Chinese Irrational Exuberance

China recently stepped up efforts to reign in market exuberance. It is illegal for Chinese to buy stocks on margin, though this rule is largely ignored. Beijing has been stepping up enforcement as well as parading negative investors on state run TV.

I guess this is their version of the Fed Chairman addressing congress.

Good quote from the Editor of Chinese Economic Review:

Still, it will take more than a couple of announcements to break the fevered pitch. In Shanghai, people are lining up to buy shares, now confident in local markets following years of disappointment. In Hong Kong, as capitalist a city as there ever was, investors are as willing to dip a toe in as they always have been.

The pitch hit me in the face when I walked into a branch of the smallish Wing Lung bank in downtown Hong Kong. Few foreigners use their services, as evidenced by the literature in Chinese and lackluster customer service. What was unique was the open area in the back of the branch under a sign “securities services”.

The square space was lined by five computers that displayed stock quotes. Groups or six or seven people crowded each machine, cheering stocks up or down much like one would cheer a horse at the track.

It’s a good (but paradoxical) thing when Communists start buying stock. I do expect the investors cheering the Quotron to face trial by fire.

Take virtually every element and historical event of the US Economy, rewind the tape to 1890, and play it back at 3x speed. Dub it into Chinese and you’ll have a good approximation of Chinese economic events for the next 40 years.

The only twist is the potential non-linear impact 800M have-nots may make on the haves. This is what the West does not understand.