5 ms·

Panic wipes £2tn off Chinese shares

61 points by danmaz74 11y ago

tiatia 11y ago
Well, what goes up can go down. Considering the volatility of this stockmarket, this is not very surprising. Two things: 1. Seeing poor people (fruit street traders etc.) trading in their cell phone is not necessary a healthy sign. 2. I am not sure that Chinese mentality and stockmarket go well together. Seeing investors (stock holders) that you don't know as partners and giving money to them via dividends will sound absurd for many Chinese.
- deleted 11y ago
  [deleted]
tim333 11y ago
The government should have been trying to influence prices downwards when they were at about 2 times the fair value of the assets, not prop them up when they are at 10 times. Overpriced bubbles just end up with money transferred from ordinary people into dubious schemes and are an inefficient use of capital. See the 1999 dot com bubble, the 2006 US house price bubble and the like. You end up with a bunch of money pissed away in pets.com like ventures or thousands of houses/flats built somewhere where there isn't the demand. (I've got one of the latter as a result of my own dumb speculation).
- danmaz74 11y ago
  If only we could know what the "fair value" of an asset is...
  - brobinson 11y ago
    China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.
    - fooster 11y ago
      What makes you think there is no chinese GAAP? https://en.wikipedia.org/wiki/Chinese_accounting_standards https://en.wikipedia.org/wiki/Chinese_accounting_standards
      - brobinson 11y ago
        >similarity between the new Chinese accounting standards and the IFRS is almost 90–95% I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. Thanks for the link.
        fredkbloggs 11y ago
        > I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. It still can't. The existence of standards does not imply compliance. I view the Chinese market as similar to Russia's: there are rules, but there are a lot of people who are effectively exempt from following them (at least until someone more powerful decides they aren't). Add in the lack of cultural taboos against defrauding others and it's a very difficult market. Accounting standards were (some might say still are) a problem, but not the problem.
        brobinson 11y ago
        The Party's internal crackdown on corruption is apparently pretty comical according to mainland Chinese of mine as everyone there knows that pretty much everyone in power is hopelessly corrupt. C'est la vie.
  - digi_owl 11y ago
    If it is shares, consider the total value of company holdings if it was all sold off that day. if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.
    - joosters 11y ago
      That doesn't answer the question, we still need to know the 'value of the company holdings', as you say. It's not the same as selling all the physical possessions of a company. You have to look at the income generated by the company, and then form an opinion of its worth. That's a subjective thing, so again we're back to the problem of determining a fair value. Basically, there's no formula for it. Or at least, no formula that everyone agrees on!
      - jqm 11y ago
        In a theoretical sense, yes. In a practical sense, from a conservative perspective there are ways to tell market pricing probably exceeds actual value. And authorities could take steps at that juncture. But everyone wants to keep the petal as close to the metal as possible and keep pumping growth hoping reality catches up eventually. Which results in well deserved wrecks from time to time.
    - danmaz74 11y ago
      > If it is shares, consider the total value of company holdings if it was all sold off that day. So, value of every tech startup everywhere ~= 0
      - pavel_lishin 11y ago
        Depending on how you want to round it off, I guess. $EMPLOYEE_COUNT * ($PRICE_OF_MACBOOK + 5*$PRICE_OF_SODA) + $PRICE_OF_PING_PONG_TABLE
    - howlingfantods 11y ago
      Enterprise value (total value of sold that day) is generally only used for liquidation scenarios. Usually for a going concern, the share price is calculated as the net present value of all future cash flows (dividends or sometimes earnings), usually as some variation of the dividend discount model.
  - durkie 11y ago
    for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
  - durkie 11y ago
    for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
  - tim333 11y ago
    True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.
- allworknoplay 11y ago
  Seriously, "wiped value" -> "price corrected"
paulpauper 11y ago
I wonder if this has anything to do with prices being grotesquely overextended? It's not normal for a market to double in less than a year when inflation is otherwise low.
- mkempe 11y ago
  Alternative explanation: the growth of money manifests itself by inflating some prices before others, e.g. the stock market before groceries. After all, money must flow through the system before price levels reach an equilibrium that matches the new total amount of money. And if the State keeps printing more money, there is no "equilibrium", just unstable price signals until the next crash or major change in the rate of money growth.
howlingfantods 11y ago
It's interesting to read the Chinese social media reactions to the stock market crash. In the beginning it was mostly hopeful mixed with a bit of schadenfreude. Then it was resigned with a lot of morbid jokes. Now, there is a degree of anger you didn't see before. There is even a streak of nationalism with some rumors claiming western forces are conspiring to bring down the Chinese market. Some social media posts are literally "buy stocks if you love our motherland."
- fredkbloggs 11y ago
  In September 2001 (and again in 2008) it was "go shopping for America!" Cynically manipulative nationalism knows no borders, sadly.
  - SilasX 11y ago
    Warren Buffet in 2008 sold the line "Buy American [stocks]. I am." (That gave him enough leeway to potentially insist he meant "I am American" not "I am buying American stocks"...)

61 points by danmaz74 11y ago

Well, what goes up can go down. Considering the volatility of this stockmarket, this is not very surprising. Two things: 1. Seeing poor people (fruit street traders etc.) trading in their cell phone is not necessary a healthy sign. 2. I am not sure that Chinese mentality and stockmarket go well together. Seeing investors (stock holders) that you don't know as partners and giving money to them via dividends will sound absurd for many Chinese.

deleted 11y ago
[deleted]

tim333 11y ago

The government should have been trying to influence prices downwards when they were at about 2 times the fair value of the assets, not prop them up when they are at 10 times. Overpriced bubbles just end up with money transferred from ordinary people into dubious schemes and are an inefficient use of capital. See the 1999 dot com bubble, the 2006 US house price bubble and the like. You end up with a bunch of money pissed away in pets.com like ventures or thousands of houses/flats built somewhere where there isn't the demand. (I've got one of the latter as a result of my own dumb speculation).

danmaz74 11y ago
If only we could know what the "fair value" of an asset is...
- brobinson 11y ago
  China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.
  - fooster 11y ago
    What makes you think there is no chinese GAAP? https://en.wikipedia.org/wiki/Chinese_accounting_standards https://en.wikipedia.org/wiki/Chinese_accounting_standards
    - brobinson 11y ago
      >similarity between the new Chinese accounting standards and the IFRS is almost 90–95% I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. Thanks for the link.
      - fredkbloggs 11y ago
        > I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements. It still can't. The existence of standards does not imply compliance. I view the Chinese market as similar to Russia's: there are rules, but there are a lot of people who are effectively exempt from following them (at least until someone more powerful decides they aren't). Add in the lack of cultural taboos against defrauding others and it's a very difficult market. Accounting standards were (some might say still are) a problem, but not the problem.
        brobinson 11y ago
        The Party's internal crackdown on corruption is apparently pretty comical according to mainland Chinese of mine as everyone there knows that pretty much everyone in power is hopelessly corrupt. C'est la vie.
- digi_owl 11y ago
  If it is shares, consider the total value of company holdings if it was all sold off that day. if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.
  - joosters 11y ago
    That doesn't answer the question, we still need to know the 'value of the company holdings', as you say. It's not the same as selling all the physical possessions of a company. You have to look at the income generated by the company, and then form an opinion of its worth. That's a subjective thing, so again we're back to the problem of determining a fair value. Basically, there's no formula for it. Or at least, no formula that everyone agrees on!
    - jqm 11y ago
      In a theoretical sense, yes. In a practical sense, from a conservative perspective there are ways to tell market pricing probably exceeds actual value. And authorities could take steps at that juncture. But everyone wants to keep the petal as close to the metal as possible and keep pumping growth hoping reality catches up eventually. Which results in well deserved wrecks from time to time.
  - danmaz74 11y ago
    > If it is shares, consider the total value of company holdings if it was all sold off that day. So, value of every tech startup everywhere ~= 0
    - pavel_lishin 11y ago
      Depending on how you want to round it off, I guess. $EMPLOYEE_COUNT * ($PRICE_OF_MACBOOK + 5*$PRICE_OF_SODA) + $PRICE_OF_PING_PONG_TABLE
  - howlingfantods 11y ago
    Enterprise value (total value of sold that day) is generally only used for liquidation scenarios. Usually for a going concern, the share price is calculated as the net present value of all future cash flows (dividends or sometimes earnings), usually as some variation of the dividend discount model.
- durkie 11y ago
  for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
- durkie 11y ago
  for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.
- tim333 11y ago
  True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.
allworknoplay 11y ago
Seriously, "wiped value" -> "price corrected"

paulpauper 11y ago

I wonder if this has anything to do with prices being grotesquely overextended? It's not normal for a market to double in less than a year when inflation is otherwise low.

mkempe 11y ago
Alternative explanation: the growth of money manifests itself by inflating some prices before others, e.g. the stock market before groceries. After all, money must flow through the system before price levels reach an equilibrium that matches the new total amount of money. And if the State keeps printing more money, there is no "equilibrium", just unstable price signals until the next crash or major change in the rate of money growth.

howlingfantods 11y ago

It's interesting to read the Chinese social media reactions to the stock market crash. In the beginning it was mostly hopeful mixed with a bit of schadenfreude. Then it was resigned with a lot of morbid jokes. Now, there is a degree of anger you didn't see before. There is even a streak of nationalism with some rumors claiming western forces are conspiring to bring down the Chinese market. Some social media posts are literally "buy stocks if you love our motherland."

fredkbloggs 11y ago
In September 2001 (and again in 2008) it was "go shopping for America!" Cynically manipulative nationalism knows no borders, sadly.
- SilasX 11y ago
  Warren Buffet in 2008 sold the line "Buy American [stocks]. I am." (That gave him enough leeway to potentially insist he meant "I am American" not "I am buying American stocks"...)