“The Great Fall of China”? … … Or Is It?

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“The reports of my death have been greatly exaggerated!”

So goes the famous line attributed to Mark Twain.

He is said to have uttered it, after several newspapers released reports of his death.

It was in fact his cousin who had died.

Similarly, the loud hailers and wolf criers of the Western financial press and media, have been quick to write obituaries for the Chinese Stock Markets, in a transparent attempt to draw attention away from the intrinsic problems of their own countries’ markets.

It really is a case of “premature exclamation”!

Many of the reports have been accompanied by eye catching images like the one above.

But what they all have in common, is that they depict a decidedly one-sided slope to the mountain scenes, one that it fails to show the astonishing climb that took place, “out of camera shot”, on the up-slope of the mountain.

Here’s what we mean by that.

In June 2014, the Shanghai Stock Exchange (SSE) Composite stood at just a shade over 2,000 points.

But by June 2015, just one year later, it had soared to over 5,000 points!

shanghai-composite

Now, just to put that sort of rise, into some sort of perspective and context, consider this.

In January 2014, when the Shanghai Composite stood at 2,000, the Dow Jones Industrial Average, stood at around 16,500.

Now in order to have risen as meteorically as the SSE Composite did, the DJIA would have had to reach around 40,000 points!

As it was, the Dow reached only around 18,000 points, a level that many analysts still regarded as being far too high, and as of today’s trading, it currently sits around 400 BELOW its January 2014 level … at around 16,100, as of the time of this writing.

So yes, no one denies that Chinese markets have undergone a significant correction, of course they have. The Composite has dipped around 40% off its June highs.

But, given the precipitous rise that Chinese Stock Markets underwent on the way up, they were “well overdue a correction”, regardless of any Western trumpeted “concerns about China”.

I’d suggest that the West has significantly more serious internal issues to contend with, than whether of not Chinese industrial success is going to continue to “paper over the cracks” of what have now turned into positive crevasses of “can down the road” problems!

There is just a level of arrogance in the West that has taken on almost biblical proportions!

The West truly has a “rafter in its eye”, as it attempts to surgically remove the “splinter” in China’s!

 

wider-view

 

Taking a wider view, there just seems to be a level of disbelief coming from the Chinese financial authorities, that they have implemented the suggestions of their much more experienced Wall Street advisers, without the promised success.

Hence China has now perhaps decided to try to clamp down on those who have been deliberately publishing manifestly false market information, rather than plough un-tolled trillions more dollars into “artificial life support” of stratospheric stock and share levels.

But underneath the overt share price manipulations that both the US and Chinese “Plunge Protection Teams” have been engaging in, there is a much more covert war of attrition going on …. between the two currencies, the Dollar and the Yuan.

The IMF announced in August, that the China and their Yuan were not going to be invited after all, to “sit at the top table” of the proposed new SDR (Special Drawing Rights) basket of currencies.

That decision was taken as a sleight by the Chinese, and touched Chinese honour and pride.

The IMF’s public announcement came only days after the Chinese announced a series of devaluations of the Yuan (the move which is widely regarded as triggering the declines in the US and Western markets) but China will definitely have known the IMF’s decision well beforehand.

Perhaps those devastating devaluations then, were just “a shot across the bows” from the Chinese, to remind the West of just who holds the whip hand in the global economy.

China has a centuries old tradition of closed borders policy, and as they transition to servicing their vast internal population, after having served as the world’s factory for a two decades or more, the West would do well not to provoke China into turning towards its old, more isolationist instincts.

To Your Secure Financial Future, as always

 

Kris Karlsson

Banking Expert

The Q Wealth Report Team

 

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