Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Shanghai's Growth Is Stalling


And it doesn't seem to be going anywhere soon.


Since its collapse in 2008, the Shanghai Index has been in recovery mode; that is until my arrival in late August.

Six weeks ago, I headed off to Shanghai, ready to immerse myself in a country full of growth and investment potential. I haven't been left with a good first impression. The Shanghai Index has plummeted more than 20% since I set foot in the Middle Kingdom.

Unfortunately, I don't think the correction is over just yet.

For starters, the launch of a new Nasdaq-style market dubbed the "Growth Enterprise Market" is causing a liquidity squeeze as capital is being reallocated to new subscriptions. There's also a lineup of new blue chip public offerings on the main boards that will also add to the share glut.

From a longer-term investment horizon perspective, both issues are actually promising. However, this isn't exactly an ideal time for such a rush of IPOs. My conversations with co-workers and the general Chinese public have led me to believe that many are still very weary about re-entering the markets after the 2008 crash.

Thus, new subscriptions will only flood the market as there just isn't enough liquidity to withstand the amount of planned new offerings.

In addition, analysts here are suggesting that China's stimulus package has peaked and that the effects are starting to fade. The National Bureau of Statistics reported yesterday that profits at China's major industrial companies fell 10.6% in the first eight months of 2009 compared to the same period last year. And while the state industry is showing signs of improvement, the private sector is still struggling to recover. Even Premier Wen Jiabao has said the country's economic recovery hasn't reached stability.

Eager as I was to move here and report a booming economy full of promise for international investors, I can't say I'm over-the-top optimistic about the near-term outlook.

While I think there's an abundance of futuristic opportunity -- seeing the growth in person is quite overwhelming -- I do believe there are significant and serious risks that need to be addressed. (Of course, that's a whole other article to be written at a later date).

Even with the recent market downturn over here, many companies such as Baidu (BIDU), Sohu (SOHU), and CNOOC (CEO) have recovered quite well so far this year. Investors who have profited from these gains should take their profits for now as better buying opportunities will likely be presented in the coming weeks.

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos