CHINA / Foreign Media on China |
China isn't yet the engine for world markets(iht.com)Updated: 2007-04-03 09:01 http://www.iht.com/articles/2007/04/01/bloomberg/bxatm.php Yet no matter how tempting it might be to proclaim China the engine for world equities, investors should resist the urge. Because of its size, its population of 1.3 billion, the 10 percent economic growth rates, a voracious appetite for commodities and growing influence in world affairs, China looms like the bogeyman of the global economy. Indeed, its stock market, reflecting the country's boom, has ballooned in value for the past four years. "The sudden rout on Feb. 27 had 'Made in China' written all over it," said David Fuller, chief global strategist at Stockcube Research in London. "It demonstrates that we now live in a multipolar world." China's sway over global stock markets is more psychological than fundamental. Instead of altering people's perceptions of world growth or earnings - or even China's economy - the sell-off in February in Shanghai and Shenzhen offered investors the occasion to retreat from all high-risk markets, including stocks, that many believed had risen too far, too fast. In fact, investors' biggest concerns had more to do with the United States than a Chinese economy surging at a 10.4 percent clip. The U.S. economy, which includes the world's biggest stock market, is slowing: Gross domestic product expanded at an annual rate of 2.5 percent in the last three months of 2006 compared with 5.6 percent in the first quarter of last year. Other concerns focus on the leverage that investors, particularly hedge funds, are employing to lift returns; fissures in the U.S. housing market; and the potential unraveling of the so-called yen carry trade, where investors take low-interest yen loans to make investments in higher-yielding markets. For months, many world stock markets experienced uninterrupted advances, and expectations of risk were low, said Larry Hatheway, chief economist at UBS in London. So just how important is the Chinese equity market? "As a share of world market capitalization, it's very small," Hatheway said. "Chinese macroeconomic policy and performance are more important." Based on its so-called free float, or those shares that international investors can purchase, China accounts for only 11 percent of the Morgan Stanley Capital International emerging markets index and a mere 0.9 percent of the MSCI all country world index. That is less than South Korea and Taiwan, and about the same as Russia and Brazil. It resembles more of a casino than a legitimate investment venue. "The Chinese equity market is the financial-market equivalent of what dog racing is to gambling - a third-class sport attended by fourth-class punters," said David Roche, president of the consulting firm Independent Strategy in Hong Kong. What is more, before declining 0.5 percent in the two days ended Friday, the CSI 300 rallied to five successive records, while U.S., Japanese and most European share markets have yet to recapture their pre-Feb. 27 peaks. So while China's market can upend the world, it may not be able to lift it. The inability of other markets to advance at a pace equaling or surpassing that of Chinese markets is mostly explained by apprehension about the U.S. real-estate market, the 16.4 percent increase in oil prices since March 19 and the decline in U.S. consumer confidence last month. None of these is China-induced. Of course, markets in the United States, Europe and Japan have climbed since their post-Feb. 27 lows. Yet even those recoveries owe more to local influences than Chinese ones. Nonetheless, investors should still be prepared to awaken one day to discover that an exotic investment vehicle is collapsing, dragging other markets down with it. If stock markets are predisposed to shock, it can come from anywhere. It might be Russian, Argentine or Indian equities, collateralized debt obligations, junk bonds or China - again. |
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