China’s retail investors have given up on the stock market; could we be approaching the bottom?
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…
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| 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.
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| Source: JPMorgan |
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.
China Mafia-Style Hack Attack Drives California Firm to Brink
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).
Corruption in China Could Kill the Party
The trader has referred to Patrick Chovanec multiple times when it comes to China and the dynamics “over there”.
Below is an interview with Chovanec sharing his thoughts on the Chinese Leaders and the corruption that risks destroying the country.
Must watch video below.
Here Is What to Make of China, Now
Maybe not as important as the US elections, but still very big. China’s Communist Party gathers in Beijing to hand over power for the fifth time since 1949.
What to expect and not.
Video with Jim O’Neill below.
The renminbi bloc is here: Asia down, the rest of the world to go?
A few points worth reading when it comes to China and its currency. Via Voxeu.
As China becomes ever more important in the global economy, will its currency take on an international role? This column argues that in some sense, this is already happening – an increasing number of emerging-market currencies seem to track (co-move with) the renminbi – and the trend is set to continue.
The staggering economic rise of China in the last three decades leads to the question of the potential internationalisation of its currency, the renminbi (RMB). Internationalisation has different dimensions. An international currency is widely used in financial and trade transactions, and crucially it is used as a store of value. Some, like Eichengreen (2011) and Frankel (2011) see a potential global role for the RMB, provided important ancillary reforms to the domestic financial system and to the financial account first take place. In Eclipse, one of us projected that such a shift might happen in less than two decades (Subramanian 2011).
Keep it in the Family
We are all equal, but some are more equal than others. Nothing really new, but an article getting a lot of attention. From NYT.
The mother of China’s prime minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao’s political campaigns. And during childhood, “my family was extremely poor,” the prime minister, Wen Jiabao, said in a speech last year.
But now 90, the prime minister’s mother, Yang Zhiyun, not only left poverty behind — she became outright rich, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $120 million five years ago, the records show.
The details of how Ms. Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China’s ruling elite, first in 1998 as vice prime minister and then five years later as prime minister.
Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. A review of corporate and regulatory records indicates that the prime minister’s relatives, some of whom have a knack for aggressive deal-making, including his wife, have controlled assets worth at least $2.7 billion. (full read here)
World Markets Weekend Review: Indexes Tumble (Except in China)
Guest post by Doug Short.
The previous week’s rally turned into a rout last week, except for China. The Shanghai Composite was the top finisher with a 0.90% gain with Hong Kong’s Hang Seng close behind with a 0.59% weekly close. The other six markets on my watch list finished deep in the red, ranging from the third-place FTSE 100 at -1.32% to the Nikkei 225 in distant last place at -3.71%. The S&P 500 finished sixth at -2.21%, just fractionally ahead of the DAXK at -2.24%. It was a grim week!
This week two indexes on the watch list are in bear territory — the traditional designation for a 20% decline from an interim high — unchanged from last week. See the table inset (lower right) in the chart below. At the bottom of the Bear Zone is, of course, the Shanghai Composite, which is a sobering 39.36% off its interim high of August 2009. The other bear-zone index is Japan’s Nikkei, which slid deeper into the red, 24.43% from its interim high of April 2010. At the other end of the inset, the S&P 500 is now 2.54% off its interim high.
Remember the Chinese miracle? Now imploding….
A few thoughts by UBS’ Magnusson on the Chinese imploding miracle. Via Macro business.
One way or another, China is going to rebalance. The question is whether it occurs in an orderly fashion with the investment side of the economy slowing to a rate less than the growth in GDP, but still growing. Or whether it happens in the context of a sharp decline in investment, with more alarming economic and political consequences that will cut across the economy.
After two decades of unparalleled economic success, we believe China now needs a reform programme on a scale similar to that adopted 30 years ago. Without it, a heavily investment-centric and credit-intensive economic model could soon become unstable, and later stall in a middle income trap. There’s only so much labour transfer from rural areas to urban factories. There’s a limit to how high the investment share of GDP can go. Rapid population ageing is chipping away at Chinese growth. The exceptional impact of accession to the WTO a decade ago is fading. And the significant, direct role of the government, state banks and SOEs in the economy as agents of economic policy, and owners and providers of heavy investment and infrastructure may no longer be appropriate as the economy becomes richer, more complex, and in need of greater competition and innovation.
China’s Solyndra Economy
A few comments by Patrick Chovanec on the Chinese Economy.
On Aug. 3, the owner of Chengxing Solar Company leapt from the sixth floor of his office building in Jinhua, China. Li Fei killed himself after his company was unable to repay a $3 million bank loan it had guaranteed for another Chinese solar company that defaulted. One local financial newspaper called Li’s suicide “a sign of the imminent collapse facing the Chinese photovoltaic industry” due to overcapacity and mounting debts.
President Barack Obama has held up China’s investments in green energy and high-speed rail as examples of the kind of state-led industrial policy that America should be emulating. The real lesson is precisely the opposite. State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.
China So(u)cks
While people debate the Eurozone “miracle”, China continues to show weakness. This time the socks industry is feeling the pinch, and remember, we all have to wear socks. From The Guardian.
The foolish man built his house upon sand; the wise man built his house on a rock. The ambitious entrepreneurs of Datang chose a sturdy nylon and wool foundation. “People always need socks,” points out Xu Leile, whose company clothes the feet of the British and US armies, European hikers and pampered pet dogs.
Thanks to Xu and hundreds more like him, “Sock City” – north-west of Tie Town, east of Sweater Town – epitomised China‘s economic success story. The obscure settlement in eastern Zhejiang province became an export-driven boomtown, producing as much as a third of the world’s sock supply and thriving even through the financial crisis in 2008 and the subsequent global recession.
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