Online trading

[roddy]

All the radio I listen to ( I pretty much wander around plugged into the radio via my mobile phone) lately seems to have been investment shows trying to go to great lengths to a) convince people already invested that their money is safe, there won't be any kind of crash and they shouldn't panic and B) despite that, please don't put any more money in. It isn't safe and there might be some kind of crash.

Does anyone reckon this might reduce investment in property and hence affect real estate prices? Obviously there have been quite a few measures over the last year or so to that end anyway, in Beijing at least, but surely a lot of this money going into the market would otherwise have bought houses.

[tianjinpete]

The Chinese historically have been poor spenders and good savers – by some accounts, only ~50% of China’s GDP today can be attributed to private consumption, compared with the U.S., where it is around 70% … Now comes a third category of Chinese consumer, the investor … Against the backdrop of torrid growth in speculative investments, it seems that the Chinese consumer is capable of spending money -- on money …

中国的新革命?

[gato]

Does anyone reckon this might reduce investment in property and hence affect real estate prices? Obviously there have been quite a few measures over the last year or so to that end anyway, in Beijing at least, but surely a lot of this money going into the market would otherwise have bought houses.

Real estate prices started to fall in Shanghai in 2005, and maybe not coincidentally the stock market started to rise not too long after.

The Chinese historically have been poor spenders and good savers – by some accounts, only ~50% of China’s GDP today can be attributed to private consumption, compared with the U.S., where it is around 70%

Part of the reason for the high saving rate in China is the huge gap between rich and poor. Rich people spend a smaller portion of their income on daily necessities and therefore generally save/invest a higher percentage of their income.

http://www.washingtonpost.com/wp-dyn/content/article/2005/09/21/AR2005092100727.html

China's income gap widened in the first quarter of the year, with 10 percent of the nation's richest people enjoying 45 percent of the country's wealth, reports said.

China's poorest 10 percent had only 1.4 percent of the nation's wealth, the Xinhua news agency reported, citing a recent survey by the National Bureau of Statistics.

http://www.commondreams.org/views05/1212-20.htm

Top 10 percent of Americans collected 48.5 percent of all reported income in 2005. That is an increase of more than 2 percentage points over the previous year and up from roughly 33 percent in the late 1970s. The peak for this group was 49.3 percent in 1928.

[imron]

Regarding writing off losses, I saw a brochure for a brokerage firm today and basically the more risk you assume, the more profit gets split with you. e.g. if you decide to only take 10% of the risk, then the profits get split 10/90 (in the brokerage's favour). The brochure I saw had several different risk/profit categories, but the minimum it was making was 50% of any deals. Basically they're borrowing money interest free, to play with on the stock exchange.

[cdn_in_bj]

Does anyone reckon this might reduce investment in property and hence affect real estate prices? Obviously there have been quite a few measures over the last year or so to that end anyway, in Beijing at least, but surely a lot of this money going into the market would otherwise have bought houses.

I don't think this is going to have a direct effect on the real estate market. I think that those who want to and are able to buy houses already have - I remember a "statistic" from an issue of That'sBJ Homes from earlier this year which stated that 1 in 10 residents of Beijing owns not one, but more than one property. As discussed earlier in this thread, I believe that a lot of the "new money" going into stocks is from those who can not afford to buy another property (if they have one in the first place) and is money that would otherwise be sitting safely in a savings account, and not going towards another house.

If there is a drop in housing prices in the near future I feel that it will be for other reasons (such as, oversupply and way too high prices). Referring once again to the same issue of That'sBJ Homes, it was stated that the number of purchased but unoccupied houses exceeds the number of new houses currently on the market. I think that long term (20+ years), real estate is a good choice. But in the short term, I feel that prices are already too elevated.

What is interesting to note is that in North America, real estate tends to lag the stock markets. Over here, we seem to be seeing the opposite?

Getting back to stocks, given the amount of new money coming in I think we will continue to see new highs. I think it is quite obvious that these highs are being driven by momentum and not fundamentals. Therefore I consider buying these stocks to be "trading" rather than "investing". Nevertheless, greed gets the best of me and I want in on the action! Perhaps someone can recommend some hot funds?

[tianjinpete]

Imron: Would I be able to see online that brochure, or a similar one?

Gato: All good insights – like everyone else, I’m just trying to piece together the bigger picture …

My goal in opening a brokerage account as a foreigner in China is not to speculate in the Chinese stock markets -- however tempting that might be -- but to gain a foothold so that one day when the yuan is traded more broadly on the Forex, I’ll be in place to trade with (cheaper) yuan instead of dollars … (I believe OTC remains restricted to the interbank market, but someone please correct me if that is not the case) … Here is how I understand the situation:

China’s FX reserves now are at US$1.2 trillion … These reserves largely are held in US Treasuries, and explain China’s interest in a persistently strong dollar, despite U.S. pressure to have the yuan appreciate more quickly … As a result, Chinese monetary policy has been something of a compromise, a “gradual” strengthening of the yuan against the dollar, and last year’s move to uncouple the yuan from the dollar and tie its value to a basket of currencies indirectly linked to the dollar, in-line with a general movement toward the internationalization of the Chinese currency …

Re: money going into investments and not into housing, a key factor in the balancing of the valuation of the yuan and the size of China's reserves is the pace of consumer spending in China … The U.S. side believes that greater consumer spending will bring the U.S./China trade balance into harmony, settle the reserves, encourage fairer market practices, etc., and often argues that the Chinese side should not continue to rely heavily on exports to drive internal growth …

Case in point: Last week the dollar, after a period of steady decline, suddenly strengthened despite a rather mixed forecast for the US economy, in part because US Treasury Secretary Paulson, having just visited China, said he supported “a strong dollar” … The result was a drop in the value of the euro, which last week had reached record highs against the dollar … Nevertheless, the yuan continued to appreciate and now stands at 7.68xx…

The call for a strong dollar is a reminder that the market not only can take a “carrot-and-stick” approach, in which the dollar will stay strong if the Chinese deliver on consumer spending, and, if not, the dollar will decline, and the value of the Chinese reserves will be dramatically reduced -- but also that market interventions can create apparently contradictory states: a stronger dollar and a stronger yuan …

What about the US$1.2 trillion in reserves? … China recently announced the formation of an FX Reserve Management agency … On the Chinese side, Wei Benhua, deputy director of the State Administration of Foreign Exchange said that China’s long-term strategy for managing foreign exchange reserves will not include “speculation to earn short-term gains” … This kind of posturing is remarkable because it is completely at odds with what the average investor is doing on the ground right now in the Chinese stock markets, and because indirectly it gives hope to the ordinary FX trader -- who one day may be able to trade the yuan as the base currency …

[gato]

What about the US$1.2 trillion in reserves? … China recently announced the formation of an FX Reserve Management agency … On the Chinese side, Wei Benhua, deputy director of the State Administration of Foreign Exchange said that China’s long-term strategy for managing foreign exchange reserves will not include “speculation to earn short-term gains”

http://www.atimes.com/atimes/China_Business/ID18Cb02.html

China's trillion-dollar investment blues

By Antoaneta Bezlova

Apr 18, 2007

In March, the government announced its decision to entrust some $200 billion to $300 billion of its reserves in the hands of a new, as yet unnamed investment agency. Analysts suggest that if given enough authority, the new body could deploy hundreds of billions of dollars to acquire financial or strategic assets around the world, particularly in the developing countries of Africa and Latin America.

"China is a big developing country with a huge population but inadequate resources," said Liu Yuhui, an expert at the Finance Research Institute under the Chinese Academy of Social Sciences. "Acquiring oil fields, mines and even arable land could all become viable channels for investing the available funds to help sustain the country's development."

Many officials have hinted that Beijing's new investment vehicle would mirror Temasek Holdings, the Singapore government's investment arm, which manages a huge portfolio of government funds.

[imron]

Would I be able to see online that brochure, or a similar one?

Sorry, I don't have a copy of it, and I don't remember the name of the company.

[cdn_in_bj]

Just wondering if any of you have decided to jump into the game.

If so, would you mind sharing what stocks have you decided to "invest" in?

[flameproof]

The only investment I would classify as "safe bet" is RMB. You can hold RMB as much as possible. It can only go up up up.

The RMB was pegged to the US$ at 8.26 or so for a few years. Now with the new "flexibility" the rate 7.65 ( - and I am SURE it will get higher, and higher! That's a 7% rise with virtually no risk.

As an share investment I think the China market is unsuitable. Accounting standards are random, if any. And biggest issue for me would be the lack of an Options market to decrease risks and increase yield.

You could also go to Macau and "invest" there.

[tianjinpete]

Have to agree with Flameproof, it shouldn't take a Greenspan to tell us that the Chinese market's wallowing in irrational exuberance ... Local newspapers reflect the gallows humor:

儿子: 爹, 股市又涨了!

爸: 千万别叫"爹,"听着像"跌"!

Son: Hey dad, the market's up again!

Dad: Don't say "dad" (diē), sounds like "it's dropping" (diē)!

So I've been paying more attention to the currency markets, where the USD improved slightly against the RMB this week:

SHANGHAI (Dow Jones)--China's yuan was slightly lower against the U.S. dollar Friday, taking a breather after Thursday's record close, but traders said the local currency will likely resume its rise next week in line with its long-term upward momentum.

[tianjinpete]

"Though the large rise in Chinese equities this year has often be attributed to the excess of liquidity washing through the bank account of domestic investors, Class A shares, the domestic version, have only risen 53% year to date. Class B shares, the foreigner's preserve, have rocketed 125% higher. Though the increase in the deposit interest rate and the reserve requirements by the PBOC were aimed primarily at domestic investors, it seems those domestic investors are not yet concerned. It is the foreigners who are most avidly speculating and they were largely unaffected by the PBOC moves.

On Wednesday Alan Greenspan the former chief of the American Federal Reserve Bank warned of a possible "dramatic contraction" in Chinese equities. The market immediately recoiled but the two share classes reacted very differently. Class B shares, owned by non citizens, fell 7.9%, but A class shares, the citizen variety, were down only 1.3%. Though both classes recovered the following day, B shares rising 8.7% the disparate reaction was instructive; or perhaps not. While Mr. Greenspan is an iconic figure in western finance he is unknown to most domestic Chinese investors; certainly his pronouncements have no market weight in the Middle Kingdom. "

Maybe I should revisit those Class B shares ...

[mr.stinky]

it's hard to say whether the chinese market is incredibly overpriced now, or was it

incredibly underpriced last year, and only now reaching correct valuations? or maybe

has a long way to rise?

most common criticism of the market says stocks are overvalued relative to earnings,

at a ratio of 50:1, whereas western stock markets are usually around 30:1

(except in bubble years, of course).

is there enough market history to tell us what the correct price to earnings ratio should

be in china? are we really comparing the same things? should we be looking at past

earnings, present earnings, or future earnings? is that ratio, useful in established

markets, a true indicator with an economy consistantly growing at about 10% annually?

with many chinese corporations showing 100%+ rise in earnings year over year, maybe

we're not overpriced after all.

[tianjinpete]

新华社北京 2007年 5月 30日

证券交易印花税税率调至3%

为进一步促进证券市场的健康发展, 经国务院批准, 财政部决定从

2007年5月30日起, 调整证券(股票)交易印花税税率, 由现行1%调整为

3%...

Last night’s surprise increase of the Stamp Tax on securities trading -- nominally intended to keep the markets "healthy" -- has had/will have implications:

“China’s Ministry of Finance surprised the markets by announcing a rise on stamp tax on securities trading to three yuan per thousand yuan of share values. The statement was released at midnight trough the official Xinhua news agency but the full market impact should only be felt when the Chinese stock market opens tomorrow at 9:30AM local time. Yet, the consequences of the release were already seen in the U.S. stock market. The Dow Jones Industrial erased earlier gains and fell almost 100 points from the intraday high once traders had a February 27th Déjà vu. In the last two decades, an increase in stamp duty has always caused a plunge in the Chinese stock market over the following weeks. Today’s surprise announcement on higher taxes for securities trading could be the beginning of the end for the Chinese stock market bubble and have serious implications for financial markets across the world. “

[Dow Jones] China's effort to calm A share market by tripling stamp duty could result in a 15% to 20% correction, says Marshall Gittler, chief Asian strategist at Deutsche Bank Private Wealth Management; notes if markets don't budge, government could levy further hikes in bank deposit rates, introduce more stamp tax hikes or even trot out capital gains tax. Expects a correction rather than bear market as investors already expected action by authorities to cool market. But adds if higher duty creates a big 40% to 50% correction, government could come to rescue by reversing stamp hike; says stamp duty hike "could be particularly effective because it is a transaction tax, and the turnover on the A-share market is quite high". Shanghai composite last down 1.7% at 4261.40.(EGS)

mr. S: all good questions, if I had any answers, I might not have to teach for a living, hehe ...

[gato]

The Shanghai stock index is down 5% this morning. The stamp tax itself is small, just 3 yuan for every 1000 yuan of stock traded, but I suppose the psychological shock is much bigger.

[tianjinpete]

Good point ... I suppose that in a country where there is no capital gains tax -- wait a second, no capital gains tax? ...

[cdn_in_bj]

Just to keep this topic alive, I came across the following article:

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aLPQPChUXUsw

Meat prices surged 26.5 percent, helping to push inflation above the target and adding to concern that the world's fastest- growing major economy may overheat. Inflation is outpacing returns on bank deposits, encouraging households to put money into a stock market that the government is trying to cool.

Household deposits fell by 278.4 billion yuan ($36.4 billion) in May, the central bank said today. That adds to evidence that individuals are shifting money into the stock market from banks. Yuan deposits dropped 167.4 billion yuan in April, the first decline since February 2003.

``The stock market is like the place for legal gambling in China,'' said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. ``It's getting dangerous now, with so many people speculating on it that a collapse could lead to social problems.''

``The fundamental solution to food-price inflation is planting more grain and growing more pigs, so we expect to see the supply reaction from the countryside later on in the year,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.

I think that an overheated stock market as well as inflation are both very big concerns, even for foreign residents. Does anyone here feel the same way?

[ipsi()]

Accounting standards are random, if any.

with many chinese corporations showing 100%+ rise in earnings year over year, maybe we're not overpriced after all.

Those two quotes have me thinking... China obviously has it's own set of standards, but how strongly are they enforced? Are the stock exchange companies required to be audited every so often? And how seperate is the ownership of the companies and the auditors (i.e. I believe most companies are state-owned, correct? Does this mean that the Auditors are state-owned as well?).

Most of the big accounting scandles that I can recall come from a lack of separation between the auditors and they company they were auditing.