Guest post by Sober Look.
China’s retail investors have lost all confidence in the nation’s stock market. In spite of improving economic fundamentals (see discussion), the market continues to plunge. Unlike many other emerging markets, China’s domestic stock market trading is dominated by retail investors. And many feel they have been duped, as the market hits new lows.
JPMorgan: – Of the households with stock market investments, 77% had not made a profit. The stock market has been the worst performing asset class over the last 5 years from various investment instruments available to the retail investor. If a retail investor put Rmb100 into the CSI300 5 years ago and left it, it would only be worth roughly Rmb 47 today…
|Shanghai Stock Exchange Composite Index (source: Yahoo Finance)|
China’s brokers have spent the last few years hyping the market, with a positive projections each new year. And each year retail investors have been disappointed. Now some are waiting for the government to effectively “bail out” the equity market before they would feel comfortable getting in.
WSJ: – “Local retail investors have lost faith on the stock market over the past three years. How can we expect investors to rush into a market where all expectations for a bottom, say the 3000 and the 2000 level, have proven to be wrong?” said Amy Lin, analyst at Capital Securities.
“The market is likely to stay weak until the government launches significant market-friendly measures, such as more stock buybacks of listed companies and another cut in banks’ reserve requirement ratio,” she said.
Many of China’s retail investors simply left the stock market altogether, preferring property and gold instead.
FT: – The domestic Chinese investors who dominate trading in Shanghai have had plenty of bad news to weigh up over the past couple of years. China’s economy has slowed for seven straight quarters and is on track to record its lowest annual rate of growth for a decade this year. There are concerns, too, that the political paralysis surrounding the country’s once-a-decade leadership transition has delayed needed reforms.
Indeed, many Chinese investors have simply given up on equities and moved to other investments such as property, gold or high-yield wealth management products.
The percentage of dormant brokerage accounts has been rising.
In a market with a more diversified investor pool, one would see this retail capitulation as a bullish sign. But there are very few active institutional players in China’s domestic market (although the government has been trying to change that by increasing foreign investment quotas.) For now it will take either retail investors coming back or a government action to turn it around. And given the change of the guard in China’s leadership, it may take them some time to organize a decisive action. For institutions who do have access to China’s domestic market however, this may be a good time to start testing the waters.
Guest post by Gold SIlver Worlds.
GoldSilverWorlds had the honour to do a Q&A with Dimitri Speck who is the author of the best-selling book “Geheime Goldpolitik”. He is chief financial engineer of Staedel Hanseatic and runsSeasonalCharts.com, offering a wealth of intraday trend charts. He is also one of the people who increased the pressure to create transparency in the German’s gold holdings.
A lot has been written lately about the gold price manipulation and the real amounts of gold reserves of the central banks. There are several views on the same topic, the most rational one being purely statistical. As it’s easy to get caught by emotions, we have chosen in this article to let the figures and the charts tell the story.
As a seasoned mathematician, Dimitri Speck is focused on what the charts are revealing. He looks both into intraday charts as well as seasonal charts, the former being one specific variant of the latter. Based on years of chart analysis, he could clearly pinpoint the manipulation in the gold market. In his book, he explores the subject of gold holdings of the central banks, in particular the Bundesbank. Interestingly, there is a link between all the different topics we just mentioned, which was the topic of our Q&A.
Guest post by Peter Tchir.
There was some chatter about the performance of fixed income ETF’s yesterday. They performed poorly at least relative to stocks and some had a late day sell-off fueling some speculation that credit wasn’t doing well.
That speculation was just wrong, but highlighted so,e problems with existing fixed income ETF’s.
They were trading at a premium and that premium tends to disappear when bonds become easy to source. While HY bonds remained well bid, the investment grade bond market is being flooded with new issues – primarily to enable large one time dividends. Might be worth probing into these companies a little deeper, but that is for another day.
So premium versus bond availability explains some of the noise, but to a large degree that is secondary.
Guest post by Sober Look.
The ISI Group combined four US regional Fed indices with Markit Manufacturing PMI to create a comprehensive US manufacturing index (chart below). A pattern of growth starts followed by fairly sharp corrections emerges. Some have speculated that this volatility, at least in part, can be explained by the Eurozone uncertainty flare-ups: Greece (2010), Italy (2011), Spain (2012). The pattern also exists in the economic surprise indices (see post-1 and post-2).
Business as usual? Bloomberg reports on Chinese hackers, and tactics when it comes to cyber warfare.
During his civil lawsuit against the People’s Republic of China, Brian Milburn says he never once saw one of the country’s lawyers. He read no court documents from China’s attorneys because they filed none. The voluminous case record at the U.S. District courthouse in Santa Ana contains a single communication from China: a curt letter to the U.S. State Department, urging that the suit be dismissed.
That doesn’t mean Milburn’s adversary had no contact with him.
For three years, a group of hackers from China waged a relentless campaign of cyber harassment against Solid Oak Software Inc., Milburn’s family-owned, eight-person firm inSanta Barbara, California. The attack began less than two weeks after Milburn publicly accused China of appropriating his company’s parental filtering software, CYBERsitter, for a national Internet censoring project. And it ended shortly after he settled a $2.2 billion lawsuit against the Chinese government and a string of computer companies last April.
In between, the hackers assailed Solid Oak’s computer systems, shutting down web and e-mail servers, spying on an employee with her webcam, and gaining access to sensitive files in a battle that caused company revenues to tumble and brought it within a hair’s breadth of collapse. (full story here).
Biderman on the markets.
here is no way sustainable economic growth is at all possible in the United States, Europe and Japan over the near term under current government policies of providing citizens with all sorts of economically unfeasible cradle-to-grave entitlement programs. And without sustainable growth there is no way stock prices will remain as high as they are for very much longer.
Guest post by Hussman Funds.
In the day-to-day focus on the “fiscal cliff,” our own concern about a U.S. recession already in progress, and the inevitable flare-up of European banking and sovereign debt strains, it’s easy to overlook the primary reason that we are defensive here: stocks are overvalued, and market conditions have moved in a two-step sequence from overvalued, overbought, overbullish, rising yield conditions (and an army of other hostile indicator syndromes) to a breakdown in market internals and trend-following measures. Once in place, that sequence has generally produced very negative outcomes, on average. In that context, even impressive surges in advances versus declines (as we saw last week) have not mitigated those outcomes, on average, unless they occur after stocks have declined precipitously from their highs. Our estimates of prospective stock market return/risk, on a blended horizon from 2-weeks to 18-months, remains among the most negative that we’ve observed in a century of market data.
On the valuation front, Wall Street has been lulled into complacency by record profit margins born of extreme fiscal deficits and depressed savings rates. Profits as a share of GDP are presently about 70% of their historical norm, and profit margins have historically been highly sensitive to cyclical fluctuations. So the seemingly benign ratio of “price to forward operating earnings” is benign only because those forward operating earnings are far out of line with what could reasonably expected on a sustained long-term basis.
It’s helpful to examine valuations that are based on “fundamentals” that don’t fluctuate strongly in response to temporary ups and downs of the business cycle. The chart below compares historical price/dividend, price/revenue, price/book and Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) to their respective historical norms prior to the late-1990’s market bubble – a reading of 1.0 means that valuations are at their pre-bubble norm.
The US has decided not to declare China as having manipulated its currency to gain an unfair trade advantage.
But the Treasury did say that China’s currency, the yuan, remains “significantly undervalued” and urged China to make further progress.
In its semi-annual report, it said Beijing did not meet the criteria to be called a currency manipulator, which could have sparked US trade sanctions.
Critics of China say it keeps the yuan low to keep its exports cheap.
There’s a point that no-one in the establishment will admit.