China to Take Down World Financial Markets

[Kimosabi]

But our market is far from excessively overvalued, we just need a slow down to the parabolic rise.

Cheers

I'm sorry, but I can't help find this statement somewhat amusing.

I'm sure there were plenty of people in Japan who thought the NIKKEI could never go back down to 7600 from over 40,000, but it did....

 

[nizar]

Well looking at this charts, I can't see much difference between now and 1987, and if/when it does go pop, I wouldn't be surprised to see the AORD drop to between 3000 - 4000, sorry...

No need to be sorry.
Look at in %terms, to get a clearer picture

 

[nizar]

Kimosabi
The comparison between 87 and now simply isn't there, if we were to use a percentage based comparison, the XAO would have to reach 12 K before it were as hot as 87.......

A 3 - 4k drop just isn't on the cards mate....... Yes, we need a pull back, but 3000 points just isn't going to happen IMO. If you want to review a bubble market, see China - now that market could definitely halve within a couple of days. But our market is far from excessively overvalued, we just need a slow down to the parabolic rise.

Cheers

Top post bro.
Agree wholly, good to see someone on here knows what they are talking about.

 

[reece55]

I'm sorry, but I can't help find this statement somewhat amusing.

I'm sure there were plenty of people in Japan who thought the NIKKEI could never go back down to 7600 from over 40,000, but it did....

Yeah, OK mate.......

Once again, you need to review the meteoric rise of the Nikkei compared with our rise - we are no where near the distance from our 200 MA that either this or the 1987 XAO was. The stats just don't add up mate, it's just simple maths....

If you wish to be a bear, at least use useful comparative analysis!

The reality is regardless of your view, personally I trade markets with the trend - why, cause thats what pays. Fundamentally, you could continue to say the ASX is overvalued, but if you have been short at any since the last dip, you would have lost tons of money. Just my opinion though, so whatever floats your boat!

Cheers
Reece

 

[nizar]

I'm sorry, but I can't help find this statement somewhat amusing.

I'm sure there were plenty of people in Japan who thought the NIKKEI could never go back down to 7600 from over 40,000, but it did....

The Nikkei actually went up for about 30 years, appreciated 100-fold in that time, during a time when Japan was industrialising.

Pretty poor comparison considering:
1. Australia is not industrialising (yeh China is, but they have 1.3billion people as opposed to Japans 100mil, and China Shanghai index has only been going up for 16 years).
2. We have not appreciated 100-fold.
3. We have not been doing up for 30 years.

So yeh, pretty poor comparison...

 

[reece55]

OK, last post for me on this topic......

Thought I would put this in perspective for everyone here, so we are all aware....

Attached is the absolute percentage increase for 3 years for the All Ords now and in the bubble in 87...

As you can clearly see, we are way off where we have been. So, whilst I would say that we are looking a little hot in the industrial valuation side, the market is well away from bubble status in my humble opinion.

Cheers
Reece

 

[wavepicker]

we are no where near the distance from our 200 MA that either this or the 1987 XAO was. The stats just don't add up mate, it's just simple maths....

Cheers
Reece

Hi Reece, I pondered the same question. However there can be are various problems with measuring the deviation of price from the 200MA. These are as follows:

-Is the 200 MA the best span length to use for this filter?
-The MA has a lag component.
- What is the statistical component for the last 20 years or the standard deviation of the percent change of the actual data from the trend line or MA??

If one was to do a study of these and the dominant cycles were established(correct span lengths) on a daily, weekly, and monthly basis, as well as allowing for the lag in the MA, it may surprise many that prices may have actually reached levels that may spell out an imminant reversal may not be too far away. Now that is not say that prices cannot trend higher from here, but it does spell caution. This is especially the case when prices have reached such deviations at 3 degrees of trend.

Food for thought.

 

[reece55]

Hi Wavepicker
Very interesting you say this, because for the last little while I have been building analysis on the 200 MA in just this way for XOA, XJO and DJIA and S&P 500. There is a pretty consistent pattern here for the XJO, where once the index reaches above 2x the standard deviation from the 200 day MA, it's a warning sign. In fact, with reference to the XJO, as as soon as we reach about 15% above the 200 day MA for the last 4 years, we have a pull back to around about the 200 MA. The index gravitates to this level, in my experience. At the moment, we are now above 2x the standard deviation, but only ever so slightly. It also ties in with the wave counts that most are coming up with. My idea is to build a index trading system on this basis -I will PM you when I am done if you are interested, still early days!

Mind you, in saying the above, I believe that we could get to up to 3x the standard deviation for the index if 87 is anything to go by, but we will have to wait to see.

Cheers

 

[drillinto]

The party ain't over yet


China Bubble Talk: It's All Relative
Bespoke Investment Group(USA)
14 May 2007

With the Shanghai Stock Exchange Index eclipsing yet another millennial mark over the last week, it seems as though there has been a pickup in the number of articles calling China's stock market a bubble with out of control valuations.

While we have already made the comparison of China's market now to the Nasdaq in the late 1990s, another comparison between the two indices shows that China's 'Bubble' may not be so large after all. Comparing the current valuations of both markets shows that the trailing P/E ratio for the Shanghai Stock Exchange is 42.63 with a dividend yield of 0.5%. The Nasdaq is not much cheaper. Its trailing P/E ratio is 38.32 with a dividend yield of 0.6%, and until late April, it had a higher P/E ratio.

If we add in the growth rate of each market's underlying economy, we see that China has much faster growth, which justifies some sort of premium to the slow growing US economy. According to the most recent data, China grew at an 11.1% rate, while growth in the US is a more paltry 2.1%. While it is nearly impossible for someone to make the argument that China is cheap at current levels, the mere fact that is has gone up so much so fast is not in itself enough to warrant the 'Bubble' tag.

 

[nizar]

Well yesterday Shanghai down by 3.6% and no1 cared.
The way it should be i reckon.

 

[constable]

Well yesterday Shanghai down by 3.6% and no1 cared.
The way it should be i reckon.

Here Mr and Mrs Farken here!!

 

[dhukka]

Picked up this article over at http://marketclues.blogspot.com/

China Stock Bubble About to Burst

May 10th 2007

It appears that the bubble in the Chinese stock market is finally becoming a concern as Goldman Sachs is warning that:

"It is now a critical time for the government to take action and prevent the excess from building up further."

Here are some interesting factoids about the Chinese stock market:

* The total value of all stocks on the Shanghai Exchange exceeds the value of all other Asian stock exchanges combined -- including Japan, the second largest stock exchange in the world.

* The Shanghai Index has quadrupled in the last 22 months.

* PE Ratios are in the 40-50 range.

* Goldman Sachs economist Hong Liang said new stock account openings in the month of April totaled 4.79 million, exceeding those of 2005 and 2006 put together. About 17% of total accounts were opened in the past four months.

* Beijing is aware of the risks, and over the weekend, Gov. Zhou Xiaochuan of the People's Bank of China told reporters that he, too, is concerned about a possible bubble forming in the stock market.

If it were possible to let the air out of a bubble slowly, of course that would be the right course of action. However, at this stage of overvaluation, that's not possible. Probably the only way the government could prevent a crash is to shut the market down completely for some period of time (say, a few years). That isn't really practical and would likely be a cure worse than the disease. There's really nothing good that can come out of the situation, so just expect a crash sooner or later.

The last time the Shanghai market had a 10% correction in February, it quickly pulled the rest of the stock markets around the world down with it. Since then, just 3 months later, Shanghai is now 33% above the level it reached before that correction, after having pulled stocks higher along with it worldwide. No doubt, a much large correction will happen this time and it will have a much stronger impact on the rest of the planet's stock markets. In fact, it may have already started. And, it will come at the worst possible time for the US stock market, which has been pushed to an extreme of overvaluation by Yen-carry loans to fund private-equity buyouts of public companies and massive share buybacks by corporations.

The US market fell sharply Thursday. More troubling was the fact that option speculators bought call options on the dip. Normally, option specs buy puts on dips because they expect the market to continue down. Only very rarely are they so bullish as to actually buy calls, expecting the market to immediately turn around and rally to a new high before those calls lose a substantial amount of value (options are a wasting asset which decay with every tick of the clock and if a market doesn't move quickly in the "right" direction, they fall in value). In fact, we can only recall one other time when the option speculators bought calls on a dip. That dip was the one which followed the absolute high in the S&P 500 Index in March 2000. If the market is able to rally back here to a new high -- and we certainly wouldn't be surprised by such behavior -- it would indicate that the top being built now is a larger degree top than even 2000. And, of course, we know that last top was followed by an 80% decline in the NASDAQ.

If this doesn't sound like a bubble or at least one forming I don't know what does.

 

[explod]

The party ain't over yet


China Bubble Talk: It's All Relative
Bespoke Investment Group(USA)
14 May 2007

With the Shanghai Stock Exchange Index eclipsing yet another millennial mark over the last week, it seems as though there has been a pickup in the number of articles calling China's stock market a bubble with out of control valuations.

While we have already made the comparison of China's market now to the Nasdaq in the late 1990s, another comparison between the two indices shows that China's 'Bubble' may not be so large after all. Comparing the current valuations of both markets shows that the trailing P/E ratio for the Shanghai Stock Exchange is 42.63 with a dividend yield of 0.5%. The Nasdaq is not much cheaper. Its trailing P/E ratio is 38.32 with a dividend yield of 0.6%, and until late April, it had a higher P/E ratio.

If we add in the growth rate of each market's underlying economy, we see that China has much faster growth, which justifies some sort of premium to the slow growing US economy. According to the most recent data, China grew at an 11.1% rate, while growth in the US is a more paltry 2.1%. While it is nearly impossible for someone to make the argument that China is cheap at current levels, the mere fact that is has gone up so much so fast is not in itself enough to warrant the 'Bubble' tag.

In recent times the major part of China's growth has been internal industrialisation and to some degree manufactured exports. The US growth on the other hand has been due in large part by cheap refinanced housing and since that sector fell off due to rising rates, the business generated by the war effort. In addition some comentators are saying that the US growth numbers may be a bit rubbery and when this penny drops with the US dollar we will be running for our lives.

A text on the subject "Crash Proof: How to Profit From the Coming Economic Collapse" Schiff, Peter D. 2007 Schiff and his Father before him are long time Wall Street stock brokers, ....well worth a read IMHO

 

[constable]

All i can say on a practical level is that a billion people in china are not going to go away and their demand for goods and services and a western lifestyle will far surpass the short term outlook the doomsdayers are hoping for. India's the same story. Does anyone really think these billions of people are going to stop striving for a better living because someone 20000kms away thinks the us housing market is being devalued? I doubt it!
All the historical graph comparisons so far have shown share prices keeping up with earnings ( unless they havent been convienantly weighted!) and the only concern is the shanghai exchange which is asia's casino royale.
I think the pertinent question is why are some people looking for an excuse for markets to fail.
A. possibly because its in their self destructive nature.

 

[explod]

All i can say on a practical level is that a billion people in china are not going to go away and their demand for goods and services and a western lifestyle will far surpass the short term outlook the doomsdayers are hoping for. India's the same story. Does anyone really think these billions of people are going to stop striving for a better living because someone 20000kms away thinks the us housing market is being devalued? I doubt it!
All the historical graph comparisons so far have shown share prices keeping up with earnings ( unless they havent been convienantly weighted!) and the only concern is the shanghai exchange which is asia's casino royale.
I think the pertinent question is why are some people looking for an excuse for markets to fail.
A. possibly because its in their self destructive nature.

Exactly and what Schiff advises US investors to do is to invest directly in these new markets. There will be a bad bump but with our resources we will ride things out fine

 

[CanOz]

All i can say on a practical level is that a billion people in china are not going to go away and their demand for goods and services and a western lifestyle will far surpass the short term outlook the doomsdayers are hoping for. India's the same story. Does anyone really think these billions of people are going to stop striving for a better living because someone 20000kms away thinks the us housing market is being devalued? I doubt it!
All the historical graph comparisons so far have shown share prices keeping up with earnings ( unless they havent been convienantly weighted!) and the only concern is the shanghai exchange which is asia's casino royale.
I think the pertinent question is why are some people looking for an excuse for markets to fail.
A. possibly because its in their self destructive nature.

Pull up a list of the 21 indexes around the world. Now pull up each chart.

What do you see? Nearly everyone i have is at the same point, and most are rolling over in overbought territory. I think nearly 2/3s have just crossed over on the thier MACD...not that that means everything. I'd say 1/3 are at D.Day time, against support. Interesting times for sure, all these indexes moving together.

This week will tell whether or not we can continue up for another leg, or we take the hit and go lower before...who knows what.

Why do we care? Because some of us like to be prepared, to know that we were right being cautious, and that our signals we correct.

Irregardless of the BRIC economies continuing growth, business cycles ebb and flow, and we're due for an ebb! Some say over due. Only due to the excess liquidity are we even extending this overbought situation.

Cheers,

 

[nizar]

Here Mr and Mrs Farken here!!

Huh

 

[Uncle Festivus]

All i can say on a practical level is that a billion people in china are not going to go away and their demand for goods and services and a western lifestyle will far surpass the short term outlook the doomsdayers are hoping for. India's the same story. Does anyone really think these billions of people are going to stop striving for a better living because someone 20000kms away thinks the us housing market is being devalued? I doubt it!
All the historical graph comparisons so far have shown share prices keeping up with earnings ( unless they havent been convienantly weighted!) and the only concern is the shanghai exchange which is asia's casino royale.
I think the pertinent question is why are some people looking for an excuse for markets to fail.
A. possibly because its in their self destructive nature.

I don't think anyones hoping for a crash but the facts are there & it doesn't look good. Self destructive nature? Maybe from the other perspective it is to be blissfully ignorant of the facts at your peril.
As for a billion Chinese or Indians all buying widgets - if the average wage is about $5k, and the word is that a sizable proportion of the population is 'investing' all they have in the stockmarket, firstly, what's left for consuming other goods and secondly what happens if there is a bigger correction to that last March?.
A billion Chinese who have just lost all their savings won't be buying much for a while, and be doubly wary about investing in the stock market again.
It remains to be seen if it eventuates, but if it does then be prepared, that's all.

 

[noirua]

The Chinese Government will try relaxing laws to allow investment in foreign companies; The move up by the Hong Kong market has signalled this.

Many small Chinese stocks and others in Asia, including some Aussie stocks, will and may have become the equivalent of dotcom gambles that will collapse near to zero. WHEN? All that matters is that you are out of the sector before it does collapse and of course, no one knows when, it's all a guess.

 

[Temjin]

It remains to be seen if it eventuates, but if it does then be prepared, that's all.

Pretty summed up what everyone investors should do.

Understand the big pictures out there and be prepared for it.

My biggest concern remains that when retail investors like street shoe cleaning boys, borrow money to invest in the stock market, then it's a huge warning sign that the market is no longer "sane".

Remember the recent rapid rise in the Chinese share market is largely driven by credits from people borrowing through their mortgage. There will eventually be a limit on how much more they can borrow and invest at this rate.

Those who believe the chinese market will continue to rise AT THIS RATE because of whatever "fundamental" reasons are totally blinded by the facts and by their own greed and other personal biases.