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Reply #37: Whats Behind the Euphoria in Shanghai Red-Chips? [View All]

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Ghost Dog Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Apr-25-07 10:14 AM
Response to Reply #33


And what happens in Shanghai is of great interest to global commodity and stock market operators, because China is the locomotive of global economic growth, and its staggering factory output is matched by its demand for industrial commodities. Chinas share of global demand growth for commodities between 2002 and 2005 was: 51% for copper, 48% for aluminum, 87% for nickel, 54% for steel, 86% for tin, 113% for zinc, and 30% for crude oil.


At current growth rates, Chinas economy would surpass the US in 25-years. But Chinese leaders worry that stiff US tariffs on Chinese imports could derail the worlds fastest growing economy, and burst the Shanghai stock market bubble. When push comes to shove with veto proof trade legislation in the second half of this year, Beijing would probably relent and allow the yuan to climb higher at a faster rate.

But until the political posturing turns into action, the Shanghai bubble could try to match the last great Asian stock market bubble the Nikkei-225 of 1986-89. Chinese retail investors opened more than one million new trading accounts during the third week of April, bringing the total for the first four months of 2007 to more than 10 million. This figure is greater than that of the previous four years combined, even as signs of a bubble are getting clearer by the day. The Shanghai stock index has risen 50% so far this year, after tacking on a 130% gain in 2006.

Chinese broker, Citic Securities, has tripled in value since early November, and is a good barometer of speculative sentiment in China. Citic Securities, Shanghais first listed broker, said its net profit in the first quarter of 2007 rose more than 12 times from the same period a year earlier. Revenue for the three months ended March 31st, was close to that for all of 2006.

Speculative fever is running very high in China, and its not wise to stand in the way of an Asian stampede. The Shanghai Securities News said the number of new brokerage accounts established in a single day hit a record 282,000 on April 19th, the day of the markets 7.2% plunge, bringing total accounts to over 90 million. This is a strong signal that market setbacks are not scaring Chinese traders away.

And another PBoC interest rate hike might not scare speculators, because it would only adjust real interest rates from being sharply negative. Traders do not expect a sudden jump by the Chinese yuan, and believe authorities will hold appreciation for the rest of the year to around 3% to avoid hurting Chinas export sector.

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