Now we are clear why the market bottoms. The U.S realise they need a strong dollar in order to attract money back into the country and to support the economy. This month is going to be the last time Bernanke is cutting rate.
With the rate cut stops, the dollar rebounce, the stock market rebounce. The stock market leads the fx market in this case.
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On the 15th April I report the stock market is bottom out. Three days later I see signs to confirm this view.
Citi Group announce greater than expected loss and AT&T are cutting jobs. However Honeywell and other companies are announcing double digits profit. For the past few days, the stock market has only react to good news and ignore the bads.
** It is as if someone know about the good earnings and are continueing to buy, thus stop the stock market from falling **
The A50 Tracker fund which tracks the China A50 index is behaving oddly. One can see the double bottom acompany by huge volume. This is a very strong market bottom signal.
China is a very primitive market. Inside Trading is a norm. Chinese investors are very indiscreet in their trading. If the Chinese Stock Market is bottom out and someone in China know about it then they will put a lot money in the stock market indiscreetly. These volumes are just that.
Positive Feedback
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China is a positive feedback market. Companies get a big portion of their earning from investment income. When the stock market do well then earning from their investment income increases which in turn boosts the share price and the stock market. When the market fall then the positive feedback drives the market down very quickly. Until some events trigger the end of the cycle. The end of the bull run was triggered by the subprime crisis.
These few days the international stock market is doing well but not the China Stock Market. This is because of there is a very strong positive feedback momentum driving the market down.
The A50 volume shows someone is putting money into the China stock market and this is the trigger to end the bear cycle.
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Today is the 15th April 2008. The stock market worldwide has bottomed. Wachovia reported unexpected loss today. This week Merrill Lynch and City Group will release bad results.
However Dow is holding up. Gold & Oil are down. Dollar vs Euro is up.
In Hong Kong, Lee Shau Kee bought $0.50 Billion of his company ‘Henderson Development’ 12.HK.
What does that tell you?
We can ignore the bad results from the earning season. Earning results are delay by four months and we all know last December was bad. They tell you nothing of the future.
The U.S cannot afford the dollar to slide further. Rumour has it they are pushing up the dollar. Lee Shau Kee knows it and so do people who are buying in the U.S. to keep the Dow up. Bottom line, something is happening and those who know are already buying.
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I have installed Window Vista on my dual core PC since day two. I am pretty happy with it since I never have to restore my partition using Ghost, something I been doing with my laptop running XP for more than 20 times due to virus. The performance is a bit slower than running XP but I am happy because I manage to remove all the .dll causing Adobe Premiere to crash using a debugging tool. God this China Story blog is turning into a tech blog. Anyway I try playing an UFC Ultimate Fighter 6 final .avi video file downloaded from the internet and it is so slow. The sound is ok but the screen is play at 10 fps. I play the same file on my single core laptop running XP and it is very fast… So I figure it can be virus. Sure enough I ran a spy ware software and found a KGB_Spy spy ware which has been key logging and remotely stealing information from my PC. After I check that no illegal credit card payment was made in the last 30 days I try to play the UFC file again but still the same thing, it is very slow. But when I play another older UFC file it is ok. So certain files are slow and certain files aren’t. So I run google search and find out from that Vista has content protection software that can slow down the PC. You can read all about it here.
http://windowsvistablog.com/blogs/windowsvista/archive/2007/01/20/windows-vista-content-protection-twenty-questions-and-answers.aspx
At least that’s what I think it is.
I also have problem playing youtube full screen on my 1680×1050. The sound starts cracking but is ok with normal size. I notice the CPU is ok 100%. But then it could be a flash problem.
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China has two stock exchanges, namely the Shanghai Stock Exchange and the Shenzhen Stock Exchange. The market of securities trading in Shanghai begins in the late 1860s. The Shanghai Share broker’s Association is formed in 1891. In 1949 at the start of communist era it is suspended until 1990. The Shanghai Stock Exchange is now the fifth largest capital market in the world. Mainland China has a second, smaller, stock exchange: the Shenzhen Stock Exchange.
There are two types of stocks being issued in the Shanghai Stock Exchange and the Shenzhen Stock Exchange: A shares and B shares. A shares are priced in the local Renminbi currency, while B shares are quoted in U.S. dollars. Initially, trading in A shares are restricted to domestic investors only while B shares are available to both domestic (since 2001) and foreign investors. However, after reforms were implemented in December 2002, foreign investors are now allowed (with limitations) to trade in A shares under the Qualified Foreign Institutional Investor (QFII) system. There is a plan to eventually merge the two types of shares.
Although equity derivatives, futures and options are very common in the rest of the world the China Financial Futures Exchange is still waiting to introduce it’s stock index futures. Once the stock equity derivatives begin trading they are expected to absorb much of the excess liquidity in the market. China has too much money and too little financial instrument to invest. This is pushing the stock market unrealistically high and causing alarming inflation. If one follows China’s stock market closely and have read my article on the THE LONG BULL MARKET you notice the market keeps rising and rising as though people have no fear. One theory is because of the excess liquidity and lack of derivative instrument and short selling. Since investor cannot put their money on the downside, they are force to bet on the upside hence pushing stock price higher and higher. But then of course they can always stop buying like they are doing now during this global subprime crisis.
There is no small cap market in China. In the U.K the small cap market is the AIM and in Hong Kong it is the GEM. The listing rules are less stricts for the small cap listings. It does not mean that there are no small companies in the Shanghai Stock Exchange and the Shenzhen Stock Exchange. On the contrary there are a lot of rubbish stocks on the mainboard. This is very important from a risk management point of view to separate them because you do not want the mainboard to be full of rubbish companies. It can make the mainboard more risky, lowering its price earning ratio lower.
As you can see China although is catching up fast is still very primitive. I remember a couple years ago there were two very young good looking people from a Chinese brokerage firm on the trading floor. We are an international investment bank in Hong Kong. I remember our head dealer was showing these two guys trading some basic trading conventions e.g. VWAP orders, Market On Close orders. Our head dealer told me that they are unfamiliar with some very basic concepts.
In summary, the Chinese Stock Market is like a lot of other Chinese stuff, nice but not quite there yet. In fact if you look close enough it is like a Geely Vision, trying to look sophisticated but does not have the quality. But I am sure foreign banks is helping enormously in raising the standard.
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