Main reference: Blogger piece in Sinafinance
PERHAPS KEEP the champagne on ice, because here’s why China shares might fall some 10% soon.
After shedding value for most of 2012 to fall to a historically-significant level of 1,949 points in December, the benchmark Shanghai Composite Index began a mini bull run to reach the 2,432 level in early February, an impressive 20% increase in just two short months.
With weak export markets, China is hoping its own people begin opening their wallets. NextInsight file photoHowever, since the nine-day Chinese New Year market holiday, Shanghai- and Shenzhen-listed Chinese A-shares have been sputtering.
The index is currently at around 2,300 points.
And while there are no glaring signs pointing downward, there aren't any pointing in the other direction as the current Year of the Snake ages.
In fact, there is the danger that a near-term drop of around 200 points – or nearly 10% -- could be on the horizon given a lack of buoying news.
The pre-holiday mirth that was the 20% price recovery in China’s capital markets earlier this year followed by the nearly two-month long stagnation has left many investors gun shy about getting too exhilarated about a few consecutive days of rises.
Most are still recovering from the double whammy of enduring a mainly bearish 2012 only to be lured back into the market at the 1,949 point late last year to ride a surge that seemed to peter out tantalizingly early.
This rollercoaster ride for A-share holders has spooked a lot of retail investors into other more reliable-return options for growing their capital with the phenomenon clearly evident in lackluster daily turnover rates of late.
But what is most surprising perhaps is how many were so quickly lured back into the market in early December, and how many were shocked when the two-month party was over.
The market was just coquettish long enough to attract more suitors, and when it could no longer keep up the charade, it quickly cashed in its chips and left countless lonely gentlemen callers dancing alone on the parquet floors.
Despite analyst utterances to the contrary, there is little to suggest that fundamental changes for the better are occurring in the EU or US of late.
China shares are looking to get back on track Source: Yahoo
In the former, the regional body is in a struggle with Cyprus on loan repayments, with the possibility of a 10% surcharge on all savings account holders on the divided island nation not entirely out of the realm of possibility.
Such drastic measures, even if they do not come to fruition, are hardly harbingers of better times ahead for the region.
And in the US, a reelected and emboldened Obama Administration seems even less interested in long-term solutions to the budgetary woes hamstringing the world’s largest economy, but instead seems happy to continue pointing the finger at a weakened but equally intransigent opposition party.
If China was indeed making good on its goal of reducing overreliance on anemic external demand and boosting domestic sales instead, problems overseas like the Cyprian shock would not shake shares in Shanghai and Shenzhen.
But they still do, and that is symptomatic of an economy still far too dependent on investment and exports.
And with most experts seemingly in agreement that the stated goal of 7.5% GDP growth for the world’s second largest economy this year should be considered a “positive” – even though it is far below the 10-year average for the PRC – then there is little cause for near-term cheer.
Instead, investors should be prepared for the possibility of a 10% A-share correction, give or take, sooner rather than later.
Finally, the months-long moratorium on IPOs in China should say a thing or two about how bullish the market regulator is on stocks these days.
In summary, a correction may be looming not so much because of bad news but because of an utter lack of truly good news.
