Volatility in the Chinese stock market hit its lowest level this week since April 2007. Check out the graph below. Seems investors are seeing less risk in Chinese stocks at this time.
Now, data out today shows that new mortgage loans in Shanghai dropped by an massive 98% in July… Yes 98% – that was not a typo. In the past I’ve described the merits of an authoritarian input to the market – well here’s an example of the dark side of such authoritarian input. A large decline was expected as the government continued to enact tightening policies this month, and transaction volumes are known to have declines. However this is huge and more than an indication that Chinese real estate is in for a hard landing. Expect spill over, not least in the volatility chart above!
Oh – and check out China’s M2 – also ground to a halt in July. Not a positive sign!
Shanghai is down 10% from its high on the 4th August, as the commerce ministry commented that the Government’s CNY4tr stimulus package is probably not big enough to offset decreases in exports.
1. July export figures were 23% down yoy
2. New loans (CNY355.9bn) were a quarter of those lent in June.
3. The president of China Construction Bank Corp (Zhang Jianguo), the world’s second most valuable bank, said that the firm will cut new loans by 70% to avoid taking on bad debts.
Below I highlight some of today’s losses:
1. PetroChina (the worlds largest company): -5%
2. China Cosco Holdings (the worlds largest dry bulk shipping operator): -6.5%
3. Jiangxi Copper (China’s largest metal producer): -7.4%
It is interesting to note that exuberance for Chinese stocks has been so dramatic, that last week alone 660,000 individual trading accounts were opened. This coincided with the end of a period in which IPOs were banned.
Look at the graph below of the Shanghai index – the drop off at the end is eerie.
News reports say that in a July meeting the China Securities Regulatory Commission (CSRC) discussed setting up a board to allow overseas companies to commence trading on the Shanghai exchange.
This news will be of particular interest to ‘red-chip’ companies. Those companies based in China, but incorporated overseas. China Mobile’s (0941 – the worlds biggest mobile operator by SUBS) parent company is domiciled in Beijing, but the operator itself is listed in Hong Kong. There are rumors that the company is planning to list A-shares (mainland shares) once a framework is in place.
One other company expected to follow suit is CNOOC (HK: 0883), China’s third largest oil company.
1. For companies planning to expand in China, this move will help bring local cash on-board, as well as increase the awareness of local investors.
2. Sources say that the minimum market cap for overseas companies planning to list will be US$7.3bn. Opening the market to large corporations will have a potentially stabilizing effect on a market in which some are concerned about the appearance of bubbles.
In a previous post on Yasheng Huang’s capitalism with Chinese Characteristics (https://ravendragon.wordpress.com/2009/07/23/hello-world/) we discussed the professor’s opinion that there is nothing magical about Chinese growth. He explains that access to capital is one of the essential ingredients for a company’s growth. In his first chapter, Huang spends a lot of time describing Lenovo. He says that despite its Chinese roots, the company’s growth was underpinned by a foreign incorporation, and access to Hong Kong’s capital markets.
Allow me this brief moment to rest on my laurels (I assure you I will only do so for a few minutes!).
Yesterday I asked whether at 26x p/e Shanghai was getting too expensive (see below) . Today Shanghai closed 5% down at 3226.43 – its biggest drop in 8 months as investors began worrying whether the market rally had outpaced growth in earnings.
The market is at 26x p/e, and up 100% since November lows?
What do you think it means?
Another bubble in the making? What do you think?