China stock exchange investors suffer from spectacular bear market
By Ambrose Evans-Pritchard
China's stock market has lost half its value since October in one of the most spectacular bear markets of the last half century, eliminating $2.5 trillion (£1.25 trillion) of paper wealth.
A report by UBS said Chinese exporters had so far proved immune to the US slowdown
The Shanghai Composite briefly fell below the key psychological level of 3,000 yesterday, down 50pc from its peak.
The near panic sales over recent weeks have caused heavy losses for millions of Chinese savers who jumped into the market at the top of the boom, but this has not had any appreciable effect on the broader economy so far.
Growth continued at a blistering rate of 10.6pc in the first quarter, despite the slowdown in North America and Southern Europe. Petrochina - briefly the world's first "trillion dollar company" after its partial float last year - is already a shadow of its former self, trading below its launch price.It has lost two thirds of its value. The company's first-quarter profit slumped 30pc on surging production costs.
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Crashing stock prices are usually a warning signal that the broader economy is heading into a sharp downturn, but it is unclear whether this market lore has much value in Shanghai.
Charles Dumas, global strategist at Lombard Street Research, said China's local exchanges were completely artificial. "There's no breadth to the market because nobody is allowed in from the outside, so it has violent swings up and down," he said.
"Still, China is entering an unpleasant quadrant of the economic cycle where it has to cut back growth to stop inflation accelerating."
The central bank raised interest rates six times last year, although its main tool for controlling overheating is to keep nudging up reserve requirements. Beijing has also quickened the pace of yuan revaluation, allowing the currency to rise 10pc against the dollar over the past year.
A report by UBS said Chinese exporters had so far proved immune to the US slowdown. China's 35pc share of the US market for light manufacturing goods and electronics has held steady this year. Its share of the EU market has been growing by leaps and bounds to 40pc.
Profit margins have remained steady at 8pc to 10pc, even for textiles, suggesting that exporters have been able to pass on price increases.
Food costs make up roughly a third of China's inflation index, so the spiralling cost of rice, corn, poultry and milk is playing havoc with price stability.
The inflation rate is nearing levels that set off urban riots in the late 1980s and caused workers to come out in sympathy with the students in the Tiananmen Square protest.
China's stock market has lost half its value since October in one of the most spectacular bear markets of the last half century, eliminating $2.5 trillion (£1.25 trillion) of paper wealth.
A report by UBS said Chinese exporters had so far proved immune to the US slowdown
The Shanghai Composite briefly fell below the key psychological level of 3,000 yesterday, down 50pc from its peak.
The near panic sales over recent weeks have caused heavy losses for millions of Chinese savers who jumped into the market at the top of the boom, but this has not had any appreciable effect on the broader economy so far.
Growth continued at a blistering rate of 10.6pc in the first quarter, despite the slowdown in North America and Southern Europe. Petrochina - briefly the world's first "trillion dollar company" after its partial float last year - is already a shadow of its former self, trading below its launch price.It has lost two thirds of its value. The company's first-quarter profit slumped 30pc on surging production costs.
advertisement
Crashing stock prices are usually a warning signal that the broader economy is heading into a sharp downturn, but it is unclear whether this market lore has much value in Shanghai.
Charles Dumas, global strategist at Lombard Street Research, said China's local exchanges were completely artificial. "There's no breadth to the market because nobody is allowed in from the outside, so it has violent swings up and down," he said.
"Still, China is entering an unpleasant quadrant of the economic cycle where it has to cut back growth to stop inflation accelerating."
The central bank raised interest rates six times last year, although its main tool for controlling overheating is to keep nudging up reserve requirements. Beijing has also quickened the pace of yuan revaluation, allowing the currency to rise 10pc against the dollar over the past year.
A report by UBS said Chinese exporters had so far proved immune to the US slowdown. China's 35pc share of the US market for light manufacturing goods and electronics has held steady this year. Its share of the EU market has been growing by leaps and bounds to 40pc.
Profit margins have remained steady at 8pc to 10pc, even for textiles, suggesting that exporters have been able to pass on price increases.
Food costs make up roughly a third of China's inflation index, so the spiralling cost of rice, corn, poultry and milk is playing havoc with price stability.
The inflation rate is nearing levels that set off urban riots in the late 1980s and caused workers to come out in sympathy with the students in the Tiananmen Square protest.
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