Yesterday the stock markets in China fell very sharply. 2.7% in Shanghai, 4% in Shenzhen.
I saw this headlines on the AFP : China shares lead global retreat as traders worry of impact of softer US recovery.
Two days ago, the US stock indices hit 4 year highs. Yesterday, according to the author investors and traders in China sold Chinese stocks worried about the slowdown in USA. This explanation just makes no sense. Why are Chinese stocks being sold and US stocks are hitting 4 year highs when there is a slowdown in USA? Shouldn't US stocks be sold down instead?
China will see growth upwards of 7.5%, Europe is in recession and US will do about 2-3% growth which is good for a developed country. The stock market in Europe which is in recession outperformed the Chinese market for this year - they are in recession and China is still one of the fastest growing economy on the planet.
Some people say that the Chinese markets are down because it is growing slower than expected so it is due to disappointment over growth. However, those who invested in China when it was growing faster than expected 8% have lost money in the past 3 years. Basically the stock market can be down, up or sideways ...regardless of what the economy is doing. But pundits love to make sense of day to day market moves using explanations that revolves around the economy. While it is true, that markets do fall when economies go into recession - it also rise and fall for reasons completely disconnected from the economy. Investors alternate between minor euphoria and minor depression on a weekly basis.
3 weeks ago when the Chinese market were doing better, the Shanghai index had 7 weeks of straight gains in a row on 2 March 2012 and was at a 15 week high with a sharp rise on that day of 2%[China Shares End At 15-Week High; Shanghai Up 0.8% On Week] if you read reports on that day, you would think that everything is going smoothly in China, the economy is slower but still growing moderately, monetary policy is easing, housing market is recovering, ...its basically all systems go. 2 weeks later, analyst write that it is in a hard landing[JP Morgan analyst] and that view too hold and that led investors selling their stocks...this selling cascaded into a mini panic yesterday.
In the midst of noisy economic data, fast changing views of pundits on the media and stomach wrenching swings on the stock market, it becomes hard to think clearly about what is really going on and invest wisely. Much of the moves are the result of speculative trading activity pushing prices around for short term gains and little to do with big shift in the underlying economy. A lot of major trends in the market has to do with liquidity rather than the economy.
China has the tightest monetary policy in the world. I wrote in a previous posting that the Chinese economy has numerous problems but the govt has plenty of bullets to steer it. Just a hint that the Chinese authority is ready to loosen monetary policy will remind investors to look forward to more easing and not economic figures that are backward looking. Forgive me if I'm wrong but I think the sharp fall on Wednesday is just a mirror image of the spike on 2 March 2012 when investors became too euphoric....now they are too pessimistc (and can only feel better?) so we should see this as a bottom (or close to the bottom) rather than a precipitous drop to the abyss for the Chinese markets.
Before I forget and sign off, remember I'm not a professional in the financial sector so take what I say with a pinch of salt. It is just my personal thoughts and I can be wrong.
Chinese shares lead global retreat as traders worry of impact of softer US economic recovery
Mainland Chinese shares saw their biggest loss in almost four months following a run of disappointing U.S. economic figures, with investors worrying that weak U.S. consumer demand could add to the contraction already being experienced by Chinese manufacturers.
“Concerns about a slowdown in the Chinese economy are continuing to depress the Shanghai Composite,” said Neil MacKinnon, global macro strategist at VTB Capital.
U.S. economic indicators have mostly surpassed expectations this year, particularly with regard to the jobs market, and that has supported stocks. An easing in Europe’s debt crisis has also helped, though many investors remained skeptical of claims — as made by Italian Premier Mario Monti this week — that the crisis was almost over.
In recent days, the economic newsflow out of the U.S. has been fairly disappointing. The Conference Board said Tuesday its index of U.S. consumer confidence slipped in March and the Federal Reserve Bank of Richmond, Virginia reported that a measure of regional manufacturing plunged this month.
U.S. durable goods orders for February, due for release later, will be assessed in the context of the country’s recovery. Durable goods are products expected to last at least three years, such as appliances, cars, machinery and airplanes. The consensus in the markets is that they grew by 3 percent in February, following a big 3.7 percent decline in January.
In Europe, the FTSE 100 index of leading British shares was down 0.3 percent at 5,855 while Germany’s DAX fell 0.4 percent to 7,053. The CAC-40 in France was 0.2 percent lower at 3,462.
U.S. shares were poised for a flat opening with both Dow futures and the S&P 500 futures up 0.1 percent.
Elsewhere in Asia, Japan’s Nikkei 225 index dropped 0.7 percent to close at 10,182.57, a day after the benchmark shot to a one-year high. Hong Kong’s Hang Seng ceded 0.8 percent to 20,885.42 and South Korea’s Kospi shed 0.4 percent to 2,031.74.
In the currency markets, the euro remained buoyant as the dollar continued to struggle in the wake of the disappointing U.S. economic news — it was trading 0.3 percent higher at $1.3363.
Oil prices tracked equities lower, with the benchmark New York rate down 90 cents at $106.43 a barrel.