China Redux

Deja vu. Chinese investors — many of them regular citizens hoping to hit the jackpot — are ignoring the lesson of February’s correction in the Chinese markets (read post here) and rushing back into the circus. Money is pouring in from all directions, as the FT reports: “In the last week alone, more than 1m new accounts have been opened, taking the total for the last four months to more than 10m – greater than the previous four years combined.”

The carnival-like atmosphere is just one reason to stay away from the Chinese markets — here are a few more. There was a roughly 9 percent correction in the Shanghai and Shenzhen markets in February. But the Chinese markets are still up 40 percent so far this year, after rising more than 130 per cent last year after a prolonged bear market. From an expert at HSBC:

This is definitely a bubble in the making – for most stocks, positive earnings growth has been priced in until 2009,’ said Steven Sun, HSBC equities analyst. ‘At the height of the last bubble [2000-01], we saw investors opening 2m accounts a month, which is half the current rate.’

While the number of accounts opened alone should not define a bubble, it certainly should raise a red flag for sensible investors.

It’s a sad story, really. “Any money getting into the market now is not smart money and is coming from the kind of people who can least afford to lose it,” said Fraser Howie, author of a book on the Chinese stock markets (via the FT). “That has to have the government worried about social stability.”

Is it just me, or does it seem as if there’s a lot of complacency, i.e. people are more or less resigned to a boom-bust cycle? Is the government taking action to cool the market? Aside from limited public warnings on the risks of investing, I have not heard of any movement to address market conditions.

UPDATE: Just hours after after I posted this story, the Shanghai Composite Index dropped 4.5 percent (it was 7% percent lower at one point) on news that China’s economy grew 11 percent in the first quarter of the year, raising concerns that the  government would seek to raise interest rates to curb overheating.  Just as in February’s market correction, the Nikkei felt the repercussions and lost nearly 2 percent, along with other Asian markets (Singapore, Hong Kong, Thailand), which roiled European markets, which will lead the Dow way down to start the day.

Taliban fighters in Afghanistan favor Chinese-built versions of Honda motorbikes for executing attacks. NPR’s Soraya Sarhaddi Nelson interviews a mechanic who fixes bikes for Afghans as well as Taliban fighters (he charges the latter a premium).

It can be dangerous business, but lucrative: the Chinese-made bikes break down at least once a month, so there’s plenty of work to go around.  Trade sanctions, anyone?