It’s a tricky task trying to write about how much the Shanghai Composite has gone up or down in a day if one is typing away before the market has closed for it can turn around any chosen number of percentage points either way in as many minutes.
It closed on Tuesday at 3,748.16 points. At the time of writing, it had traded so far in a range from a high of 3,786.65 points all the way down to a low of 3,558.45 and is as at now around 3,650 points. Rout and rally are always very close together.
In this game, it should never be forgotten that the Shanghai and the Shenzhen Composites are still up respectively by 13¼% and 51% year-to-date and by an annualised 63.2% and 74.8%. That’s a bucket load of money, with or without the recent devaluations which is fine and dandy for longer-term investors, but pretty lethal for SixPack Wei who has been chasing the momentum and who has had his rear end handed to him on a plate.
It might not feel that way but in the past month Shanghai has traded in a much tighter range than the hype would have one believe. The high and low for the month were made in just three trading days between July 24 and July 28 when it hit 4,184.45 points at one end and 3,537.35 at the other end. This represents a 15½% swing but for all of the rest of the period, yesterday and today included, the index has traded within that range.
Proper technical traders will surely have noted that for most of today it looked like becoming an out-side down day which would have called for the gap to the up-side to be closed, not least of all as it looked as though the market was going to close higher than where it opened. In the event, and heavens know how, it closed that gap before anyone had gone home. As I said, Chinese equity markets turn on anything.
That’s all a lot of fun but at the end of the day, Western market observers have to accept that whatever rules apply to our markets and to our investor behaviour have little to no validity in a Chinese context. I alluded some time ago to the James Clavell 1966 novel “Noble House” and how Western traders came unstuck in Hong Kong when faced with the Chinese gambling culture. The number of nods and winks I got back from readers was astonishing.
My great friend Alex “Moff” Moffatt of Joseph Palmer & Sons in Melbourne has done his own work on the subject and never ceases to remind people not to look for justification where there isn’t any. We keep reading about how growth in China is slowing, but as Alex keenly pointed out, nominal Chinese GDP in 2006 was US$2.268trn. By 2010 that figure had risen to US$5.059trn and is forecast to hit US$10.360trn this year.
Thus, he quite sensibly argues that nailing Chinese GDP growth in percentage points is meaningless when the basis has expanded by around 4½ times in just nine years. He does so while launching a broadside at teenage scribblers with degrees in maths and three years’ experience in the research department. Over the same period, the US economy has grown by around 26% in current dollars.
What remains is a miserable appreciation that the West has, believing that it can apply its measures to “foreign parts”. As little as rules which apply to investing in the S&P 500 apply to punting the Shanghai Composite, so trying to fit Syria or Iraq into Western political models is doomed to failure.
Closer to home, such models already have no validity in Russia. Until the likes of the State Department and the CIA grasp that Moscow isn’t full of people just like them who just happen to speak Russian, no progress can be made. Seeing Vladimir “put-me-in” Putin going wreck-diving in a mini-submarine was okay for most, but that he did it in the Crimea caused all manner of comments.
Fair enough, he didn’t ask for Washington’s and Brussels’ permission to declare Crimea to be Russian rather than Ukrainian, but whoever believes that the latter has a greater claim over the area than the former has either not studied the history or is plain naive.
I recall when “globalisation” first became the be-all and end-all of trade. It was, of course, fostered by Washington which loved the idea of opening all markets to US goods. What it failed to appreciate was that it also opened the US to everybody else’s stuff and, as noted above, China has grown significantly faster on the back of global trade than has the US. Exporting US political values which seem to assume that giving people a little ballot paper once every four years leads to prosperity, health and happiness has been even less successful.
Globalisation, that wonderful all-healing medicinal compound, also affects the big capital flows which now seems to have led to emerging markets being on the ropes, but that is a theme for another day. The ongoing withdrawal of cash from the emergers should support Western asset prices – the money has to go somewhere – and, in my humble opinion, will do much to prevent the autumn crash which so many fear.
Mind you, I can’t remember an October since 1987 when an identical collapse of equity prices has not been forecast by someone or other. Sooner or later they will surely be right but I can’t see 2015 being the year, Fed tightening or no Fed tightening.
