The Chinese issue

Posted: July 9, 2015 in Uncategorized
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Finally the media are starting to realize that what is happening in China could have much more effect on the world than Greece.

Is it a Global Financial Crisis number 2? It can’t be excluded, but the Chinese Government has the largest financial reserves in the world (on that side they already started dumping the US Treasury bonds they have – creating a different issue), it can impose rules on investors that cannot be imposed in a democratic society (they just forbade to sell share in a company to anyone with more than 5% stake in a company) and other measures.

Even if the Chinese Stock Market is quite closed, remember that China is now the economic engine of the world (for example is the number 1 market for BMW). And specially for Australia the consequences could be devastating.

But they are definitely panicking.

It is also interesting how the Chinese newspapers have started blaming foreign of short sale attacks (typical strategy of a non democratic state) and, at the same time, there has been a massive cyber attack on the New York Stock Exchange and Airlines (picture from Norsecorp thanks to Zerohedge).

Capture cyber attack

Until a year ago the Chinese market cap was hovering between USD $1 and USD $2 trillion. At the top, 12 June, was circa USD $11 trillion in little more than 1 year.

More importantly, before the Chinese stock market was a mixture of gambling, savings and very few investors as investments where passing through the State Sponsored Enterprises and the Government.

Now the stock market is at the centre of the strategy of PremierXi Jinping to transform China from a low cost -export led (so foreign market forces dependant like they learned in 2008) to a high tech – consumer led economy (think about Xiaomi, Tencents, Alibaba).

So it is almost driving the economy to an American model. But the American model brings also wild highs and great crisis, which usually the Chinese Government never tolerated.

So this market crash has a lot to do with internal politics and the “teenager years” of China.

Personally I do not think that China will collapse, it will more in an American Style Quantitative Easing induced rally – but China is very different from anything else and 80% of investors are  retail and momentum driven (flock like ducks).

So this needs to be watched much more carefully than Greece as pretending to be an expert on China and of what happen inside it is a pure fantasy.


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