June 27, 2008

Curtains for Shanghai?

Investment advisors and analysts -- Howard Gold and Nicholas Vardy are but two examples -- are warning not to "put a dime into Chinese stocks" at least until the bottom is reached in Chinese stock markets. Since 2008 began, Shanghai A and B shares have lost 40% or more and are down even further compared to Shanghai's peak in October 2007. The Shanghai Composite was down over 5% today alone.

Last May I pondered if the Shanghai Composite would end up like the NASDAQ or Nikkei bubbles -- watch my video on YouTube. I was surprised to see Shanghai go up all the way past 6,000 later in the year. Many analysts now believe the index will need to sink all the way to between 1,000-2,000 to hit bottom.

But I think comparison to the far more mature NASDAQ and Nikkei markets is simplistic. There are too many variables with Shanghai and its latest incarnation goes back only to 1990. Will foreign buyers be allowed into the A market? Will A and B shares finally merge? Will outflows by individual Chinese retain investors be extended to every investor? I think it is entirely too premature to dismiss Chinese stocks as important and long position investments, particulary in new technology (green & alternative energy) sectors.

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