Alert the stock market bubble
driven by excessive liquidity of the stock market bubble has emerged signs of the future China's stock market may experience a painful adjustment
journal special economist Andy Xie / Hong Kong and Shanghai article
stock market may have been signs of a bubble. Mainland stock market bubble, the reason is the low savings and loan by the Chinese banking system than the excess liquidity reflected. Excess liquidity has doubled the stock market; and in the future, China's stock market may experience a painful adjustment, as happened after 2001, as.
exists that China's stock market boom - crash (Boom-Burst) cycle, is due to China's economic and monetary system rigidity. To solve this problem takes a long time. The Government has taken administrative measures to control asset bubbles intervention, but such intervention does not remove the causes of cycles.
I think that this wave of bull market in the past, because of government intervention has been completed. For a long time in the future, the Chinese economy and asset markets will be accompanied by the extreme ups and downs.
source of foam
2006 年, A Share Index doubled. The impetus of the bull market is open the growing popularity of mutual funds. The size of the fund management industry has reached three times the original. In a rising market, the fund performed well, was also popular. More and more investors sought funds, hoped that the Fund's performance to continue.
inflow of new funds to further push the market to realize the expectations of investors. But without the presence of excess liquidity, this process is not sustainable. Because normally the case, as more and more money into the stock
City, the interest rate will rise to slow or stop the savings from the bank to the stock market's pace. However, the Chinese banking system in the deposit ratio is very low, only about 70%. Leave bank deposits and do not care, because it can
but reduce its interest payments. Thus, although a lot of money into the stock market, and banks are still able to operate at low interest rates.
real estate market tightening up the catalyst for the stock market. Individual investors in 2001 bear market in stocks after the loss of wealth, so be very cautious on the stock market. When China's export expansion, bank deposits increased rapidly, capital inflow is the first real estate market. As a result, China has emerged over time the real estate bull market and the stock bear market coexist.
When the 2006 government regulation makes the real estate market cooled, the inflow of funds into the stock market already has a foundation. The rise of open-ended mutual fund is a reflection of the liquidity flow of this cycle.
gross domestic stock market is about 8 trillion yuan. Although most of the legal person shares is now negotiable, but because the owner is a government entity, it is unlikely to sell its shares in a large number.
part of the market may be the real flow of about 2.5 trillion yuan. The Chinese banking system has more than 32 trillion yuan in total savings. If the deposit-loan ratio of more than 80% regarded as normal, then the size of excess liquidity in circulation
shares than the total value of more. If all are into the stock market liquidity, the stock market can be easily doubled Zaifan nature. However, I estimate the market come to that, the Government will intervene.
Hong Kong stock market is mainly due to international mobility. Hong Kong stocks have reached 13 trillion dollar scale, require large-scale influx of liquidity can make it continue to rise.
2006, the global performance of most asset markets is not good - the United States has entered a bear market in real estate; commodity markets in a bear market; bond market showed no clear trend ; major currencies are
fluctuate only within a certain range; the majority of the stock market is not good, such as Japan, Korea, Thailand's stock market in 2006, did not rise. Only China, India and the U.S. stock market performed well, many international funds are
in pursuit of the winner.
local funds in Hong Kong also joined the party. Most real estate developers in Hong Kong have become the fund manager to invest their money in the stock market than its core business more. San
many households have the money poured into the stock market. In fact, the whole of Hong Kong's economic performance like a bull in China expect to live a fund management company - the main reason is that Hong Kong has lost most of the business can compete with the Mainland
force. The inevitable result of this situation is that if the mainland market adjustment occurs, the Hong Kong economy will be seriously damaged.
In addition, as in 1997, but also the influx of mainland capital to Hong Kong stock market. Many mainland businessmen to circumvent government censorship, the transfer of funds to Hong Kong. With the stock market's rise, they also entered the Hong Kong stock
City. Generally speaking, in the end is difficult to estimate how much money involved. My judgments are more than 500 billion yuan, China in 2006 than in all of the funds raised through IPO more.
This will never have a fully accurate answer. By definition, the bubble is an irrational phenomenon,cheap UGG boots, when many people become irrational at the same time, the market bubble occurs.
We do not know is why so many people will be caught in the wild. MIT Professor Charles Kinder Wahlberg profound study of the bubble, with a
his view, bubbles appear in a new thing, and its value is difficult to determine the time. For example, a new technology or new financial instruments may lead to bubble. But the new thing itself is not sufficient to lead to a bubble, and have
money Caixing. In general, too much money will lead to inflation. However, if a sufficient force so even though the money supply, inflation is still low, while there are some strange things occur, then the bubble very
likely to happen.
three popular theory or argument that the current stock market situation is based on the fundamentals.
first argument is that China's rapid economic growth to a higher market valuation provided. However, high economic growth does not necessarily lead to profit growth. And high-profit growth or the performance of each company have high growth of profits, or profits of each company the same, but the number of companies to become more.
Furthermore, the Chinese economy is investment driven. More investment means more depreciation, which will make lower profits. Underutilization of capital, depreciation serious, is the past, most Chinese companies in high-growth conditions, the main reason for failure to achieve high profit margins.
The second argument is that China's stock market in terms of the scale is still small relative to GDP, the stock market rose just make it consistent with the size and economic output.
this statement completely wrong. Market size may be due to an insufficient number of listed companies, listed companies can not show that the value should be higher. Moreover, the Chinese stock market is no longer small. Considering that many large enterprises are in Hong Kong and Shanghai listing
non-Chinese stock market capitalization rate has exceeded 70% of GDP. In addition, the total value of overseas listed foreign companies in China are equivalent to 20% of GDP. Therefore, listed companies operating in China's total GDP
has reached 90%. This ratio with the global average quite.
third theory is that, although China's stock market rose, but its market value is not higher than India.
true. But in my opinion, India is the huge financial bubble. Valuation of assets in India is now the highest in the world. Indian individual investors in the market with a large number of financial derivatives, which is equivalent to borrow money to buy stocks, the demand accounted for 20% of the total market demand. China, India, the situation can not serve as an excuse.
the most important benchmark for the stock market is the ratio of stock price and earnings per share (the price-earnings ratio) and the stock price and the ratio of book value per share (ie book value). In 2007, China is about 25 times earnings, which is very high, but not crazy.
but I believe that the valuation of financial stocks have plunged into madness. Their current account rate of more than 3 times the city, in addition to India's banks, which is the world's most expensive. China's banks have not proven their profitability. In the last round of economic
week period, the government bought bad debts for the banks alone. Bank profits depend on interest rates and deposit rates is a significant spread. But this is spread by government regulation, rather than their own business tactics. Therefore, China's banking profits
Run a sense, a gift from the government. When the expansion of foreign banks in China, the Chinese banks to their profits squeezed situation. Their price-earnings ratio should be lower.
I think the Chinese stock market's long-term average price-earnings ratio of about 15-20 times in between. As the quality of listed companies is still low income, 15 times price-earnings ratio should be closer, not 20 times. When more than 25 times earnings, is likely to be a bubble.
, of course, the bubble can expand. China, in 2001, nearly 60 times earnings, while Japan's price-earnings ratio in 1989, more than 60 times. As China's excess liquidity is huge, the market might actually rise to that level.
foam Why?
how to solve the stock market bubble? There are only two possible approaches: first, reducing the overall mobility; second, lower risk appetite.
still actually the RMB exchange rate is fixed, when the export cooling, the liquid will not drop. Therefore, if the U.S. economy into recession, China's excess liquidity is likely to disappear, but the capital markets will enter the adjustment.
alternative is more money. My suggestion is that China can issue bonds to the development of large cities (see Notes
for funding urban infrastructure, but also buy low-cost housing for the urban migration for collateral. In fact, excess liquidity can be transformed into China's rapid urbanization, a great opportunity.
urbanization in China, the main problem is everywhere. And if the lack of economies of scale, most cities can not provide adequate employment. Because many capital was wasted, so the central government approved the construction of more cities
very cautious attitude towards the project. If the central government chose to focus on urbanization in some cities, then,UGG boots cheap, this situation can be improved, these cities can quickly achieve economies of scale to provide full employment for its residents.
second possible way of reducing risk appetite, investors can effectively through education to achieve. Open-ended mutual fund is a new financial tool for investors to understand the risks is essential.
Will fund a number of retail investors as a panacea to avoid losses, the basis that fund managers are professionals and they know how to avoid losses. This misconception will allow investors to suffer.
a huge amount of money the fund management, so they are inclined to invest in big companies, so its performance is closely related with the market. Foundation, Yale University, David Swensen, chief investment officer wrote a book (. He showed that the mutual fund's performance in the long term than the market index is poor,UGG boots, that is, investing in stock mutual funds than
hold better. Moreover, the mutual fund five years ago the formation of the NASDAQ bubble also played a vital role. Professional fund managers apparently did not see the existence of the bubble, and suffered huge losses.
I am not opposed to mutual funds, they are for large companies to bring attention to the market some stability. However, if you believe they can go and win the market and always make money, you're wrong. Chinese investors in these funds letter
heart is so full, they will have to accept the painful lessons in the future. When the market is adjusting after the arrival of investors will find the value of the Fund will fall as the market together.
only when the Chinese economy becomes completely flexible, the Chinese asset markets boom - the end of the collapse cycle is possible.
China's economy too dependent on exports; as a huge economy, China's exports should be the sustainable level of about 20% of GDP, now account for GDP37%, is too high,bailey UGG boots, can not fully accommodate the exchange rate flexibility. Rigid exchange rate to translate into cyclical fluctuations in asset markets.
order to achieve exchange rate flexibility, China must reduce its reliance on exports. Promote consumption and urbanization can be a new growth engine. China's economy may also need to really balance the decade or so. Before that, China will continue to experience periodic fluctuations in asset markets.
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