Panic wipes £2tn off Chinese shares

http://www.theguardian.com/business/2015/jul/03/chinas-stock-market-slump-continues

by danmaz74 • 11 years ago

61 22 11 years ago

tiatia• 11 years ago

Well, what goes up can go down. Considering the volatility of this stockmarket, this is not very surprising. Two things:

1. Seeing poor people (fruit street traders etc.) trading in their cell phone is not necessary a healthy sign.

2. I am not sure that Chinese mentality and stockmarket go well together. Seeing investors (stock holders) that you don't know as partners and giving money to them via dividends will sound absurd for many Chinese.

tim3332• 11 years ago

The government should have been trying to influence prices downwards when they were at about 2 times the fair value of the assets, not prop them up when they are at 10 times. Overpriced bubbles just end up with money transferred from ordinary people into dubious schemes and are an inefficient use of capital. See the 1999 dot com bubble, the 2006 US house price bubble and the like.

You end up with a bunch of money pissed away in pets.com like ventures or thousands of houses/flats built somewhere where there isn't the demand. (I've got one of the latter as a result of my own dumb speculation).

danmaz742• 11 years ago

If only we could know what the "fair value" of an asset is...

brobinson3• 11 years ago

China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.

digi_owl• 11 years ago

If it is shares, consider the total value of company holdings if it was all sold off that day.

if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.

durkie• 11 years ago

for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.

tim3332• 11 years ago

True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.

allworknoplay• 11 years ago

Seriously, "wiped value" -> "price corrected"

paulpauper• 11 years ago

I wonder if this has anything to do with prices being grotesquely overextended? It's not normal for a market to double in less than a year when inflation is otherwise low.

mkempe• 11 years ago

Alternative explanation: the growth of money manifests itself by inflating some prices before others, e.g. the stock market before groceries. After all, money must flow through the system before price levels reach an equilibrium that matches the new total amount of money. And if the State keeps printing more money, there is no "equilibrium", just unstable price signals until the next crash or major change in the rate of money growth.

howlingfantods2• 11 years ago

It's interesting to read the Chinese social media reactions to the stock market crash. In the beginning it was mostly hopeful mixed with a bit of schadenfreude. Then it was resigned with a lot of morbid jokes.

Now, there is a degree of anger you didn't see before. There is even a streak of nationalism with some rumors claiming western forces are conspiring to bring down the Chinese market. Some social media posts are literally "buy stocks if you love our motherland."

fredkbloggs2• 11 years ago

In September 2001 (and again in 2008) it was "go shopping for America!" Cynically manipulative nationalism knows no borders, sadly.

SilasX• 11 years ago

Warren Buffet in 2008 sold the line "Buy American [stocks]. I am."

(That gave him enough leeway to potentially insist he meant "I am American" not "I am buying American stocks"...)

Panic wipes £2tn off Chinese shares

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