Eq: Large Cap

(Shanghai)

The Financial Times has published a story which argues that the collapse of China’s equity market, and the either slow decline or abrupt contraction that may go along with it, is good for the world’s economy. The piece contends that fears over a Chinese slowdown hurting the global economy are misplaced, as a decline in China would lead to lower commodity prices, and thus lowers inflation pressures, which would allow global central banks to keep rates low and growth high. The author believes that the situation is very similar to what happened with Japan in the 1990s. After decades of growth, Japan collapsed in the early 1990s, however, US equity markets thrived in the 90s as Japan’s struggles allowed the US Federal Reserve to keep interest rates low. Growth was also potent during this era and world markets had near zero correlation to Japan’s Nikkei index. The piece argues that the exact same thing could happen this time around.


FINSUM: This was an engaging piece that offers a thoroughly differentiated perspective on what is occurring in China. The article has an undeniable logic, though it might be oversimplifying the impact of a Chinese slowdown.

Source: Financial Times

(Shanghai)

Chinese stocks boomed for a third straight day today as hundreds of stocks “thawed” from the trading freezes that had beset the country. The Shanghai index rose 2.39% today despite falls for big large cap stocks by the midday break. Hundreds of stocks hit their daily upward limit of 10%, with only 16 stocks falling. Small caps did particularly well, with the CSI 500, a Chinese small cap index, rising 7.1% by the midday break. More than 400 companies resumed trading today after being frozen during the panicked losses of last week. 36% of the market still remains frozen. Some think the recovery will be short, with Pictet Wealth Management saying they think stocks could drop another 15-20% from current levels.


FINSUM: The Chinese market is absolutely frightening right now, with no clear reasoning for price swings. Will the government be able to prevail over (or rather, compel) the market?

Source: Financial Times

(Shanghai)

After many of China’s top equity indices fell hugely over the last several weeks, stocks are now on the rebound. Shares on China’s Shanghai index rose 5.8% yesterday and 4.54% again today. Buying was furious as investors snapped up anything they could; around half of all listed companies’ shares remain suspended. Only two stocks fell in price while over 1,000 hit their daily upward limit of 10%.  The Chinese government has put together a nearly $20 bn fund for the country’s largest brokerage firms to buy stocks, which may have boosted sentiment that the market would turnaround.


FINSUM: There is no logic or concept of value driving Chinese shares, not even a veneer of one. Fear, greed, margin calls, and news of government are driving markets there. Chinese stocks seems ripe for another tumble after a brief bounce back.

 

Source: Financial Times

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