Hi Alex,
The volatility in the current global stock markets, as you will be aware, is
mostly a direct result of the collapse of the Chinese stock markets.
The collapse of the Chinese markets is the result of a massive bubble
caused by the Chinese themselves.
This bubble was self evident to many analysts for many months prior
to the collapse and widely reported. Unfortunately it was obviously
not self evident to the many new Chinese investors who got caught up
in the fervour during that same period.
One financial commentator,
Jesse Felder, published an insightful article
at businessinsider.com back in late June. The article was interesting
and alarming to read at the time and the various mind boggling
statistics it quoted are still fascinating to read today even for those
with a passing interest in such matters.
A couple of graphs really stood out for me in the Felder article.
One from Bloomberg showed the median of projected 12-month
price earnings for markets around the world including countries such
as the US, Japan and Germany.
You can find the graph by following the link here and I have also reproduced
it the bottom of this post -
http://www.bloomberg.com/news/articl...s-jump#media-1
The most telling bar on the graph is that for China.
Quote:
|
Originally Posted by Bloomberg
Valuations in China are now higher than those in the U.S. at the height of the dot-com bubble just about any way you slice them. The average Chinese technology stock has a price-to-earnings ratio 41 percent above that of U.S. peers in 2000, while the median valuation is twice as expensive and the market capitalization-weighted average is 12 percent higher, according to data compiled by Bloomberg.
|
One way some might value the worth of a stock is its price to
earnings ratio.
Whereas global stocks might be slightly overvalued, Chinese stocks
were incredibly overvalued.
The second telling graph shows the number of new stock investors in
China and the amount of Yuan in those funds since Jan 2010 to early 2015.
The graph can be viewed at this link here but I have also reproduced it
at the bottom of this post -
http://edge.alluremedia.com.au/uploa...enings-CBA.jpg
Notice the massive spike in millions of investors and trillions of Yuan
particularly starting around the beginning of this year.
Unlike in Australia where large institutional investors play a major part,
the Chinese market is dominated by individuals.
It was a classic bubble. As more and more people saw friends and relatives
making massive amounts of money through playing the stock market,
they quickly joined in the rush too.
But rather than buying stock with cash, a very large number took out
margin loans to buy them. And there was very little regulation on margin
loans.
And rather than buying stocks for the long term, the turnover was
phenomenal, with most stocks being held for only a week.
As prices rose, it became the biggest game of pass the parcel in the
world.
One of the most forehead slapping stories that came out in recent
months was reported in the Wall Street Journal and Felder repeated
in his article. Some Chinese manufacturing companies shut down their
operations and put all their cash into the stock market.
As Felder put it at the time, "It’s hard to fathom just how insane this is: Manufacturers realizing they can make more money trading each others’ stocks than actually running their manufacturing businesses."
Felder article -
http://www.businessinsider.com/china...#ixzz3juxSVX00
I like Daniel's strategy. The seller often thinks that when a potential buyer comes along that the set price is too low. They get greedy. Tell him that after research the price is too high. Offer less and give it time.
)
