Chinese shares continue powerful ascent
Red hot mainland Chinese shares soared again today, propelling the Shanghai Composite Index up 2.7% (+39% YTD) to its highest level since late 2007."Funds of various mandates are underweight the market in a range of 140 600bp, and thus have marked benchmark stress and a need to raise exposure to China," Goldman Sachs said in a note, citing EPFR data. "With active fund managers still underexposed to the market, the rally isn’t over."ETFs: FXI, ASHR, EWH, CAF, YINN, KWEB, PGJ, GXC, FXP, HAO, YANG, TAO, CHIX, PEK, CHIQ, CQQQ, MCHI, QQQC, XPP, YAO, ASHS, YXI, CN, CHXF, FCA, CHNA, CNXT, CHII, ECNS, CHIE, EWHS, CHIM, KBA, KFYP, FCHI, FHK, AFTY
By golly, I think everyone should jump in there and buy up a boat load of Chinese stocks. No, not short just yet. The tulips are too enticing at the moment. The moment of absolute fever pitch just a modest drum beat a faint, muffled sound off in the distance. Sort of like an early evening rumble from miles away only your dog is frightened. But then, he doesn’t know any better does he?
1) FXI depicted one of the strongest bearish ‘abandoned baby to the top’ on Apr 15 17. Most western technical indicators including RSI MACD are convergent, yet A/D chart ciontinued to spike when institution continued to scoop up this ETF at more attractive price.
2) FXI hit an interim peak at $52.56 on Apr 16 pulled back to a low on Apr 17, quickly rebounded to another peak at $52.41 on Apr 22. FXI dropped to a higher low of $51.56. A strongly bullish ‘ascending triangle’ pattern is suspected. This pattern is confirmed when the recent peak of roughly $52.5 is crushed.
3) the start of the pattern could began on Apr 27 at $43.27. Total surge to $52.5 is $9.23 and target price from breakout $52.5 + $9.23 or $61.73.
4) I would be more conservatively to assume the ascending triangle began on Apr 07 at $46.7. The modest target price is reduced to $58.3. The upside from current price of $52.6 is a mere 10.8%, this could be leveraged with call options.
Institutions are beginning to turn bullish that include GS and Barron’s. As the investment public too is getting bullish, it is time to be fearful when I would trim my holdings gradually.
Fellow SA readers are reminded to conduct their own diligence prior to engaging in any investment activities.
The trailing PE of the Hang Seng Index stock is in the order of 13. The salary in HK has risen some 40% in the past five years. The city boasts simple tax law and low tax rate. HSBC made the bulk of money from HK/China yet moved its headquarter to London prior to the handover of HK to China in July ’97. HSBC was concerned about China. This has turned out to be a poor decision and HSBC, of lately, is showing a strong desire to return to HK.
Institutions have all their metrics and whether they want to share them with the investment public free remain a controversial subject.
On Mar 19 ‘Morgan Stanley issued a report citing HSI will surge to 50,000 before the end of ’15. Despite spiking substantially in past few months, HSI closed earlier today (Apr 27) at 28,433.59.
Is it possible that institutions have fully loaded up shares in HK and are ready to distribute?
China has both bank reserve ratio and interest rates which are among the highest in the major economies. When asked, during the recent Biao Forum, if China would implement its version of QE, the head of central bank said there were rooms to cut both and that if the economy could not be revived to a satisfactory level, QE could be considered. China’s all out effort and determination to grow economy is clear, IMHO.
A/D line for FXI continues to climb today and institutions are apparently still stocking.
"The trailing PE of the Hang Seng Index stock is in the order of 13."
Translation: The free market couldn’t figure out the inherent value of the Hang Seng Index, so it is perfectly reasonable for the central government of Beijing to goose the stock market to a more "reasonable" valuation.
They’re doing it in the US, so China is doing what it does best copy the US. Why should the US market continue to levitate to the sky and not the Chinese? What’s good for the goose.
Everyone believes they can now manipulate monetary policy to achieve the wealth effect. The wealthy in the US have been massive beneficiaries of Fed manipulation during the last 12 or so years, and nothing is more pleasing to a desperate central government than a scheme to further enrich the already super rich, while kicking the can down the road still again for true progressive change.
It works like a charm until it doesn’t. The US market is likely in a bubble, with a gutted middle class picking up the tab for mindless credit expansion, and the Chinese market is a manipulated joke. This will end badly in the US, just as it will end badly in China, for many, not all.
Not for the wealthy, the bankers and the politicians, but for the forgotten, unwashed masses.
The rally isn’t over because funds have to chase the Chinese market? Funniest thing I’ve ever read. No, there is no secular upturn in the Chinese economy, the opposite. Things are falling apart and the government is desperate to get some money into the hands of the oppressed before they figure out they really are oppressed.
It is a temporary bump, QE with Chinese Characteristics, and the result will be wealthier insiders, banks and brokers, a very few lucky retail who timed it perfectly, and the masses again left holding the bag with many life savings wiped away, just like last time. Like real estate, the stock market will deflate when the tide recedes and the last shot has been thrown back. Creative destruction corporatocracy style.
One day, if we’re lucky, the central government will recede with it. It would be nice if we could also wash clean the amoral, hypocritical, corporate filth we must now call the US government.
When US began its QE, FED had been criticized for interfering with the economy that should be allowed to be determined by market forces only. Prior to passing of TARP, US financial system was a few hours from total melt down, as alleged by Warren Buffett.
I used to compare QE to the use of anti biotics. Whereas parents may be concerned about the bad side effects, they have little options as further delay of use of the drug may mean death to their child. QE has however become a standard prescription and has been used as the ubiquitous cure to all economic problems globally. I am concerned the world may end up with the burst of a bubble and the repercussion is the worst ever. Trying to predict when the bubble will burst will be is virtually impossible and personally, I would ‘make hay while the sun shines’.
The speed at which the wealthy people can generate even more wealth appear to outpace ordinary folks and the pace has appeared to quicken. In his classic ‘capitalism in the twenty first century’, economist Thomas Piketty attributes such phenomenom to the difference of ‘R’ and ‘G’. Piketty alleges the rich can grow their wealth from RETURN of investments that could be 15% a year while ordinary folks earn compensation that are tied to GDP growth that is typically in single digits that include China and India.
When A share index hit 6,000 prior to the last recession, trailing PE was 60. That kind of PE may be construed as an excess until one realizes PE of the Japanese stock market was in triple digits back in 1980s. Back then Japan claimed they would scoop up all the best properties in Manhattan. Japan did buy the Rockefella Center at $1.4B but sold the same later at $0.4B. This is a great example of investor’s sin of ‘buy high sell low’.
On March 10 2000, Nasdaq saw a peak of 5048 when a lot of dot com stocks did not even make money. TWTR had its IPO in late ’13 and has been very consistent in its performance by continuing to lose money every quarter, investors continue to cherish the stock though and apparently has not become more risk aversive after so badly burnt fifteen years ago.