opinions on China's stock market?

Where are China's markets going?

  • Total voters
    11
Baozi

Baozi

Hi all,

Anyone here got a view on where China's markets are going? I know there are a few China bears stalking these forums, however I would like to have a conversation grounded as much as possible on facts and as little as possible on expectations.

I will state the facts I know:

Pro Bear:
-Trade war raging on at least until next year
-Shrinking and (possibly) overstated GDP figures
-Very high debt to GDP ratio, which ties the hands of central banks if stimulus is needed
-USD reserves shrinking
-Depreciating currency makes stock investments less attractive
-25D RR for the 50ETF options (the only options available) around -10%

Pro Bull:
-tariff pain is likely at its highest, further tariff hikes very unlikely
-strong national sentiment and controlled media in a country where 80% is retail -dominated.
-opening up of financial markets
-state funds propping up the market every time it reaches critical levels.
-the market recovered almost immediately after the news of the last hikes
-market moving higher with decreasing volatility

According to Ken Fisher (which I think is a guy who knows his shit) there are 3 drivers for market demand:

1-economic
2-political
3-sentiment

only when all 3 elements are pointing down you have a real bear. In the current situation only driver#1 is negative. There are no issues on driver#2 as there is an active involvement by policy makers to keep the machine running, and also driver #3 is fine, as the heat that china is taking internationally had the effect of rallying everyone around their flag internally.

My take is that the market COULD actually turn into a bear if the pain persists long enough to drag down sentiment ,and then you also need some other sort of catalyst like a policy blunder.

And now.. flame on!
 
Last edited:
trend2009 said:
i am bearish on A share, I guess A share has potential to test the low of 2018. will buy bottom around 2500.
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Thanks! Care to explain the rationale for your bearishness? Macro, TA, astrology, insider info?
 
Baozi said:
According to Ken Fisher (which I think is a guy who knows his shit) there are 3 drivers for market demand:

1-economic
2-political
3-sentiment
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1-economic: trending down
2-political: down
3-sentiment: down

There you have it.
 
ironchef said:
1-economic: trending down
2-political: down
3-sentiment: down

There you have it.
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The problem with this level of analysis (and OP's) is that it assumes rational actors (that is: a "trend up" will eventually follow a "trend down" given some predictable economic factor).

The truth is China is run by an authoritarian dictator named Xi. At his command (and we recently saw) they can hose their currency to strike back against what they perceive as a slight. Xi can order the entire market to go one direction. More saliently, despite "having numbers" on the Chinese economy, no economist has been able to verify the numbers given by China and there is no public auditing process. This means (most likely) their economy is manipulated regularly and the numbers are forged.

I wouldn't touch China with a 10 foot pole. There's risk, and then there's betting for/against a guy who can just change the rules when he doesnt like what you're doing. It's like playing monopoly with a 7 year old. The second they start losing they change the rules so they get back to winning again.
 
gaussian said:
The problem with this level of analysis (and OP's) is that it assumes rational actors (that is: a "trend up" will eventually follow a "trend down" given some predictable economic factor).

The truth is China is run by an authoritarian dictator named Xi. At his command (and we recently saw) they can hose their currency to strike back against what they perceive as a slight. Xi can order the entire market to go one direction. More saliently, despite "having numbers" on the Chinese economy, no economist has been able to verify the numbers given by China and there is no public auditing process. This means (most likely) their economy is manipulated regularly and the numbers are forged.

I wouldn't touch China with a 10 foot pole. There's risk, and then there's betting for/against a guy who can just change the rules when he doesnt like what you're doing. It's like playing monopoly with a 7 year old. The second they start losing they change the rules so they get back to winning again.
More...
I hear you, did that in jest. :D

However, OP is from China, so he should have a much better perspective than most of us on ET. I am ready to hear his view.
 
gaussian said:
The truth is China is run by an authoritarian dictator named Xi. At his command (and we recently saw) they can hose their currency to strike back against what they perceive as a slight. Xi can order the entire market to go one direction. More saliently, despite "having numbers" on the Chinese economy, no economist has been able to verify the numbers given by China and there is no public auditing process. This means (most likely) their economy is manipulated regularly and the numbers are forged.
More...

I would say that there are a few misconceptions here. Been working/living in China for 10 years now, so I kind of know what I'm talking about.

1) Sure, policy makers don't need to go trough a legislative body to pass new regulations, but it doesn't mean that said regulations aren't met with resistance at the lower levels. In a country of this size, bureaucratic inertia is a huge issue.

2) Stats numbers are off DESPITE the central government effort, not BECAUSE of it. When adding up the GDP of the single regions, the total GDP is always higher than the central government estimation. This is more due to the incentives structure for local governments rather than an evil plan to look bigger and scarier. At a private level, I would say that cooking the books is certainly a widespread practice, but only up to a certain extent. A local accountant told me that the final results are usually off the mark by no more than 10-15%

3) Control over the markets is not at all absolute, especially because institutional investors are not the clear majority. There were two huge mega bubbles followed by mega crashes in 2008-2009 and in 2014-2015. In both cases the regulators tried to prevent the crashes with a variety of methods (including preventing big investors to sell), but in the end they had to surrender to the mass stampede. If it really was for the regulators, the chart of the main indexes would be a straight line steadily moving upwards, not a heartbeat pattern like it is now.
 
Baozi said:
and also driver #3 is fine, as the heat that china is taking internationally had the effect of rallying everyone around their flag internally.
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If they are that patriotic China wouldn't need to restrict capital outflow.
 
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