Shares in mainland China dropped 5.6% yesterday. ( according to WSJ) To put that in context that would be equivalent to a 690 point drop in the DOW. 690 POINTS. Could you imagine what the fed would be doing if we had a day like that???? What set it off according to the journal? Continued bad news in the US ( note that stocks in the US barely moved yesterday) including a poor earnings report by GE, as well as a year over year 16.3% increase in money supply. Excuse me, but can you spell inflation? To put that in even greater context the “Shanghai Composite Index is down 46% from the high reached last October, and down 37% so far this year.” That makes our down 8% ish market look like a blessing.
Now the real question is why? Why are Chinese equities performing so poorly given that there economy is so much stronger than ours? I have not read about a Chinese Sub-prime problem, nor have I read about a credit market meltdown. In fact, I am not sure they really even have any mortgages over there to speak of, and certainly not securitized ones. I seem to recall that people in China actually do save up to buy homes, which for many takes a lifetime. So why? The most common answer I have gotten is because there was a speculative bubble in Chinese equities. After years of off the charts performance it was just time for a breather. A 46% breather.
So now the question is if you were not one of the people caught in the frenzy, is it time to buy? I am not sure, but I am certainly working my way to figuring it out.