americans who remained in denial about their own dotcom mania right to the end. For according to The Economist's “Bubble guide” (see chart), China's recent share-price boom is still relatively modest compared with the giants of history. The chart plots the performance of Chinese share prices over the past five years against the three great bubbles of the 20th century: Wall Street in the 1920s, Japan in the 1980s and America's NASDAQ in the 1990s. The NASDAQ composite index saw a gain of more than 500% from 1995 to early 2000. Japan's Nikkei 225 jumped by 300% from 1984 to 1989. The Shanghai A-share index, having recovered most of its plunge in late May, shows a gain of about only 160% over the past five years.
Moreover, Chinese A-shares now have an average price-earnings (p/e) ratio of around 45. At their peaks, the average p/e ratio of the Nikkei 225 in 1989 and the NASDAQ at the start of 2000 were both well over 100. This suggests that Chinese share prices could have much further to climb before the bubble bursts—unless China's policymakers are braver than Mr Greenspan and take bolder action to dampen the market now.

Compare this to Stories from the eye of the storm in china....

Vergleicht das mit Berichten aus dem Auge des Sturms in China.....

I try to translate as good as possible

The stock market fever has taken taken over China. How big the euphoria really is witnessed one top asset manager from Fortis Investments. A new Driver was greeting him at his arrival at the Beijing Airport

The old driver just quit his job to spend more time on his stock trades.

On top of this he wondered at a capitals market conference why the majority of the visitors were watching at their laptops all the time. They all were online so they were always connected to their brokerage accounts and always on top of the stock market action.

China ist im Börsenfieber. Wie groß die Aktieneuphorie wirklich ist, erfuhr jetzt William de Vijlder, Chef-Anlagestratege von Fortis Investments. Bei seiner Ankunft auf dem Flughafen von Peking begrüßte ihn ein neuer Chauffeur.

Der alte hatte gerade gekündigt, um mehr Zeit für Börsengeschäfte zu haben. Der Banker erfuhr dann, dass viele Chinesen inzwischen nachts vor den Toren der Banken schlafen, um morgens rechtzeitig da zu sein, um eines der limitierten Wertpapierdepots zu eröffnen. Auf einer Kapitalmarktkonferenz schließlich wunderte sich de Viljder über die immense Zahl von Zuhörern, die nebenbei ihren Laptop aufgeklappt hatte.

Es waren keine Journalisten. Auf fast allen Bildschirmen flimmerten Kursinformationen von der Börse. An einem heißen Markt will eben niemand etwas verpassen.

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Anonymous Anonymous said...

Can't blame people for being excited about the potential for big gains in China. If not in the short-term then certainly in the long-term. On top of their growing power as an exporter, they are developing what will be by far the world's biggest domestic market, which at the outset will make up in quantity what it lacks in quality (average buying power). If you have qualms it is better to stay out; certainly I would not short China right now. I'd be more likely to either take a new long position, or add to an existing one. And then watch it carefully.

A bit troubling is the repressive, arbitrary, and even corrupt nature of the Chinese government -- it is not exactly the kind of representative democracy touted by the West. Yet western governments fully engage the Chinese, and western companies are investing wildly there. Which seems hypocritical.

Of course if political instability develops in China, then look out below...

3:29 AM  
Blogger jmf said...

Hi Anon,

i also would not short China right now.

Too much liquidity and on the other hand too many short opportunities elswhere :-)

4:30 AM  
Anonymous Anonymous said...

Speaking of corruption in China...

1:53 PM  

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