Much has been written in recent weeks and months about China's stock market "bubble". I know from my own experience of Hong Kong's stockmarket crash in 1987 that you need to start worrying about a crash when taxi drivers, domestic maids and office workers spend more time watching the market than doing their jobs!
Three articles from the New York Times, The Australian and The Economist illustrate different approaches to understanding the nature of China's economic developments, as well as the need for a balanced appraisal of the debate.
The Economist dismantles the hysteria surrounding negative predictions by pointing out that "China's recent share-price boom is still relatively modest compared with other great bubbles such as the American NASDAQ in the 1990s." The article points to evidence suggesting that share-prices have a significant capacity to steadily increase before a bubble burst, short of direct policy intervention. Please click here for the full article, including a chart comparing China's market today with past stockmarket "bubbles".
The Australian, drawing on commentary made by Hong Kong's Morgan Stanley economists, stress that a policy-induced economic downturn would be highly unlikely given the current political climate, the National Party Congress in October and the 2008 Beijing Olympics. Indeed, the article convincingly asserts that concern regarding strong growth figures is unwarranted due to the loosening of political constraints on statisticians and the effect on published records, as they are now able to "rectify previous inaccuracies." Please click here for the full article
The New York Times report is rather more cautious, accepting that the Chinese stock market is indisputably ‘dangerously high.' However, Jim Rogers, a fund manager, investment author and ‘China bull', presents a sound case suggesting that there are worthwhile investment opportunities in "…Chinese companies involved in sectors such as environmental protection, water, green energy, railways and education, where the government and public were expected to spend a lot of money." He added that regardless of the current debate, it can sensibly be anticipated that demand for commodities such as oil and metals would remain strong. Please click here for the full article.
The complicated nature of these discussions suggests that predictions of the ‘death of the bull run' is, at best, over-done. Each article focuses on crucial, although often marginalised, issues which are more related to the direction of China's economy than the short term movements of investor confidence (as measured by the stockmarket index). History would suggest that the underlying fundamentals are a far better indicator for investors to follow when considering their participation, or not, in China's amazing growth story.
Please consider
Asian Financial Forum in Hong Kong - 21st September 2007 - please click here for more details
Think Global BRIC Study Tours: China - 21st to 27th October 2007 - please click here for more details
Best wishes
David Thomas
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