More evidence appears today of the bubble affecting the Chinese stock market after part of the Chinese stimulus was diverted into the markets.
The French economic daily Les Echos reports today that the Shanghai stock exchange is today the world’s fourth largest market with a capitalization of about 2.3 trillion USD. The Shanghai SSE index moved up by 89 % since the beginning of the year.
What is more, irrational exuberance continues on any IPO taking place. The introduction yesterday of Sichuan Expressway, a highway company saw the share jump by 203 % in a single day.
And another similar meteoric rise may take place tomorrow with the IPO of China State Construction Engineering, a company that will have a capital of 50.2 Bn Yuan.
Other typical factor: in May, the capitalization of the oil giant, Petrochina went beyond that of its US rival, ExxonMobil, ( ) making it the largest traded company in the world.
I’ll only recall my earlier posts in that respect and forewarn you for the bubble burst when it will come.
As for the efficiency of the Chinese in manipulating the markets, I believe the short article published today in the China Economics Review gives you all the story.
China’s state-owned enterprises (SOEs) have lost billions of dollars in losses related to commodity price or foreign exchange trading over the past year, Reuters reported. Although a few of the most recent cases appear to have been simply bad luck on hedging markets at the peak, other instances have been blamed on a “rogue” element – a risk manager, a lone trader – who was operating beyond his mandate. The mounting losses have caused Beijing to crack down on all forms of overseas derivatives trading. In response, the State-owned Assets Supervision and Administration Commission (SASAC) launched legislation that requires all SOEs engaged in trading derivatives to make quarterly reports about their investment situations. Kuang Yongsheng, an official from SASAC said, “We don’t want to see them diverge their core businesses to speculate in the financial market.” One recent example happened in January of 2009 when three of China’s largest airlines, Air China, Shanghai Airlines and China Eastern, collectively lost a reported US$1.94 billion on aviation fuel hedging contracts, according to state media.
