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Sinomania! the truth about china
China SEARCH Engine
Volume II, Episode 45
January 20, 2008
Four predictions for where Chinese stocks will be in 2008 - plus more!

December 31, 2007

A brief look back at some of the images of 2007
December 20, 2007

Markets Sag - Chevron Gas Deal - Aging Time Bomb? - Property ETF - IPOs - more!

December 10, 2007

US-China Summits in Beijing - QFII Up to $30 Billion (US) - IPOs losing steam?

November 27, 2007

Chinese Stock Prices Melt - Sarkozy Up to Beijing - IPO Updates - Will Trent Lott Lobby for Taiwan?

November 20, 2007

Currency Crisis! Dollars Drained by China, OPEC Continue Down - Inflation

November 14, 2007

Time to Short China's Yo-Yo Market? - Mining In or Out? IPOs - more

November 2, 2007

Oil Shock! Price Problems At the Chinese Pump - Stocks: Where's the Correction?

October 24, 2007

SPECIAL REPORT: 17th Party Congress - Shanghai Bubbles? - Market Numbers

October 15, 2007

China Bull Run Gets New Highs - PetroChina - IPOs - Money - more

October 9, 2007

Chinese Stocks Up & Up - IPOs - Iron & Steel - Pacific Pipeline - more

October 4, 2007

Hong Kong Booms - Commodities, Inflation, Oil at $100 a barrel? - more

September 25, 2007

UAW Tells GM No Jobs For China - Markets Hit 5,500 - China's Auto Industry - IPOs

September 19, 2007

New IPOs Rock Shanghai! But is Resistance Building? A Big Push for Private Equity…

September 10, 2007

Report on APEC 2007 - Energy Security - Markets Update - IPOs in Hong Kong

August 30, 2007

Chinese Stocks Stay Up - Big Bond Sale - IPOs - Upcoming Party Congress

August 22, 2007

China Stock Markets Get Higher But For How Much Longer? - Surprise Rate Hike - IPO Update

August 14, 2007

China Toy Recall - Markets & IPOs - Western Banks Catch Asian Flu?

August 6, 2007

Shanghai Composite Busts Past 4,600 - Beijing Bets on Banks - Chinese IPOs in Japan

July 31, 2007

China Stocks Up Again & Again! - Pussyfooting Around Currency? - Democracy in Japan?!

July 25, 2007

Will Barclay's Turn Chinese? 2Q/H1 Macro Report + IPOs!

July 19, 2007

Food Fight! China-USA sling hash / Peak Oil? / Markets Flat Line...

July 10, 2007

Chinese markets confused? Big IPOs - Chery+Chrysler

June 27, 2007

COSCO - China Mobile - IPOs - Telecom Mergers & Acquisitions

June 21, 2007

New Record Highs in Hong Kong, Shanghai: Will Beijing Put On the Squeeze? - IPOs & more

June 15, 2007

Fundamental Misalignment: US-China currency war - stock markets up & IPOs

June 7, 2007

China Stock Pop - Hot News items - climate change, tainted food...

May 31, 2007

Chinese stock markets hiccup - IPOs - USA-China Trade Gap

May 25, 2007

Report on the 2nd USA/China Strategic Economic Dialogue: Win-Win or When-When? - Market numbers - New IPOs

May 18, 2007

New life for Hong Kong? IPO Update - USA/China summit

May 11, 2007

Will Shanghai end up like NASDAQ or Nikkei? - IPOs

April 30, 2007

Tulips to Dotcom - is Sino Mania the next big bubble?

April 20, 2007

The Heat is on! - IPO Report - Air Pollution in China

April 15, 2007

China markets, IPO update, Beijing Ready for Olympics?

March 30, 2007

China markets up, up, up! Sinomania! goes to China

March 23, 2007

Focus on National People's Congress... Hi-Tech, IPOs

March 17, 2007

China's new investment strategy, IPOs, the Wrap...

March 7, 2007

China syndrome or hong bao bounce? New IPOs... more!

February 27, 2007

China Stock Market Yo-yo, new IPO issues, the wrap

February 17, 2007

Chinese New Year edition! Will China buy Chrysler & more!

February 9, 2007

The USA-China WTO trade dispute and New IPOs

February 1, 2007

IPOs: New Red Chip — Bubble Burst? — USA-China

January 26, 2007

BUBBLE TROUBLE? — IPOs on NASDAQ — Renminbi Yuan

January 20, 2007

IPOs in 3 hot sectors — BAOSteel — Macro Report

HKEX Hang Seng Shanghai
SSE Shanghai Hong Kong
SZEX Shenzhen Beijing
MUSIC in China: Listen!

TRANSCRIPT: Will sovereign wealth funds be a political hot potatoe this year? Markets update and Four predictions for the Shanghai Composite in 2008...
Sinomania! Volume II Webisode 45, January 20, 2008

Shanghai Composite at 10,000?!
Four predictions for Chinese stocks;
And With Recession Looming What Will Be the Big Factors of 2008?


In oceanography a recession is a sudden decline of sea level - a warning bell - before a tsunami hits. It is now almost universally accepted that the United States economy and possibly Japan's and parts of Europe are in recession. We'll be certain by March. Nearly all the world's big investment houses predict no recovery until the fourth quarter of the year at just the time China may overheat. Welcome to 2008. If you're like me you've already seen your share of negative signs in your investments. Volatility will be the rule this year and I expect Chinese stocks will be even less predictable than they were in 2007.

But first, let's look at where we are now: The Shanghai Composite plunged all week but closed January 18 with a modest up tick to 5,180.51. As I predicted sometime ago 5,000 appears to be a new baseline going back several months.

The CSI 300 has remained above 5,000 and performed fairly well since the year began. The index closed at 5,414.47 on January 18.

Shanghai B shares are still relatively flat with lackluster transaction volumes. The new baseline for Shanghai Bs seems to be 350.

ShenZhen B shares have lost all their gain since 2008 began - will they manage to stay above 600 in the short term?


For the first time in modern history Chinese macro economic policies and the behavior of China's economy overall will impact most of the world. The decisions of Chinese policy makers as they deal with money supply, mobility, and exchange will be as important if not more than the policy directions of the US Federal Reserve or the European Central Bank.

The International Monetary Fund expects so-called emerging markets to account for 80% of global growth this year with much of it coming from China. Expect continued high growth in China to lead to inflation and Chinese demand for oil, coal, metals, and nearly all other commodities to give no relief in rising prices for energy and industrial goods. Indeed some analysts believe the disinflationary benefit of globalization to be ending as Chinese, Indian, and other major economies outside the G-7 continue to pressure prices for energy and commodities offsetting the lower costs of their merchandise exports.

The competition for energy resources will continue in 2008 and I expect will become an issue in the American race for the Presidency. In fact, as I predicted last year, I see full-scale China blaming and China bashing to emerge as a theme in both the Democratic and Republican parties. In particular we will see a lot of talk about Sovereign Wealth Funds and the China Investment Corporation in particular.

The effect of political angst against Sovereign Wealth Funds and China's investment company can only be damaging. Sovereign Wealth Funds are hot potatoes because they make great incendiary headlines and help politicians direct blame outside their bad direction. But Sovereign Wealth Funds behave much as giant pension and hedge funds behave and could play an important part this year in holding up stock values as they buy into markets and make direct investments into growing industries. Nevertheless I expect these funds and the China Investment Corp. to be discussed a lot this year and it will be important to watch what they do.


Here is my take on where Chinese stocks will be a year from now. I see four possible scenarios within a very wide range of possible outcomes. In all four scenarios, which I will describe next, I see the potential for great volatility in prices.

Each scenario is based on certain conditions existing within China and in the global economy and uses three or four data points of historical performance of the Shanghai Composite Index.

My first prediction is the "hot" scenario that shows the Shanghai Composite Index reaching 10,000 around New Year's 2009. This outcome is predicated on Chinese stocks repeating the tremendous performance of 2007 and China's economy growing at over 10% or higher. This scenario also anticipates that China's government will be unable to contain inflation. The hot prediction carries with it the risk of possibly strong contractions and even the long anticipated stock market crash if the Chinese government is forced to bring on a hard landing in the first half of 2009. This scenario is consistent with the classic boom-and-bust cycles of China's recent past and requires that the government's policy direction either backfire or that the government lose effective macro controls. It carries with it a lot of risk but could mean great short term, that is one to two year, gains.

My second possible outcome is the "flat" scenario with the Shanghai Composite Index closing between five and six thousand at the end of 2008. The flat scenario assumes a hard recession in the United States and Europe and much slower demand from nearly all segments of the global economy. For this scenario to occur Chinese stock prices might be subject to a strong downward adjustment perhaps even a modest crash and Chinese consumption would be moribund in the face of slower growth in China. These conditions could be most pronounced in the last quarter of 2008. Under this scenario you may not lose money at the end of the year but your gains would have been hard won and come with some possibly serious losses.

Prediction three is the "moderate" scenario with the Shanghai Composite ending between six and seven thousand. For this outcome China's government would stall with poor policy direction and there be risk of retaliation by one or more of China's major trading partners, a possibility particularly given the political environment in the presidential elections in the United States. The moderate scenario does envision growth overall but nothing like the experience of last year.

Lastly, my "fast" prediction sees the market end the year at a sustainable and healthy level reaching up to 8,000. This scenario assumes nearly all conditions be favorable - that external demand slow just enough to lessen trade friction with major customers such as the United States, Renminbi appreciation accelerate, and new government changes without a hitch and policy measures are smart and well received. The fast forecast expects a smooth year marked by a successful Summer Olympics and for good measure the election of an American president with favorable overall policies toward Beijing.

Remember the key areas to pay attention to at all times with Chinese stocks are: inflation, real estate prices, capital outflows, Renminbi appreciation, exports, investment, consumption, decentralization and growth of the private sector, domestic political situations, and foreign relations.

Welcome back and I'll see you next time!

© Sinomania! 2007 All Rights Reserved.

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