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China unfortunately created stock market but doesn't have the requisite pieces to allow one to operate properly. For a fully functioning stock market you need:

China unfortunately created stock market but doesn't have the requisite pieces to allow one to operate properly. For a fully functioning stock market you need: - capital, which they have - speculators, to make trades happen, they have these - transparency in how your market works, or atlest the appearance that the market is fair to all - and you need stoggy old buy/hold/long only investors. China is missing these. In most markets the latter is done by ETF retirement investment and pension plans who have to invest 100's of billions of dollars each year. The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". China is also loosing alot of money each month trying to support the yuan. I saw a credible estimate of about 100 billion a month since October.

fragsworth 11y ago
> and you need stoggy old buy/hold/long only investors. China is missing these. I've never heard about this before, and it doesn't even make sense. It sounds to me like you made it up.
- chollida1 11y ago
  Which part? Because I'm more than willing to stand on those points as being accurate. The assertion that you need someone to actually buy and hold stocks to have a stock market, or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? These two types of investors act as dampers. When the markets go south they are the ones who start buying up "bargains" and hold their existing positions because they aren't worries about 6 month returns they are worried about 25 year returns > It sounds to me like you made it up. You can think that if you'd like... Since trading on the equity markets is my day job, I'm pretty comfortable with my knowledge of them.
  - lintiness 11y ago
    pension and etf funds are for the most part full invested. outside investors with dollar signs in their eyes are what you're talking about, and there's absolutely nothing preventing these investors from buying chinese stocks (hong kong proxy or whatever).
    - jonknee 11y ago
      They have new money coming in every month.
  - chatmasta 11y ago
    > or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? Based on your HN profile, you are 10000x more qualified than me on this subject, but I would like to see some evidence to back up the claim that the shanghai stock exchange has no pension funds trading large volumes of equities over long time horizons. According to the wikipedia chronology of the Shanghai Stock Exchange [1], an influx of speculators did not enter the market until 2006-2007, following the "unbanning" of IPO's. Presumably the implication is that prior to speculators entering the market, most trades were executed by large institutional investors. If these institutional investors are not trading on long time horizons (like a pension fund would), then who are they, where does their funding come from, and for what purpose do they use the exchange? [1] https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chronology https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chrono...
  - dilemma 11y ago
    The individual investors that joined the stock market in 2006 are all "pension funds" in their own right. That is what they are saving for, amongst other things. And of course there are pension funds in China.
danbruc 11y ago
So why are people then trading stocks in China or India or wherever if they don't trust the system? They wouldn't be able to become the largest stock markets if nobody would trade there and there would be nothing to be scared by.
- khuey 11y ago
  Where else is your average Chinese person going to trade stocks, especially given the government's capital controls?
  - danbruc 11y ago
    Don't trade stocks. If this is no option for whatever reasons it would still be a problem contained in China if all the outside investors stayed away.
    - jfoutz 11y ago
      I think you're underestimating how pervasive the stock market is in doing stuff. Say, foxconn wants to build a new factory. they put up stock as collateral for a loan to pay for it. Stock crashes. They have to sell existing assets to cover the loan. Even if they retain control by selling to a trusted partner, the asset shift is painful. If you can imagine foxconn getting into that trouble, it's very easy to imagine them not being able to manufacture IPhones or Galaxys for a few months while they negotiate contracts with the new asset owners. Any idea what that would do to Apple stock? And, you know, your 401k? This is an extreme example, but captures the spirit. when suppliers go out of business, or even run into trouble, all the companies that depend on them slow down, have to renegotiate new contracts, possibly miss deadlines. It can be ugly.
- CSMastermind 11y ago
  Because you can still make money in the short term. The lack of transparency means that every dollar you invest there has extra risk attached to it. This discourages long term and large investments while promoting short term thinking and risky behavior.
at-fates-hands 11y ago
>> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. This. This will be China's undoing. The hardest thing to try and control are open market forces - which China is clearly controlling and attempting to manipulate, with disastrous results.
- vinceguidry 11y ago
  CCP cares way more about maintaining control than in ensuring stability. I'm sure they have plans in place to shut the whole market down if they decide it needs to be done.
  - fnordfnordfnord 11y ago
    Stability is arguably the preferable method to retain control.
    - Rmilb 11y ago
      ie, Mandate of Heaven. https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven
  - AnimalMuppet 11y ago
    > CCP cares way more about maintaining control than in ensuring stability. That may be true. But I think they also see lack of stability as threatening their ability to remain in control. So in practice, they care a great deal about stability.
    - vinceguidry 11y ago
      They have other ways of maintaining stability. Ways they have been relying on for decades before there ever were viable financial markets. They can simply fall back on those.
      - 11y ago
ocean3 11y ago
Why do think Indian stock market is not transparent?
- tintri 11y ago
  "india" is being lumped together just for namesake. I don't think indian market is any less transparent than US/Japan or others.
  - berberous 11y ago
    Nevsky Capital, a successful hedge fund, just shut down and released an interesting letter to its investors that's worth reading in full. I'm not sure about the transparency of India's stock market, but it did not have nice things to say about the quality of their economic data: "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." http://www.businessinsider.com/nevsky-capital-closing-letter-2016-1 http://www.businessinsider.com/nevsky-capital-closing-letter...
    - chimeracoder 11y ago
      It's really frustrating to see China and India constantly discussed as if they were a single unit, particularly when it comes to economics. Aside from the fact that they are (a) both very large, and (b) both rapidly developing countries/economies, China and India share very little in common. There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.
cubano 11y ago
> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.
- marcusgarvey 11y ago
  Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...
- andrewvc 11y ago
  This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...
- jfoutz 11y ago
  I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.
youonlyliveonce 11y ago
I thought the Indian stock market was relatively transparent
deleted 11y ago
[deleted]
fnordfnordfnord 11y ago
> in 10-20 years the top 3 markets could be China, India and the US. What about Brazil? (not that they are transparent/credible, but that they ought to have huge economic growth over the next ~20yr)
- macspoofing 11y ago
  Brazil has a fundamental mistrust of the free-market that holds it back. It's tough doing business in Brazil.
  - fnordfnordfnord 11y ago
    I've had a little experience with this and I agree. If they can improve here (and what's to say they won't in the next decade), what's left to hold them back?
  - rchaud 11y ago
    What specifically about the free market is hold Brazil back? What changes would increase economic output? I understand that import taxes on things like consumer electronics are punitively high, but that's a cross-section of the consumption aspect of GDP. GDP can still be increased through capital investment, fiscal policy and net export growth.
  - mastazi 11y ago
    > It's tough doing business in Brazil. Yes, dysfunctional bureaucracy both in the public and in the private sector (government, banks etc.) makes it really hard to create and manage any business. I tried really hard for a while, but it didn't work out.
- leogiertz 11y ago
  It's probably going to be a while before Brazil resumes its trajectory: http://www.economist.com/news/briefing/21684778-former-star-emerging-world-faces-lost-decade-irredeemable http://www.economist.com/news/briefing/21684778-former-star-...
  - 11y ago
sharetea 11y ago
Doubtful about the top market; China has a 20 year deflationary depression ahead of them. 1-2% gdp growth http://www.barrons.com/articles/anne-stevenson-yang-why-xi-jinpings-troubles-and-chinas-could-get-worse-1417846773 http://www.barrons.com/articles/anne-stevenson-yang-why-xi-j... 280% gdp/debt ratio http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-total-debt-load-now-over-280-of-gdp/ http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-tota... bankrupt shadow banks http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f710807b.html http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f71080... bankrupt state commodity firms http://www.bloomberg.com/news/articles/2015-10-14/the-next-china-default-could-be-days-away-as-steel-firms-suffer http://www.bloomberg.com/news/articles/2015-10-14/the-next-c... only a trillion reserve left http://www.businessinsider.com/china-burned-through-108b-in-december-2016-1 http://www.businessinsider.com/china-burned-through-108b-in-... $850 Billion Left China So Far This Year http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left-china-so-far-this-year/ http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left... Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made-in-china-clothing-label-a-thing-of-the-past/ http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made... Coupled with China's lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising US interest rates...you get the idea
- exelius 11y ago
  > Coupled with lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising us interest rates... You don't need global consumer brands when your country is the size of China. They have 15% of the world's population and speak a language that few outside the country can speak and even fewer can read: nobody else is going to come in and take those customers except Chinese companies. Corruption is being cleaned up; but it's still a real problem at the local level. Again, pollution is a huge problem but China is betting the farm on "clean" energy tech and will be the energy leaders of the world in 20 years. If (or when) they figure it out, they're the only ones with the manufacturing skill and capacity to mass-produce. The truth is, we've never seen what happens when a large country "awakens" in the age of globalization. Macroeconomic theory is largely based on the import/export balance, which is increasingly less important as borders become less meaningful (and import/export controls become increasingly difficult to enforce). I have a feeling that China will surprise us - despite the fact that they will have negative population growth over the next few decades and an aging population, the fact that they are actively moving subsistence farmers to the cities may stall the effect of a shrinking population with the added consumption / demand from turning poor farmers into urban consumers. Their aging population is also accustomed to a lower standard of living than the up-and-coming generation. Population deflation has been especially damaging to Japan because it hit them after they had become a heavily industrialized country. Despite the huge progress China has made, hundreds of millions of people still live in poor farming villages. That's a source of potential growth that I expect the Chinese government to tap strategically.
grandalf 11y ago
I'm skeptical that the presence of buy and hold investors is the missing ingredient. Even if 15% of investors are speculators, the price can still swing drastically, since price is a function of supply and demand, and the charts we're seeing are not volume-weighted. Market price stability is a function of the uniformity of supply and demand over time. Buy and hold investors already own the stock so their preferences are not reflected in short term supply/demand uniformity (price stability). What we're seeing in China is a lack of uniformity of views on the future price, and thus rapid fluctuations in supply/demand uniformity over time. Government instability plays into that tremendously.
- TheOtherHobbes 11y ago
  Price is a function of faith in the future. What we're seeing is a lack of faith that many are finding disturbing.
  - grandalf 11y ago
    > Price is a function of faith in the future. That is a fairly unfalsifiable statement, and it is trivially true for nearly anything, b/c we all make all decisions today based on the faith/expectation that we will be alive tomorrow. The notion that tomorrow will be substantially different from today makes nearly all planning useless, so it's trivial that all planning hinges on some notion of faith in the future. But price itself is only a function of supply and demand. If I am selling bread and it's nearly time for me to go home and the bread will be stale tomorrow, I might offer the remaining loaves to the last few customers at a discount if I expect it not to sell otherwise, etc. Supply vs demand. Charted on a graph the price would take a nose dive at the end of the day. If a short term investor feels that his position will not improve, it makes sense to liquidate. The more symmetrical market participants' views are, the more the price will change as a result of trading (why would someone sell when they expected the price to go up?. This illustrates the adage that one person's junk is another person's treasure) To be logical we must consider would-be buyers and would-be sellers of the shares. Only in the rather peculiar case of significantly asymmetrical views of the future price will the price remain stable with lots of shares changing hands.
kelvin0 11y ago
I wonder how this relates to the 'ghost' towns being built over there? Could this be a consequence of the slowing rate of construction of these huge cities/housing projects (no one lives in practically)? That artificial growth is/was not sustainable and the bubble is bound to collapse, or is this simply oversimplified view of the problem?
- mikeg8 11y ago
  I've always wondered about this as well. Heavy investments in new cities, when there was no demand for them, just for the sake of "increased growth" was always a red flag to me. Interested in any correlation.
  - ycombobreaker 11y ago
    I don't have any direct sources for this, but the word that I heard from a friend who spent some time in China recently was the following: - Chinese investors have limited places to park their cash. Stock market and real estate are two major options, and real estate is seen as a superior investment (stock market has... problems, you could say) - Chinese law prevents purchasing property without developing it. - Real estate investments therefore require barebones property development--regardless of tenancy--in order to remain legitimate. Therefore, "ghost towns" are a natural outcome of Chinese investment in Chinese growth. They can remain vacant for a long time and still satisfy the investment goals of the developer. (edit: list formatting)
- hodder 11y ago
  People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt or "artificial" real estate bubble, yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...
JumpCrisscross 11y ago
> For a fully functioning stock market you need...stoggy [sic] old buy/hold/long only investors I'd qualify this with value orientation. To have a successful stock market you need the factors you mentioned plus long-term holding value investors. To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles. Long-term value investors require capital. They also need transparent, liquid markets. China has capital and liquidity. It lacks (along with India, Russia, and a number of other "emerging" equity markets) reliable data and/or trustworthy institutions. This deters long-term value investors [1]. [1] https://www.scribd.com/embeds/294654490/content?start_page=1&view_mode=scroll&access_key=key-xfqKH8QC2LsXN87EW4uk&show_recommendations=false https://www.scribd.com/embeds/294654490/content?start_page=1...
- bgun 11y ago
  Yes. Or, very simply put, you need more long-term optimists than long-term pessimists. China is wealthy in many ways, but a wealth of optimism is not prevailing.
  - deleted 11y ago
    [deleted]
  - rrggrr 11y ago
    Optimism in society requires faith in leadership. Trust. Transparency. Perhaps even a higher purpose. Maybe even a sense of global humanity. I do wonder how things may have been different for China had its tooling been fitted for slow, highly transparent and deliberate growth.
- anonu 11y ago
  > ... put all their money into ETFs: you'd have no price discovery ... I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the index (individual components of that ETF) for you...
pjc50 11y ago
They have plenty of people who want to make long term investments, but no long term trust. Due to the lack of transparancy and impartial rule of law.
hkmurakami 11y ago
> The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. > Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. > As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". This was one of the reasons cited for renowned hedge fund Nevsky Capital closing its doors. They are up 1212% since 2000. [1] "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." [1] http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevsky-capital-shutting-down-full-letter http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevs...
tajen 11y ago
What is "operate properly" for a stock market? For us Westerners, it means be fair and equal to everyone. But maybe for a less efficient country, it means moving from peer-to-peer trades to centralized, which at least defines a unique trading value and is already better than multiple, independent, bilateral sales contracts.
AJ007 11y ago
The most important thing is you need companies that have the ability to return capital to investors. If you do not, what you have is like free-to-play mobile game. Real money goes in, and is then redistributed to the insiders who take it and walk away. This comes in two pieces, first transparency and accuracy of the company: Who is enforcing accounting standards? Who is doing the auditing to ensure the said assets are really there? The second, is the economy based on real demand or something temporary: Are profits dependent on the activity of government officials & central bank finance? It would be very unfair to single China out in this regards, just look at what happened to Brazil.
sopooneo 11y ago
I am very ignorant about all this stuff. But am I correct that until recently, the Chinese government was actively devaluating the yaun to support their export industries? But now they've had to do an about-face and start trying to push it up?
oneJob 11y ago
So, you know that the NYSE was started by a bunch of guys on the edge of town under a tree? The key was they were located at the heart of the business district, where the transactions were occurring. This has been true and crucial since the early days of "finance", since back in medieval and Renaissance times when merchant houses (as in 'establishments', not actual buildings) exchanged debt and eventually stock. As to the US stock market being "fairly transparent and not run by the whims of the government", check your history man. The US stock market has seen some crazy wild, stock manipulation, insider trading, government manipulating, bucket shop, boiler room, "oops, we have too much paper to process so shut the whole thing down" days. And, I should add, those days aren't over. The mess is still all there, it's just much more sophisticated and comes with a better staffed and better funded marketing department.

fragsworth 11y ago

> and you need stoggy old buy/hold/long only investors. China is missing these. I've never heard about this before, and it doesn't even make sense. It sounds to me like you made it up.

chollida1 11y ago
Which part? Because I'm more than willing to stand on those points as being accurate. The assertion that you need someone to actually buy and hold stocks to have a stock market, or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? These two types of investors act as dampers. When the markets go south they are the ones who start buying up "bargains" and hold their existing positions because they aren't worries about 6 month returns they are worried about 25 year returns > It sounds to me like you made it up. You can think that if you'd like... Since trading on the equity markets is my day job, I'm pretty comfortable with my knowledge of them.
- lintiness 11y ago
  pension and etf funds are for the most part full invested. outside investors with dollar signs in their eyes are what you're talking about, and there's absolutely nothing preventing these investors from buying chinese stocks (hong kong proxy or whatever).
  - jonknee 11y ago
    They have new money coming in every month.
- chatmasta 11y ago
  > or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? Based on your HN profile, you are 10000x more qualified than me on this subject, but I would like to see some evidence to back up the claim that the shanghai stock exchange has no pension funds trading large volumes of equities over long time horizons. According to the wikipedia chronology of the Shanghai Stock Exchange [1], an influx of speculators did not enter the market until 2006-2007, following the "unbanning" of IPO's. Presumably the implication is that prior to speculators entering the market, most trades were executed by large institutional investors. If these institutional investors are not trading on long time horizons (like a pension fund would), then who are they, where does their funding come from, and for what purpose do they use the exchange? [1] https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chronology https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chrono...
- dilemma 11y ago
  The individual investors that joined the stock market in 2006 are all "pension funds" in their own right. That is what they are saving for, amongst other things. And of course there are pension funds in China.

danbruc 11y ago

So why are people then trading stocks in China or India or wherever if they don't trust the system? They wouldn't be able to become the largest stock markets if nobody would trade there and there would be nothing to be scared by.

khuey 11y ago
Where else is your average Chinese person going to trade stocks, especially given the government's capital controls?
- danbruc 11y ago
  Don't trade stocks. If this is no option for whatever reasons it would still be a problem contained in China if all the outside investors stayed away.
  - jfoutz 11y ago
    I think you're underestimating how pervasive the stock market is in doing stuff. Say, foxconn wants to build a new factory. they put up stock as collateral for a loan to pay for it. Stock crashes. They have to sell existing assets to cover the loan. Even if they retain control by selling to a trusted partner, the asset shift is painful. If you can imagine foxconn getting into that trouble, it's very easy to imagine them not being able to manufacture IPhones or Galaxys for a few months while they negotiate contracts with the new asset owners. Any idea what that would do to Apple stock? And, you know, your 401k? This is an extreme example, but captures the spirit. when suppliers go out of business, or even run into trouble, all the companies that depend on them slow down, have to renegotiate new contracts, possibly miss deadlines. It can be ugly.
CSMastermind 11y ago
Because you can still make money in the short term. The lack of transparency means that every dollar you invest there has extra risk attached to it. This discourages long term and large investments while promoting short term thinking and risky behavior.

at-fates-hands 11y ago

>> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. This. This will be China's undoing. The hardest thing to try and control are open market forces - which China is clearly controlling and attempting to manipulate, with disastrous results.

vinceguidry 11y ago
CCP cares way more about maintaining control than in ensuring stability. I'm sure they have plans in place to shut the whole market down if they decide it needs to be done.
- fnordfnordfnord 11y ago
  Stability is arguably the preferable method to retain control.
  - Rmilb 11y ago
    ie, Mandate of Heaven. https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven
- AnimalMuppet 11y ago
  > CCP cares way more about maintaining control than in ensuring stability. That may be true. But I think they also see lack of stability as threatening their ability to remain in control. So in practice, they care a great deal about stability.
  - vinceguidry 11y ago
    They have other ways of maintaining stability. Ways they have been relying on for decades before there ever were viable financial markets. They can simply fall back on those.
    - 11y ago

ocean3 11y ago

Why do think Indian stock market is not transparent?

tintri 11y ago
"india" is being lumped together just for namesake. I don't think indian market is any less transparent than US/Japan or others.
- berberous 11y ago
  Nevsky Capital, a successful hedge fund, just shut down and released an interesting letter to its investors that's worth reading in full. I'm not sure about the transparency of India's stock market, but it did not have nice things to say about the quality of their economic data: "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." http://www.businessinsider.com/nevsky-capital-closing-letter-2016-1 http://www.businessinsider.com/nevsky-capital-closing-letter...
  - chimeracoder 11y ago
    It's really frustrating to see China and India constantly discussed as if they were a single unit, particularly when it comes to economics. Aside from the fact that they are (a) both very large, and (b) both rapidly developing countries/economies, China and India share very little in common. There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.

cubano 11y ago

> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.

marcusgarvey 11y ago
Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...
andrewvc 11y ago
This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...
jfoutz 11y ago
I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.

youonlyliveonce 11y ago

I thought the Indian stock market was relatively transparent

deleted 11y ago

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fnordfnordfnord 11y ago

> in 10-20 years the top 3 markets could be China, India and the US. What about Brazil? (not that they are transparent/credible, but that they ought to have huge economic growth over the next ~20yr)

macspoofing 11y ago
Brazil has a fundamental mistrust of the free-market that holds it back. It's tough doing business in Brazil.
- fnordfnordfnord 11y ago
  I've had a little experience with this and I agree. If they can improve here (and what's to say they won't in the next decade), what's left to hold them back?
- rchaud 11y ago
  What specifically about the free market is hold Brazil back? What changes would increase economic output? I understand that import taxes on things like consumer electronics are punitively high, but that's a cross-section of the consumption aspect of GDP. GDP can still be increased through capital investment, fiscal policy and net export growth.
- mastazi 11y ago
  > It's tough doing business in Brazil. Yes, dysfunctional bureaucracy both in the public and in the private sector (government, banks etc.) makes it really hard to create and manage any business. I tried really hard for a while, but it didn't work out.
leogiertz 11y ago
It's probably going to be a while before Brazil resumes its trajectory: http://www.economist.com/news/briefing/21684778-former-star-emerging-world-faces-lost-decade-irredeemable http://www.economist.com/news/briefing/21684778-former-star-...
- 11y ago

sharetea 11y ago

Doubtful about the top market; China has a 20 year deflationary depression ahead of them. 1-2% gdp growth http://www.barrons.com/articles/anne-stevenson-yang-why-xi-jinpings-troubles-and-chinas-could-get-worse-1417846773 http://www.barrons.com/articles/anne-stevenson-yang-why-xi-j... 280% gdp/debt ratio http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-total-debt-load-now-over-280-of-gdp/ http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-tota... bankrupt shadow banks http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f710807b.html http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f71080... bankrupt state commodity firms http://www.bloomberg.com/news/articles/2015-10-14/the-next-china-default-could-be-days-away-as-steel-firms-suffer http://www.bloomberg.com/news/articles/2015-10-14/the-next-c... only a trillion reserve left http://www.businessinsider.com/china-burned-through-108b-in-december-2016-1 http://www.businessinsider.com/china-burned-through-108b-in-... $850 Billion Left China So Far This Year http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left-china-so-far-this-year/ http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left... Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made-in-china-clothing-label-a-thing-of-the-past/ http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made... Coupled with China's lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising US interest rates...you get the idea

exelius 11y ago
> Coupled with lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising us interest rates... You don't need global consumer brands when your country is the size of China. They have 15% of the world's population and speak a language that few outside the country can speak and even fewer can read: nobody else is going to come in and take those customers except Chinese companies. Corruption is being cleaned up; but it's still a real problem at the local level. Again, pollution is a huge problem but China is betting the farm on "clean" energy tech and will be the energy leaders of the world in 20 years. If (or when) they figure it out, they're the only ones with the manufacturing skill and capacity to mass-produce. The truth is, we've never seen what happens when a large country "awakens" in the age of globalization. Macroeconomic theory is largely based on the import/export balance, which is increasingly less important as borders become less meaningful (and import/export controls become increasingly difficult to enforce). I have a feeling that China will surprise us - despite the fact that they will have negative population growth over the next few decades and an aging population, the fact that they are actively moving subsistence farmers to the cities may stall the effect of a shrinking population with the added consumption / demand from turning poor farmers into urban consumers. Their aging population is also accustomed to a lower standard of living than the up-and-coming generation. Population deflation has been especially damaging to Japan because it hit them after they had become a heavily industrialized country. Despite the huge progress China has made, hundreds of millions of people still live in poor farming villages. That's a source of potential growth that I expect the Chinese government to tap strategically.

grandalf 11y ago

I'm skeptical that the presence of buy and hold investors is the missing ingredient. Even if 15% of investors are speculators, the price can still swing drastically, since price is a function of supply and demand, and the charts we're seeing are not volume-weighted. Market price stability is a function of the uniformity of supply and demand over time. Buy and hold investors already own the stock so their preferences are not reflected in short term supply/demand uniformity (price stability). What we're seeing in China is a lack of uniformity of views on the future price, and thus rapid fluctuations in supply/demand uniformity over time. Government instability plays into that tremendously.

TheOtherHobbes 11y ago
Price is a function of faith in the future. What we're seeing is a lack of faith that many are finding disturbing.
- grandalf 11y ago
  > Price is a function of faith in the future. That is a fairly unfalsifiable statement, and it is trivially true for nearly anything, b/c we all make all decisions today based on the faith/expectation that we will be alive tomorrow. The notion that tomorrow will be substantially different from today makes nearly all planning useless, so it's trivial that all planning hinges on some notion of faith in the future. But price itself is only a function of supply and demand. If I am selling bread and it's nearly time for me to go home and the bread will be stale tomorrow, I might offer the remaining loaves to the last few customers at a discount if I expect it not to sell otherwise, etc. Supply vs demand. Charted on a graph the price would take a nose dive at the end of the day. If a short term investor feels that his position will not improve, it makes sense to liquidate. The more symmetrical market participants' views are, the more the price will change as a result of trading (why would someone sell when they expected the price to go up?. This illustrates the adage that one person's junk is another person's treasure) To be logical we must consider would-be buyers and would-be sellers of the shares. Only in the rather peculiar case of significantly asymmetrical views of the future price will the price remain stable with lots of shares changing hands.

kelvin0 11y ago

I wonder how this relates to the 'ghost' towns being built over there? Could this be a consequence of the slowing rate of construction of these huge cities/housing projects (no one lives in practically)? That artificial growth is/was not sustainable and the bubble is bound to collapse, or is this simply oversimplified view of the problem?

mikeg8 11y ago
I've always wondered about this as well. Heavy investments in new cities, when there was no demand for them, just for the sake of "increased growth" was always a red flag to me. Interested in any correlation.
- ycombobreaker 11y ago
  I don't have any direct sources for this, but the word that I heard from a friend who spent some time in China recently was the following: - Chinese investors have limited places to park their cash. Stock market and real estate are two major options, and real estate is seen as a superior investment (stock market has... problems, you could say) - Chinese law prevents purchasing property without developing it. - Real estate investments therefore require barebones property development--regardless of tenancy--in order to remain legitimate. Therefore, "ghost towns" are a natural outcome of Chinese investment in Chinese growth. They can remain vacant for a long time and still satisfy the investment goals of the developer. (edit: list formatting)
hodder 11y ago
People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt or "artificial" real estate bubble, yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...

JumpCrisscross 11y ago

> For a fully functioning stock market you need...stoggy [sic] old buy/hold/long only investors I'd qualify this with value orientation. To have a successful stock market you need the factors you mentioned plus long-term holding value investors. To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles. Long-term value investors require capital. They also need transparent, liquid markets. China has capital and liquidity. It lacks (along with India, Russia, and a number of other "emerging" equity markets) reliable data and/or trustworthy institutions. This deters long-term value investors [1]. [1] https://www.scribd.com/embeds/294654490/content?start_page=1&view_mode=scroll&access_key=key-xfqKH8QC2LsXN87EW4uk&show_recommendations=false https://www.scribd.com/embeds/294654490/content?start_page=1...

bgun 11y ago
Yes. Or, very simply put, you need more long-term optimists than long-term pessimists. China is wealthy in many ways, but a wealth of optimism is not prevailing.
- deleted 11y ago
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- rrggrr 11y ago
  Optimism in society requires faith in leadership. Trust. Transparency. Perhaps even a higher purpose. Maybe even a sense of global humanity. I do wonder how things may have been different for China had its tooling been fitted for slow, highly transparent and deliberate growth.
anonu 11y ago
> ... put all their money into ETFs: you'd have no price discovery ... I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the index (individual components of that ETF) for you...

pjc50 11y ago

They have plenty of people who want to make long term investments, but no long term trust. Due to the lack of transparancy and impartial rule of law.

hkmurakami 11y ago

> The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. > Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. > As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". This was one of the reasons cited for renowned hedge fund Nevsky Capital closing its doors. They are up 1212% since 2000. [1] "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." [1] http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevsky-capital-shutting-down-full-letter http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevs...

tajen 11y ago

What is "operate properly" for a stock market? For us Westerners, it means be fair and equal to everyone. But maybe for a less efficient country, it means moving from peer-to-peer trades to centralized, which at least defines a unique trading value and is already better than multiple, independent, bilateral sales contracts.

AJ007 11y ago

The most important thing is you need companies that have the ability to return capital to investors. If you do not, what you have is like free-to-play mobile game. Real money goes in, and is then redistributed to the insiders who take it and walk away. This comes in two pieces, first transparency and accuracy of the company: Who is enforcing accounting standards? Who is doing the auditing to ensure the said assets are really there? The second, is the economy based on real demand or something temporary: Are profits dependent on the activity of government officials & central bank finance? It would be very unfair to single China out in this regards, just look at what happened to Brazil.

sopooneo 11y ago

I am very ignorant about all this stuff. But am I correct that until recently, the Chinese government was actively devaluating the yaun to support their export industries? But now they've had to do an about-face and start trying to push it up?

oneJob 11y ago

So, you know that the NYSE was started by a bunch of guys on the edge of town under a tree? The key was they were located at the heart of the business district, where the transactions were occurring. This has been true and crucial since the early days of "finance", since back in medieval and Renaissance times when merchant houses (as in 'establishments', not actual buildings) exchanged debt and eventually stock. As to the US stock market being "fairly transparent and not run by the whims of the government", check your history man. The US stock market has seen some crazy wild, stock manipulation, insider trading, government manipulating, bucket shop, boiler room, "oops, we have too much paper to process so shut the whole thing down" days. And, I should add, those days aren't over. The mess is still all there, it's just much more sophisticated and comes with a better staffed and better funded marketing department.