China Focus : The 7 Year High And Biggest 7 Year Weekly Drop
Nice play around 7 as we hit the 7 year high in chinese stocks last week to suffer the biggest 7 year weekly drop this week. And no one is batting an eye lid which makes stocks a highly volatile investment option that is none too comforting for international investors.
That is because 12 month Gains(ONLY) in China > Entire Market Cap of Japan. And if the market has topped US$ 10 trillion, what is a 10% drop ?
Just check out the 30 day hist volatility of the SHCOMP running at 42.72% !, a RED ALERT number that equates to DO NOT TOUCH for folks that understand the meaning of risk.
SHCOMP INDEX 30 DAY HIST VOL % CHART
“mainland markets have become too speculative for international money managers to take part. Swings in the Shanghai gauge over the past 30 days are bigger than every other market worldwide except Greece, according to data compiled by Bloomberg.
“It smells like a bubble, it looks like a bubble, and it walks like a bubble,” Morilla-Giner said in an interview on Bloomberg Television in London. “Steer clear, that is the trade.” http://www.bloomberg.com/news/articles/2015-06-16/china-bubble-debate-turns-to-when-not-if-stocks-will-tumble
Thus, hedge funds have been thriving unlike the connotations of their name (hedge = risk seeking), and it is reported that 5,000 new Chinese themed funds have been launched in less than 3 months which means the trend is likely to continue. http://www.valuewalk.com/2015/06/hedge-funds-china/
Going forward, I extracted this from my friend and sometimes contributor, Zico, and this is what he has to say about the China story and the politics behind situation for the MSCI.
“Whatever the reasons that the MSCI people say about the reasons for excluding the A shares, the “elephant” in the room is worth more than US$10 trillion, at least that is before the current correction which just so happens to coincide with the MSCI announcement. Just for perspective NASDAQ is about US$7 trillion and the NYSE is about US$20 trillion. So how can one not begin to buy into conspiracy theories.”
The other main reasons given for the correction besides the MSCI story – IPOs.
“(Bloomberg) — China’s benchmark money-market rate posted its biggest weekly increase in six months as new share sales and tax payments drained funds from the banking system.
An official with China’s securities regulator was fired and handed to police for investigation of “duty crimes and violation of disciplinary rules” – abuses of power such as insider trading http://www.scmp.com/…/shanghai-shares-regulator-hands-manag…