6 ms·

China Tries Japan's Approach to a Stock Bubble

74 points by chollida1 11y ago

chollida1 11y ago
China's been in the news for the past week and we've had alot of stories posted about it. This is the best summary of the Chinese stock market that I've seen. This particular thread: https://news.ycombinator.com/item?id=9849360 https://news.ycombinator.com/item?id=9849360 Is what made me post this. I understand that most people don't understand the markets but that thread in particular has alot of embarrassing and flat out wrong ideas in it. EDIT it turns out I posted a link to the middle of the document. Below is what the link should be:( http://newsletters.briefs.bloomberg.com/document/25z1bq1xnb2zkmlet8/front http://newsletters.briefs.bloomberg.com/document/25z1bq1xnb2...
eloy 11y ago
The title sounds very clickbait, or is that just me?
- stevehawk 11y ago
  It absolutely is. The actual title of the article, which is actually semi-informative, is : China Tries Japan's Approach to a Stock Bubble
- chollida1 11y ago
  Sorry, that's what the actual article's head line is. I didn't want to change it. Scroll to the top of the article. I accidentally linked to the middle somehow.
  - ctdonath 11y ago
    Then apparently Bloomberg did, because now it reads "China Tries Japan's Approach to a Stock Bubble".
    - auntienomen 11y ago
      This is par for the course with Bloomberg. "Stocks Down After Blah" frequently changes to "Stocks Up After Blah".
sharetea 11y ago
The similarity between China now and Japan 1990 is very noticeable. That is, they're both exporting country that has an aging demographic which likes to save, has a small consumer base compared to export, and is losing export shares as production moves out of country to other cheaper countries. And they both choose to save the banking system instead of letting it self correct. This means that China will likely see 10-20 years of deflationary decline just like Japan. However, because China suffers from massive capital outflow from rich leaving the country, and it already has reached very high debt to GDP ratio (something Japan reached only years later after 1990), I would say China is in even worse shape than Japan in 1990.
- peteretep 11y ago
  There's a real difference in the military stance, though. Governments who'll countenance military action often turn to it to build popular support, an option that wasn't meaningfully available to 90's Japan.
- LiweiZ 11y ago
  They are very different countries. Putting them into the same category seems not a good starting point, if one really wants to dig deep. Of course, it's easier to have a rough idea with this approach for many.
- jpatokal 11y ago
  There are other differences: Japan was essentially a fully developed nation by the time the crash hit, while large parts of China are not. Also, Japan has a more or less functioning democracy capable of letting its people changing those in power peacefully, while China does not.
  - toyg 11y ago
    "Changing" up to a point -- the LDP has been in power continuously until 2009. What people could do was just to force occasional reshuffles, which is not very different from what the Chinese can do today.
  - peteretep 11y ago
jakozaur 11y ago
"The real fallout from China's troubles would be regional." I wish that was true... though I wouldn't treat it as obvious fact. China is big enough that it woes can cause global impact. Given that a lot of indexes (e.g. S&P500) are all time high, central banks have close to 0 interest rate, there is little room for maneuver... Economist's recent article: http://www.economist.com/news/leaders/21654053-it-only-matter-time-next-recession-strikes-rich-world-not-ready-watch http://www.economist.com/news/leaders/21654053-it-only-matte...
weeksie 11y ago
On the upside, the AUD will probably shit the bed now. Which is nice, because I'm more than happy to come back in a year or two and pick up a little terrace in Newtown for something resembling a sane asking price.
- spacehunt 11y ago
  Yes, this plus the impending US interest rate climb means the AUD will probably drop like a brick. Good for those of us not in the country, but with most everything except food being imported nowadays I can't imagine how people down there will live...
  - weeksie 11y ago
    Yeah, I'm feeling that it'll be a bit like the late 90s/early 00s at least from an exchange perspective. But coupled with a pretty inevitable housing bust on a massively inflated market. . . . It's going to be tough going for a while. That said, it'll be a good time to be selling to the US market.
- escherplex 11y ago
  If you have the resources, seems like an appropriate time to implement a good home infrastructure for yourself. Do it once, do it well, then go into maintenance mode. It's the incessant need for NEW that screws most people up. On the plus side, to a point, it does help the export market. That is if the main importing economies themselves haven't tanked or lost an appetite for your stuff.
LiweiZ 11y ago
It's just a Casino operated by rulers. Many in China know it. But average people just can not resist the lure. This has happened in China several times. The new generation (perhaps those were born after 1985) is getting their own lessons and pay the tuitions this time. [edit]: to downvoters, reason for downvoting my comment? If you are not familiar with average people in China, please do your homework.
- vardump 11y ago
  Upvoted, because you hit the core issue. A lot of money is just betting and doing no research past staring at stock valuation chart. Sell if stock is going down, buy if it goes up. That tends to amplify random noise to a high level of volatility. Contagion risk to the rest of Chinese economy is what the people should be worried about. A lot of the bets have been done with money loaned from somewhere. This will affect the rest of the economy.
  - LiweiZ 11y ago
    Many average investors just watch what's said on media and friends and take the follower strategy. Actually rulers are taking advantage of it, though it seems hard to believe at first.
  - hockley 11y ago
    Is it even possible to conduct proper valuations of Chinese equities? If the equity markets have the same standards for transparency as other sectors of Chinese society, I don't see how that's possible.
- stevehawk 11y ago
  I've heard an anecdote like : US citizens are more likely to bet against the trend Chinese citizens are more likely to bet with the trend Is that what you mean?
  - LiweiZ 11y ago
    That's not what I mean. Casino owners use it as a way to make money out of the players. This applies to the financial market in China.
avodonosov 11y ago
Maybe a year ago this was posted at HN: http://qz.com/198458/zombies-once-destroyed-japans-economy-now-theyre-infecting-chinas/ http://qz.com/198458/zombies-once-destroyed-japans-economy-n... An interesting article comparing China today and Japan in 1980-s, and predicting problems for China.
- positr0n 11y ago
  It's not that impressive considering an article positing doom and gloom for China's economy has been in the mainstream news about once a week for the last decade. :-)
  - avodonosov 11y ago
    I wasn't aware of that :)
yalogin 11y ago
Will this effect the US economy/stock market?
- thescrewdriver 11y ago
  yes
- simonh 11y ago
  No. The Tokyo stock exchange crash in the 80s didn't, nor did the Asian financial crisis in the 90s. It's a local issue. Unless you or your company have direct exposure to China you should be fine. For the USA and Europe, Greece is a much, much bigger deal because it's much more heavily integrated into our financial systems.
  - jandrese 11y ago
    I wouldn't say that there will be no effect, but I don't think the US stock market is going to be too severely impacted. It's kind of crazy to think that because China is our largest trading partner and we manufacture so many goods over there, but most of what we do isn't tied that heavily into their stock market.
paulpauper 11y ago
So in other words, an asset class that has been run-up very quickly is falling very quickly. The media acts like this is unusual, when those who actually study markets see that it happens all the time.
holdenc 11y ago
Let's get real about the China stock market "crash" -- all major China stock indices are still up between 30% - 70% from 12 months ago. Somehow the run-up in prices was business as usual, but the slide down is a catastrophe. A real crash has much further down to go. (scroll down to the China indices) http://www.bloomberg.com/markets/stocks/world-indexes/asia-pacific http://www.bloomberg.com/markets/stocks/world-indexes/asia-p...
- npalli 11y ago
  That's a pretty bad way to look at a bubble and feel calm. In reality, most bubbles at start are bought in by smart money, insiders, big boys etc. and at the end (peak) are bought by retail investors - mom&pop, grandmothers etc. who are not sophisticated and put their life savings or borrow on margin and bet on single stocks (not the index). They see the rise in individual stocks and get in too late. These retail investors are feeling the pain right now and their loss is huge. So yeah, I wouldn't feel calm about the bubble bursting.
  - holdenc 11y ago
    It's certainly a shame when unsophisticated investors pile in after a huge run-up in prices. The good news is that if they got in one year ago they are likely still above water. If they got in after that they should have been wary of bubble prices.
    - jandrese 11y ago
      You are assuming the slide is going to stop today and/or that they can pull their money out today. If there is a huge rush to pull money out of the market it will accelerate the decline. A classic bubble pop.
    - digi_owl 11y ago
      Because the nice guys wearing suit and tie tell them it is all perfectly save, just sign the dotted line and they will put your (loaned) money to work on the market...
- deleted 11y ago
powerapple 11y ago
Should we go to reddit to read news like this? Look at the frontpage, we have two entries for the blooding Chinese stock market. Please let's get away from these stories and stay with what Hacker News should be.
dschiptsov 11y ago
It is a classic speculator's Ponzi Scheme, based on social contagion and mass hysteria, what else?
harry8 11y ago
Rest easy, Goldman's assure us there's no bubble. Where there is major government fraud, Goldman's are there. Goldman's assured the world that Greece's immediately doubling debt value to cheat the EU rules was fine so they've given themselves a reputation in these matters. Where are Goldman's involved? Short it.
hackuser 11y ago
In 2013 it was revealed that Bloomberg censored China reporting that was objectionable to the Chinese government. I'm not sure why anyone trusts their reporting now. http://www.nytimes.com/2013/11/09/world/asia/bloomberg-news-is-said-to-curb-articles-that-might-anger-china.html http://www.nytimes.com/2013/11/09/world/asia/bloomberg-news-... EDIT: Whey I say, "I'm not sure", I mean it. Is there more to the story?
- rahimnathwani 11y ago
  Bloomberg's web site (including this article) are blocked in China.
hackuser 11y ago
Here's an interesting analysis from The Economist: http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash http://www.economist.com/blogs/freeexchange/2015/07/chinas-s... Quick summary: The market isn't in such horrible shape, and it's impact on the economy is much smaller than in more advanced economies, so why the panicked response?

74 points by chollida1 11y ago

China's been in the news for the past week and we've had alot of stories posted about it. This is the best summary of the Chinese stock market that I've seen. This particular thread: https://news.ycombinator.com/item?id=9849360 https://news.ycombinator.com/item?id=9849360 Is what made me post this. I understand that most people don't understand the markets but that thread in particular has alot of embarrassing and flat out wrong ideas in it. EDIT it turns out I posted a link to the middle of the document. Below is what the link should be:( http://newsletters.briefs.bloomberg.com/document/25z1bq1xnb2zkmlet8/front http://newsletters.briefs.bloomberg.com/document/25z1bq1xnb2...

eloy 11y ago

The title sounds very clickbait, or is that just me?

stevehawk 11y ago
It absolutely is. The actual title of the article, which is actually semi-informative, is : China Tries Japan's Approach to a Stock Bubble
chollida1 11y ago
Sorry, that's what the actual article's head line is. I didn't want to change it. Scroll to the top of the article. I accidentally linked to the middle somehow.
- ctdonath 11y ago
  Then apparently Bloomberg did, because now it reads "China Tries Japan's Approach to a Stock Bubble".
  - auntienomen 11y ago
    This is par for the course with Bloomberg. "Stocks Down After Blah" frequently changes to "Stocks Up After Blah".

sharetea 11y ago

The similarity between China now and Japan 1990 is very noticeable. That is, they're both exporting country that has an aging demographic which likes to save, has a small consumer base compared to export, and is losing export shares as production moves out of country to other cheaper countries. And they both choose to save the banking system instead of letting it self correct. This means that China will likely see 10-20 years of deflationary decline just like Japan. However, because China suffers from massive capital outflow from rich leaving the country, and it already has reached very high debt to GDP ratio (something Japan reached only years later after 1990), I would say China is in even worse shape than Japan in 1990.

peteretep 11y ago
There's a real difference in the military stance, though. Governments who'll countenance military action often turn to it to build popular support, an option that wasn't meaningfully available to 90's Japan.
LiweiZ 11y ago
They are very different countries. Putting them into the same category seems not a good starting point, if one really wants to dig deep. Of course, it's easier to have a rough idea with this approach for many.
jpatokal 11y ago
There are other differences: Japan was essentially a fully developed nation by the time the crash hit, while large parts of China are not. Also, Japan has a more or less functioning democracy capable of letting its people changing those in power peacefully, while China does not.
- toyg 11y ago
  "Changing" up to a point -- the LDP has been in power continuously until 2009. What people could do was just to force occasional reshuffles, which is not very different from what the Chinese can do today.
- peteretep 11y ago

jakozaur 11y ago

"The real fallout from China's troubles would be regional." I wish that was true... though I wouldn't treat it as obvious fact. China is big enough that it woes can cause global impact. Given that a lot of indexes (e.g. S&P500) are all time high, central banks have close to 0 interest rate, there is little room for maneuver... Economist's recent article: http://www.economist.com/news/leaders/21654053-it-only-matter-time-next-recession-strikes-rich-world-not-ready-watch http://www.economist.com/news/leaders/21654053-it-only-matte...

weeksie 11y ago

On the upside, the AUD will probably shit the bed now. Which is nice, because I'm more than happy to come back in a year or two and pick up a little terrace in Newtown for something resembling a sane asking price.

spacehunt 11y ago
Yes, this plus the impending US interest rate climb means the AUD will probably drop like a brick. Good for those of us not in the country, but with most everything except food being imported nowadays I can't imagine how people down there will live...
- weeksie 11y ago
  Yeah, I'm feeling that it'll be a bit like the late 90s/early 00s at least from an exchange perspective. But coupled with a pretty inevitable housing bust on a massively inflated market. . . . It's going to be tough going for a while. That said, it'll be a good time to be selling to the US market.
escherplex 11y ago
If you have the resources, seems like an appropriate time to implement a good home infrastructure for yourself. Do it once, do it well, then go into maintenance mode. It's the incessant need for NEW that screws most people up. On the plus side, to a point, it does help the export market. That is if the main importing economies themselves haven't tanked or lost an appetite for your stuff.

LiweiZ 11y ago

It's just a Casino operated by rulers. Many in China know it. But average people just can not resist the lure. This has happened in China several times. The new generation (perhaps those were born after 1985) is getting their own lessons and pay the tuitions this time. [edit]: to downvoters, reason for downvoting my comment? If you are not familiar with average people in China, please do your homework.

vardump 11y ago
Upvoted, because you hit the core issue. A lot of money is just betting and doing no research past staring at stock valuation chart. Sell if stock is going down, buy if it goes up. That tends to amplify random noise to a high level of volatility. Contagion risk to the rest of Chinese economy is what the people should be worried about. A lot of the bets have been done with money loaned from somewhere. This will affect the rest of the economy.
- LiweiZ 11y ago
  Many average investors just watch what's said on media and friends and take the follower strategy. Actually rulers are taking advantage of it, though it seems hard to believe at first.
- hockley 11y ago
  Is it even possible to conduct proper valuations of Chinese equities? If the equity markets have the same standards for transparency as other sectors of Chinese society, I don't see how that's possible.
stevehawk 11y ago
I've heard an anecdote like : US citizens are more likely to bet against the trend Chinese citizens are more likely to bet with the trend Is that what you mean?
- LiweiZ 11y ago
  That's not what I mean. Casino owners use it as a way to make money out of the players. This applies to the financial market in China.

avodonosov 11y ago

Maybe a year ago this was posted at HN: http://qz.com/198458/zombies-once-destroyed-japans-economy-now-theyre-infecting-chinas/ http://qz.com/198458/zombies-once-destroyed-japans-economy-n... An interesting article comparing China today and Japan in 1980-s, and predicting problems for China.

positr0n 11y ago
It's not that impressive considering an article positing doom and gloom for China's economy has been in the mainstream news about once a week for the last decade. :-)
- avodonosov 11y ago
  I wasn't aware of that :)

yalogin 11y ago

Will this effect the US economy/stock market?

thescrewdriver 11y ago
yes
simonh 11y ago
No. The Tokyo stock exchange crash in the 80s didn't, nor did the Asian financial crisis in the 90s. It's a local issue. Unless you or your company have direct exposure to China you should be fine. For the USA and Europe, Greece is a much, much bigger deal because it's much more heavily integrated into our financial systems.
- jandrese 11y ago
  I wouldn't say that there will be no effect, but I don't think the US stock market is going to be too severely impacted. It's kind of crazy to think that because China is our largest trading partner and we manufacture so many goods over there, but most of what we do isn't tied that heavily into their stock market.

paulpauper 11y ago

So in other words, an asset class that has been run-up very quickly is falling very quickly. The media acts like this is unusual, when those who actually study markets see that it happens all the time.

holdenc 11y ago

Let's get real about the China stock market "crash" -- all major China stock indices are still up between 30% - 70% from 12 months ago. Somehow the run-up in prices was business as usual, but the slide down is a catastrophe. A real crash has much further down to go. (scroll down to the China indices) http://www.bloomberg.com/markets/stocks/world-indexes/asia-pacific http://www.bloomberg.com/markets/stocks/world-indexes/asia-p...

npalli 11y ago
That's a pretty bad way to look at a bubble and feel calm. In reality, most bubbles at start are bought in by smart money, insiders, big boys etc. and at the end (peak) are bought by retail investors - mom&pop, grandmothers etc. who are not sophisticated and put their life savings or borrow on margin and bet on single stocks (not the index). They see the rise in individual stocks and get in too late. These retail investors are feeling the pain right now and their loss is huge. So yeah, I wouldn't feel calm about the bubble bursting.
- holdenc 11y ago
  It's certainly a shame when unsophisticated investors pile in after a huge run-up in prices. The good news is that if they got in one year ago they are likely still above water. If they got in after that they should have been wary of bubble prices.
  - jandrese 11y ago
    You are assuming the slide is going to stop today and/or that they can pull their money out today. If there is a huge rush to pull money out of the market it will accelerate the decline. A classic bubble pop.
  - digi_owl 11y ago
    Because the nice guys wearing suit and tie tell them it is all perfectly save, just sign the dotted line and they will put your (loaned) money to work on the market...
deleted 11y ago

powerapple 11y ago

Should we go to reddit to read news like this? Look at the frontpage, we have two entries for the blooding Chinese stock market. Please let's get away from these stories and stay with what Hacker News should be.

dschiptsov 11y ago

It is a classic speculator's Ponzi Scheme, based on social contagion and mass hysteria, what else?

harry8 11y ago

Rest easy, Goldman's assure us there's no bubble. Where there is major government fraud, Goldman's are there. Goldman's assured the world that Greece's immediately doubling debt value to cheat the EU rules was fine so they've given themselves a reputation in these matters. Where are Goldman's involved? Short it.

hackuser 11y ago

In 2013 it was revealed that Bloomberg censored China reporting that was objectionable to the Chinese government. I'm not sure why anyone trusts their reporting now. http://www.nytimes.com/2013/11/09/world/asia/bloomberg-news-is-said-to-curb-articles-that-might-anger-china.html http://www.nytimes.com/2013/11/09/world/asia/bloomberg-news-... EDIT: Whey I say, "I'm not sure", I mean it. Is there more to the story?

rahimnathwani 11y ago
Bloomberg's web site (including this article) are blocked in China.

hackuser 11y ago

Here's an interesting analysis from The Economist: http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash http://www.economist.com/blogs/freeexchange/2015/07/chinas-s... Quick summary: The market isn't in such horrible shape, and it's impact on the economy is much smaller than in more advanced economies, so why the panicked response?