Which market meltdown are you looking out for?
Linda says:
Beware Asian Problems (in the upcoming year of the Rat)
The last week has not been good on Wall Street, but keep an eye out for problems in China. If you are an Australian investor (or have a superannuation fund do the investing for you), every day has been colored in red ink. Not good!!! For the total masochists, or those who are sleeping very poorly, there have been the European and American markets to look at in the middle of the night. The news from there has not been conducive to a good night’s rest!
How previously highly regarded corporations, such as Merrill Lynch and Citigroup, could lose such astounding sums is mind blowing. But while all the attention has been on Wall Street and the sub prime loan shambles, there is a market in our own time zone to keep a close eye on.
The most speculative market in the world is to the north of us, in Shanghai. Whilst foreigners are largely excluded from dabbling in it, the biggest gambling den in China is not in Macau but in the Shanghai Stock market. There are lots of crazy valuations here, for those nostalgic for the Nasdaq at the height of the dot-com boom.
The communist party bosses in Beijing are presiding over a large scale, frenzy of ridiculous prices with shares in some companies selling at 95% more in Shanghai, than shares in the identical company are selling for in Hong Kong. Even the famous Mr Alan Greenspan, has called Shanghai “a Bubble”.
Enthusiastic, ordinary Chinese are mortgaging their houses to participate in the easy, riches of the Shanghai market. The government is worried, and trying to slowly raise interest rates to control inflation and excesses. A 9% fall in Shanghai on February 27th, 2007, triggered losses around the world. This is a market known for rapid movements.
Since a quarter of China’s economy depends on exports to the US, the widely expected American slowdown may complicate the Chinese problems.
Problems in Shanghai are a question of when, rather than if, with direct implications for Australian resource stocks.
