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Minyan Mailbag: Chinese Economy

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Dear Prof. Succo,



Thanks alot for your insights!


I am wondering what the new 2 year low in the (more speculative?)
Shenzen A Share and the underperformance in the Shanghai A Share vs. Hang Seng, S&P etc. tell about the state of the Chinese economy.


Best regards,


Minyan Ingo Mehrhardt


Ingo,


The Hang Seng has mostly Hong Kong companies comprising its index. It also has some Chinese companies as represented in the Shanghai A-share index as well. Earlier this year when there was talk of China being more restrictive in its monetary policy, the Shanghai A index began to weaken against the Hang Seng.


So it is simply due to the fact that there is or will be a slowdown in Chinese companies versus Hong Kong companies.


This illustrates once again the positive impact of easy monetary policy on stock prices.


Stock markets in general go up because central banks expand the money supply. The actual money supply in an economy can theoretically never grow, and probably shouldn't, once the right amount is established. Growth can and should be facilitated by an increase in the velocity of money, not the amount. This is the great scam: this causes income to be worth less and assets to be worth more. This creates in the long run the huge discrepancy between the middle class, who depend on income, and the wealthy, who grow their wealth through capital gains.


The only reason the middle class does not revolt is because the wealthy allow them to borrow money, thus allowing them to "borrow" future income to increase their standard of living.



No positions in stocks mentioned.

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