6 ms·

Surge in Chinese tech stocks is making the dot-com bubble look tame

59 points by viblo 11y ago

viblo 11y ago
Im from Europe and work for in Beijing for a Chinese startup. I do get a bit worried when reading this (and similar articles).
- seanmcdirmid 11y ago
  I'm an american living in Beijing working for a big american company. Everyone around me is a bit worried how the current "non-recession" will play out. Money moving from a crashing real estate market to a bubbly stock market doesn't really inspire confidence. It was only a year ago that the Shanghai stock market was thought toxic given so much insider trading (you couldn't make money on it without guanxi).
  - toomuchtodo 11y ago
    What economic indicator would need to occur for you to start looking for work outside the country and start to pack up?
    - seanmcdirmid 11y ago
      I'm more worried about losing my savings (mostly RMB in China) since I can always go to the states if I lost my job.
      - toomuchtodo 11y ago
        Any thought to shifting your savings to USD ASAP?
        seanmcdirmid 11y ago
        I should do that, but I got rid of my American bank account when I left the country 9 years ago. I also need to do a bunch of paper work to convert the money since we are limited to $50k a year (not a big problem, since I think this is cumulative). So, ya, I'm thinking about it and taking a hit on forex.
        toomuchtodo 11y ago
        Good luck. Interesting times ahead :/
      - amazon_not 11y ago
        What is the current state of Bitcoin in China? Could you buy Bitcoins with RMB locally and sell for USD somewhere else? Please note that this is not an endorsement of Bitcoin or encouragement to use Bitcoin. I'm more interested to hear what the realworld situation of ecurrencies such as Bitcoin are in China and whether it is a feasibel to buy/sell Bitcoins in China.
1971genocide 11y ago
This is really good news. Unlike the US it seems these companies need to proof that they can turn a profit. Economists have been crying out "bubble bubble !" on china for 10 years. The science of capital as applied to western countries do not apply to a system like china where there are so many SOE. Imagine if economists applied the same type of thinking during WW2 and the space race. China seems to be in a similar "war" mode, with there economy. This is a good thing since their goal seem to be allow billions of asians to have the same level of living standard as western countries. The growth of tech outside of silicon valley is good news for everyone. It creates an alternate market for competition, rather than the current monoculture.
- Gustomaximus 11y ago
  I really like your point about competition and mono-culture. It's great seeing tech sectors spring up around the world. I'd personally love to see more Aussies where I am from staying local rather than heading stateside when their funding needs come up as well as the benifits this can bring to poorer countries. However it's really not good news if it is a bubble. My take from the article, while companies may be pulling a profit, given the average valuations they are still extremely overvalued. If this is the case absolute profit means diddly without income to value ratio and there will be a rude awaking when people realise this as we have seen repeatedly in history. Unfortunately finance world errors like this flow heavily into day to day life of everyone else. And as for people crying out "bubble bubble !" on china for 10 years. In my life typically people make these claims for years pre-implosion (see dot-com bubble) almost to the point you get skeptical and think they are naysayers, and then it happens. And if this market pops, people wont trust the sector for some time after a bust forcing people out of the tech industry, general flow on repercussions to the economy, let alone the international repercussions for an economy the size of China.
  - ekidd 11y ago
    As Keynes famously observed, "Markets can remain irrational longer than you can remain solvent" (while betting against them). Markets can look bubbly for many years before the bubble bursts. Having lived through both the first dot-com bubble and the recent real-estate bubble, I've noticed a pattern: 1. Natural cynics think things are looking a bit bubbly. 2. Years pass. 3. Society as whole becomes heavily invested in the bubble. I can't go to a cocktail party or family reunion without people buttonholing me to talk about tech stocks or real estate. 4. An ideology is invested explaining why assets of category X will undergo very long-term exponential growth. During the dotcom boom, it was "Dow 36,000". During the real estate boom, it was "If you don't buy a house now, you'll never be able to afford one." (If you're cynical, you might assume this kind of delusional hype is an effort to find one last fool to buy in before the party's over.) 5. The whole thing explodes messily. So for me, those are the warning signs: Society-wide buy-in, and new ideologies that explain why "X will always go up." Oddly, this means I'm not too worried by a near-term tech bubble, despite the hype and money in San Francisco: I'm not seeing the widespread public buy-in and rampant wishful thinking I've seen before. Of course, this may be because few companies are undergoing IPOs, and the bubble is limited strictly to private capital.
sbt 11y ago
Some interesting take on this from Deutsche Bank: "Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times"
- adventured 11y ago
  China curbed the flood of money going into real estate, trying to prevent that market from over-heating and crashing (which has led to a falling real estate market). That money has redirected into equities. China saw three million new stock trading accounts opened in just the first two weeks of April. China has been flooding their economy with truly massive sums of liquidity and debt the last five years. It will continue to redirect into available assets until it gets destroyed in a crash (which will be in the form of a huge stock market crash, soon). This is end of the line for China's boom phase. They're almost perfectly repeating what Japan went through as their growth boom came to a halt, including the mistakes (extreme debt, asset bubbles in real estate and stocks, etc), and other signals such as demographic decline and 'deflation.'
  - AJ007 11y ago
    These China bubble stories on HN are very amusing. I can remember a few in the past suddenly filled with commenters writing in broken English that there was no bubble for X, Y, Z reasons. While I did not at the time, I now wonder if some of our commenters here are employed by the Chinese government. I've been following Michael Pettis quite closely. Great analyst, understands and explains the global balance of payments very well, lives in China, etc. His opinion has moved from 'China needs to rebalance' to wording that sounds like he's not sure there is going to be much growth for a long time. China's growth for some time has been the result of malinvestment on a massive scale. At minimum since 2008, possibly even before that. The factories that we think could be productive and producing things people really want at the right price could be in that position because of very negative inputs (unaccounted for pollution, interest rates being subsidized by someone else, etc.) Fundamentally, when you have an economy growing at a rate above the interest rate, many companies can just overgrow their debt while taking on new debt. Unprofitable operations can be hidden for decades. It is now within the realm of possibility that China could see 1-2% growth for decades ahead. In short term, I would expect negative GDP growth. Based on what has happened to the price of oil (and other raw materials), and the drop in high end consumption due to a 'corruption crackdown' this could already be underway. In general this should be a good thing. Certainly it is for the environment and climate change.
stefap2 11y ago
So, should we be shorting these stocks?
nabla9 11y ago
Just look at the KPCB office locations: Menlo Park, San Francisco, Beijing, Shanghai.

59 points by viblo 11y ago

viblo 11y ago

Im from Europe and work for in Beijing for a Chinese startup. I do get a bit worried when reading this (and similar articles).

seanmcdirmid 11y ago
I'm an american living in Beijing working for a big american company. Everyone around me is a bit worried how the current "non-recession" will play out. Money moving from a crashing real estate market to a bubbly stock market doesn't really inspire confidence. It was only a year ago that the Shanghai stock market was thought toxic given so much insider trading (you couldn't make money on it without guanxi).
- toomuchtodo 11y ago
  What economic indicator would need to occur for you to start looking for work outside the country and start to pack up?
  - seanmcdirmid 11y ago
    I'm more worried about losing my savings (mostly RMB in China) since I can always go to the states if I lost my job.
    - toomuchtodo 11y ago
      Any thought to shifting your savings to USD ASAP?
      - seanmcdirmid 11y ago
        I should do that, but I got rid of my American bank account when I left the country 9 years ago. I also need to do a bunch of paper work to convert the money since we are limited to $50k a year (not a big problem, since I think this is cumulative). So, ya, I'm thinking about it and taking a hit on forex.
        toomuchtodo 11y ago
        Good luck. Interesting times ahead :/
    - amazon_not 11y ago
      What is the current state of Bitcoin in China? Could you buy Bitcoins with RMB locally and sell for USD somewhere else? Please note that this is not an endorsement of Bitcoin or encouragement to use Bitcoin. I'm more interested to hear what the realworld situation of ecurrencies such as Bitcoin are in China and whether it is a feasibel to buy/sell Bitcoins in China.

1971genocide 11y ago

This is really good news. Unlike the US it seems these companies need to proof that they can turn a profit. Economists have been crying out "bubble bubble !" on china for 10 years. The science of capital as applied to western countries do not apply to a system like china where there are so many SOE. Imagine if economists applied the same type of thinking during WW2 and the space race. China seems to be in a similar "war" mode, with there economy. This is a good thing since their goal seem to be allow billions of asians to have the same level of living standard as western countries. The growth of tech outside of silicon valley is good news for everyone. It creates an alternate market for competition, rather than the current monoculture.

Gustomaximus 11y ago
I really like your point about competition and mono-culture. It's great seeing tech sectors spring up around the world. I'd personally love to see more Aussies where I am from staying local rather than heading stateside when their funding needs come up as well as the benifits this can bring to poorer countries. However it's really not good news if it is a bubble. My take from the article, while companies may be pulling a profit, given the average valuations they are still extremely overvalued. If this is the case absolute profit means diddly without income to value ratio and there will be a rude awaking when people realise this as we have seen repeatedly in history. Unfortunately finance world errors like this flow heavily into day to day life of everyone else. And as for people crying out "bubble bubble !" on china for 10 years. In my life typically people make these claims for years pre-implosion (see dot-com bubble) almost to the point you get skeptical and think they are naysayers, and then it happens. And if this market pops, people wont trust the sector for some time after a bust forcing people out of the tech industry, general flow on repercussions to the economy, let alone the international repercussions for an economy the size of China.
- ekidd 11y ago
  As Keynes famously observed, "Markets can remain irrational longer than you can remain solvent" (while betting against them). Markets can look bubbly for many years before the bubble bursts. Having lived through both the first dot-com bubble and the recent real-estate bubble, I've noticed a pattern: 1. Natural cynics think things are looking a bit bubbly. 2. Years pass. 3. Society as whole becomes heavily invested in the bubble. I can't go to a cocktail party or family reunion without people buttonholing me to talk about tech stocks or real estate. 4. An ideology is invested explaining why assets of category X will undergo very long-term exponential growth. During the dotcom boom, it was "Dow 36,000". During the real estate boom, it was "If you don't buy a house now, you'll never be able to afford one." (If you're cynical, you might assume this kind of delusional hype is an effort to find one last fool to buy in before the party's over.) 5. The whole thing explodes messily. So for me, those are the warning signs: Society-wide buy-in, and new ideologies that explain why "X will always go up." Oddly, this means I'm not too worried by a near-term tech bubble, despite the hype and money in San Francisco: I'm not seeing the widespread public buy-in and rampant wishful thinking I've seen before. Of course, this may be because few companies are undergoing IPOs, and the bubble is limited strictly to private capital.

sbt 11y ago

Some interesting take on this from Deutsche Bank: "Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times"

adventured 11y ago
China curbed the flood of money going into real estate, trying to prevent that market from over-heating and crashing (which has led to a falling real estate market). That money has redirected into equities. China saw three million new stock trading accounts opened in just the first two weeks of April. China has been flooding their economy with truly massive sums of liquidity and debt the last five years. It will continue to redirect into available assets until it gets destroyed in a crash (which will be in the form of a huge stock market crash, soon). This is end of the line for China's boom phase. They're almost perfectly repeating what Japan went through as their growth boom came to a halt, including the mistakes (extreme debt, asset bubbles in real estate and stocks, etc), and other signals such as demographic decline and 'deflation.'
- AJ007 11y ago
  These China bubble stories on HN are very amusing. I can remember a few in the past suddenly filled with commenters writing in broken English that there was no bubble for X, Y, Z reasons. While I did not at the time, I now wonder if some of our commenters here are employed by the Chinese government. I've been following Michael Pettis quite closely. Great analyst, understands and explains the global balance of payments very well, lives in China, etc. His opinion has moved from 'China needs to rebalance' to wording that sounds like he's not sure there is going to be much growth for a long time. China's growth for some time has been the result of malinvestment on a massive scale. At minimum since 2008, possibly even before that. The factories that we think could be productive and producing things people really want at the right price could be in that position because of very negative inputs (unaccounted for pollution, interest rates being subsidized by someone else, etc.) Fundamentally, when you have an economy growing at a rate above the interest rate, many companies can just overgrow their debt while taking on new debt. Unprofitable operations can be hidden for decades. It is now within the realm of possibility that China could see 1-2% growth for decades ahead. In short term, I would expect negative GDP growth. Based on what has happened to the price of oil (and other raw materials), and the drop in high end consumption due to a 'corruption crackdown' this could already be underway. In general this should be a good thing. Certainly it is for the environment and climate change.

stefap2 11y ago

So, should we be shorting these stocks?

nabla9 11y ago

Just look at the KPCB office locations: Menlo Park, San Francisco, Beijing, Shanghai.