Has China already burst?The Shanghai Composite closed Friday at 5315 down from a high of 6124 which is a 13.2% drop.
Petrochina (PTR) is down 24% from its high.
Sinopec (SNP) is down 23% from its high.
China Mobile (CHL), which I own for one or two clients is down 18% from its high.
CNOOC (CEO) is down 19% from its high.
Sina (SINA) is down 18% from its high.
Baidu (BIDU) is down 20% from its high.
China Life (LFC) is down 21% from its high.
China Digital TV (STV), a recent IPO, is down 40% from its high.
Aluminum Corp of China (ACH), aka Chalco I believe, is down 37% from its high.
iShares FTSE China 25 ETF (FXI) is down 17% from its high.
To repeat from the other day; zoiks. I rounded off the pennies and the highs measured are all intra-day highs. The high for all of these names, including the Shanghai Composite, occurred in the last month. The only other stock I looked at but did not include above was ctrip.com which is not even down 5% but that would make the above less dramatic;-)
I have no idea if some sort of mania has ended, I have no idea if this is just a dip that should be bought but at this point I am not sure it is possible to do any sort of forward looking analysis to even make a decision. The story of China is still in tact but the stocks are like a Girls Gone Wild video.
You all know that many Chinese stocks started going parabolic a while ago, I noted this along with many other people. I disclosed getting out what turned out to be way too early. Despite a tidy gain, I left a lot on the table.
Recently a reader said that my not owning China was lunacy and that I have cost my investors dearly. I'm not sure selling something too early is lunacy and we'll know in a few months, maybe, how costly it was but for folks not interested in making fun of me when I don't top-tick a sale (which I don't do very often) you will own parts of the market that become too hot for your comfort.
This goes with diversification. I still do not think bubble is the right word for China but China was a mania last spring when I sold Sinopec at about $103. At the time $103 was a huge gain and I felt the China theme had already gone parabolic.
I did not feel that a stop order would work and given the $10 price movements a lot of these names are now capable of having on a given day (back then the moves were $3-4 per day) I think that was right. So then it boils down to trying to figure out how to protect a gain. You can only do what you can do.
From here no outcome should be surprising but unless I am missing something the declines thus far don't seem to have gotten much attention--that is people don't seem to be worried. That seems similar to the first 20-30% down in tech stocks. People were not worried at that point either.
If you think you should still own China go for it but I would suggest moderation, which has been the point behind all of these China posts in the last few months.
The church above was built by Father Damien in Molokai.
24 comments:
Morning, Roger! Would you go so far as to put on a small short position using one of the new inverse Chinese ETFs? I've been thinking closer to the Olympics but maybe the recent actions of the Chinese government will slow things down sooner.
The only shorting I am comfortable with is as a hedge and on a broader basis than single foreign country.
Further as I note in the post I really do not know what is next and further mention I am not sure any analysis can be done for the short term, at least not by me.
Someone in my boat should not be guessing on a short position.
SDTH, reported strong earnings after Friday's close, suggesting it is still undervalued relative to its growth rate
(10-Q can be found at sec.gov by looking up Shengda ).
Chinese citizens are in a tough spot. Like many Asians they're used to saving and even the less well off possess savings but they are also confronted by growing inflation devaluing their currency faster than interest rates can compensate and are being forced to invest in assets that appreciate faster: Those who don't have access to the big money spigots, as real estate developers do for example, buy stocks; there's not much else. That problem is not likely to lead to total collapse or anything like it -- for that you need to look at a country like Zimbabwe -- but growing volatility including really serious downdrafts is likely.
I suspect that will also mean growing divergences between the assets Westerners can buy and those available to Chinese.
From a technical standpoint a cyclical bear is not particularly difficult to recognize (always easier in hindsight of course) but nearly impossible to predict longer term other than in hindsight. Generally the shorter term overbought/oversold oscillations don't go away, they just result in successively lower highs which sink back into lower lows on increasing volume with the occasional stronger rally to trap the unwary while the advance/decline line continues to slip, revealing a growing list of losers with fewer and fewer gainers. IOW, a rally next week would be no major surprise, but assuming one occurs it's breadth and what happens later will be the real tell.
Overall I'm inclined to agree that the US has been in a (rather weakly defined) secular bear market since 1998 with real, inflation adjusted, losses in a number of major indexes over the past 8-9 years. Unfortunately I became defensive way too early (not unusual for me I'm afraid) but, regardless, believe the credit and liquidity problems revealed nearly a decade ago by the LTCM breakdown and the currency problems revealed by the Asian crisis are systemic, structural and not only still unresolved but have been compounded by the increasing use of derivatives to work around them. Adding cyclical weakness to that accentuates the impression that there is a lack of sponsorship, commitment to the issues in the market, and this change in pscyhology is certainly not a recipe for gains although most DIY investors concerned about their level of exposure are probably better off going to cash rather than fooling with short positions, particularly in the early stages (which could reverse or at least be over quickly after all).
Still, as I've commented before, the problem for individual DIY investors is not the same as it is for money managers like Roger (although I detect from his video that adherence to an equity benchmark rather than a real return benchmark is beginning to chafe a bit, do I have that right Roger?).
In any case my strategic portfolio remains net long but strongly hedged with a higher % of cash; there's been a bit of buying and selling but it really hasn't changed significantly since a year ago last May (told you I have bad habit of being early). My tactical portfolio is a different matter; net short in several areas there and very long in a couple others but those are mostly swing trades that can move on a dime if the wind changes.
Jeez, I seem to be a chatty mood this morning; apologies for the length of the post.
Hey RW, where I live, a man doesn't ask another man about chafing.
lol
You ask a good question about absolute. I do a post on that tomorrow morning.
Going to Shanghai in October.
Taiwan's economy is in the toilet.
Here are a few questions for you gurus out there as we face another roller coaster, or perhaps just a straight toboggan ride this week.
1. Why is there such pessimism about bonds? Including dividends, the best bond funds have equalled or outperformed the S&P 500 for the last 5 and 10 year periods with much lower beta.
2. To me, using SDS or DOG to hedge my taxable portfolio makes more sense (in a market that has stratospheric VIX numbers) than selling and taking a certain 30%+ tax hit. Where am I wrong here?
3. I read Hussman's article and the sky is falling, then I listened to Brinker yesterday and he still recommends his fully invested balanced porfolio.
Both guys at the top of their game (although Brinker's record is much better than Hussman's)
Who is right?
4. Lastly,as the market gets more bearish, I assume you slowly jettison your longs as you slowly add inverse hedges, Roger. Am I right?
Thanks for any feedback. Scoot
How quickly things change. You are not saying sell everything (like I did). But, Your view of the market seems to be looking a lot more like mine.
I know, I know
Your methodology does not require you to be correct about the market. I have always respected your opinion, I just thought you were missing an oppourtunity.
Here are a few questions for you gurus out there as we face another roller coaster, or perhaps just a straight toboggan ride this week.
1. Why is there such pessimism about bonds? Including dividends, the best bond funds have equalled or outperformed the S&P 500 for the last 5 and 10 year periods with much lower beta.
2. To me, using SDS or DOG to hedge my taxable portfolio makes more sense (in a market that has stratospheric VIX numbers) than selling and taking a certain 30%+ tax hit. Where am I wrong here?
3. I read Hussman's article and the sky is falling, then I listened to Brinker yesterday and he still recommends his fully invested balanced porfolio.
Both guys at the top of their game (although Brinker's record is much better than Hussman's)
Who is right?
4. Lastly,as the market gets more bearish, I assume you slowly jettison your longs as you slowly add inverse hedges, Roger. Am I right?
Thanks for any feedback. Scoot
Scoot you know from Hussman that stocks have lagged t-bills for a while when looked at over the cycle (the exact time period he cites escapes me at the moment) point being we have had a 50% hit during this cycle so comparing bonds to equities might not be the best analysis unless you think stocks will cut in half so soon after the last time.
I don't know anything about Brinker.
I will answer the question about selling in tomorrows post.
anon 3:52; missing opportunities is always a threat, which I concede. As you are anonymous I don't know who you are or what your past comments have been and while I certainly am not call you a perma anything at times it makes sense to line up with David Tice and at other times Bob Froelich. Bulls are right more often than bears but for now I think the bear case is starting to come more realistic, my leaning this way too early notwithstanding.
Hi Roger,
Have you ever heard of MarketGrader ETF's? If so, what are your thoughts?
Second: Do ETF's with lower volume run a greater risk of failing than ETF's that trade a lot of shares?
Thanks
tough to argue w/the back test for the MG ETFs. because they are more like better (giving them the benefit of the doubt for now) versions of broad-based i'm never going to use them so I may never really delve into them.
i would think the asset level would be a better determinant of success or failure because the issuers get paid on assets not volume.
Roger, zero exposure to china IS LUNACY.
China is up nearly 100% this year, you moron.
A bad week, and you justify not owning china?
Roger, your clients and readers deserve better.
I'm a moron?
Tell me something I don't know and while we are at it about some analysis to go with your name calling.
Does parabolic rises in stock prices come back down to where the parabolic rises started in your observations? Does this happen all the time?
Roger,
I'm suprised that you allow Anon posts. Why not force a login.
Andy
Tom K
Can you post a link to your blog so I can read about your strategy. I'd like to understand it better.
Thanks
"Bulls are right more often than bears but for now..."
On this we can agree. Bulls are right about 70% of the time (maybe more) if there is any reasonable doubt stay bullish. But I think there is significantly more than reasonable doubts about both the market and the economy. Hussman agrees with me and I think things will get a lot worse before they get a lot better.
Roger,
Proof of moronic behaviour....
You purchase real estate in one of the most bloated markets...Hawaii
Yet you won't buy China on a normal weight for clients?
what does it say about you that you think i am a moron yet you read my site and take the time to comment so regularly?
I've been wondering the same thing about the Heckler for months. Talk about a moron...
Is that a picture of Father Damien's church on Molokai? Just wondered?
Sorry, just finished your post. It is Father Damien's on Kaulapapa. I had a chance to visit it in 1982.
yes, we went after you, last april
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