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China's Looming Hangover?

by: Bespoke Investment Group August 21, 2008 | about stocks: CAF / FXI / FXP / PGJ    

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Below we highlight a chart of consumer confidence in China versus its Shanghai Composite equity index.  With equities down nearly 60% from their peaks in China, you would think confidence would also have fallen significantly.  But it seems that the Olympics as well as an economy that has continued to grow has kept Chinese citizens happy for the time being.  (Interestingly, confidence didn't rise much even as equities were skyrocketing either.) 

When the torch gets blown out and the Olympics end, will the Chinese, finally opening those stacked up monthly brokerage statements and new energy bills, experience a hangover that sends confidence lower?

click to enlarge

Chinahangover

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This article has 14 comments:

  •  
    Aug 21 03:08 PM
    I answered your question yesterday by putting money in a China fund. I will bet on China longer term. What is your position on China?
    Reply
  •  
    Aug 21 03:18 PM
    I think China will get Shanghai'ed.
    Reply
  •  
    Aug 21 03:26 PM
    The Olympics is actually an interuption to China's everyday business. Once the Olympics are over their cars will back on the on the streets, factories will be running, and people will back to work instead of watching the Olympics, which is very meaningful to the Chinese. I expect a bounce.
    Reply
  •  
    Aug 21 03:38 PM
    Apparently, there is no correlation. Get another chart. The stock market DID NOT react significantly to either the Asian Contagion or SARS, meanwhile consumer confidence has not reacted to the Bear.

    I don't see the relevance of the Chart.
    Reply
  •  
    Aug 21 03:45 PM
    "...finally opening those stacked up monthly brokerage statements"--igno... statements in the hope the bad news will go away is more of an American thing. Chinese investors check the stock market daily, if not more often.

    The only thing I learned from this article/blurb is that there is little or no correlation between Chinese consumer confidence and stock prices. Whether or not Chinese consumers will experience a hangover or lose confidence has zero impact on the Shanghai stock market.
    Reply
  •  
    Aug 21 03:47 PM
    Should be: "ignoring statements in the hope..."
    Reply
  •  
    Aug 21 03:52 PM
    More importantly the economy rolled right through the changes in consumer confidence.
    Reply
  •  
    Aug 21 08:09 PM
    The chart is relevant. It shows you dont make your investment decisions in China based on Consumer Sentiment.
    Reply
  •  
    Aug 22 02:13 AM

    I understand that factories are closing, exports slowing and unemployment is growing. The news in China is probably so controlled that the public does not yet understand that they will be a part of the growing global crisis. The excitement of the games has put the country in a trance, ignoring what is happening in the big picture.

    By October, I expect to see SSEC and FXI down another 50%.

    China has huge over capacity and I just read that their biggest bank was last bailed out only 3 years ago, and is now selling subordinated bonds to raise capital. They say the sale is to have capital available to take advantage of opportunities in our fallen markets, but I suspect that they have loan losses they are trying to cover to their political buddies. Rather than mark-to-market like our banks have done, they can hide their loses very easily with no voters to worry about. Obama would fit in real well there.
    Reply
  •  
    Aug 22 10:03 AM
    I am simply not buying the "China is falling apart story." Who are you going to believe, the media and US-centric whores who hate the china growth story or people like Jim Rogers or Andrew Liveris-Dow Chemical CEO (who actually live or do most of their business in Asia)? My bet is with Rogers and Liveris who see NO SIGNS of Chinese weakness. China has inflation contained now and have publicly stated that economic growth is job 1. Rest assured they will go back to their frenetic 24/7 schedule and growth will still be in the 9-10% range this year. The "global growth bears" have absolutely nothing to support their argument. The global economy will resume its growth cycle in the 4th quarter. This could be the best buying opportunity for Chinese stocks since 2000.
    Reply
  •  
    Aug 22 11:11 AM
    who can you believe about anything? the chinese communist dictatorship or the weapons of mass destruction us govt.?back to the old russia putin or any of the nuts in the muddle east?i could go on-but you get my point.
    Reply
  •  
    Aug 22 01:25 PM
    For sure the growth is top priority for communist gov. Without it, it would lose its legitimacy. But if you count the social benefits and other invisible income, the gini would be unimaginalble high. Anybody think the sustainable growth with such gini is mission possible?
    Reply
  •  
    Aug 22 06:29 PM
    The authors closing sentence, reflects the the western view of a culture and people that are not western, and not understood by the West. This is a nation of 1.3 billion people, run by a communist government, which can direct its subjects in whatever way it chooses. The country has been growing by over 20% for several years, and there is no way the regime is going to allow that rate to slow by any considerable amount. They got the Olympics, they got into WTO, they are now on a 2 week vacation, and next month, it's back to work as usual.
    Reply
  •  
    Aug 26 08:39 AM
    Another stimulus for China coming up in several years is the Shanghai World's Expo [Fair] in 2010 that the Chinese must also prepare for like the Olympics. Although not as large an event as the Olympics China must also invest billions of dollars to ready itself for this massive event. The China growth story is real and anyone who says otherwise is just plain ignorant or blind to the facts.
    Reply
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