Wednesday, May 30, 2007
The China syndrome
The China syndrome; the blind faith in the communist countries stock market’s ability to continue to defy all odds and grow without any connection to earnings and cash flow. Well China isn’t the only emerging market that to my mind has grown disproportionately in the last 7 years. While the US economy has increased by 50% in size our stock market has barely kept up with inflation, at the same time emerging markets have flourished and generated outsized gains. A melt down in the emerging markets should be no surprise to anyone who reads this blog on a regular basis, we all know its coming and its just a matter of when. The issue is did the gains in these emerging markets dull investors ability to understand the inherent risks involved in emerging market investing? If investors have granted to much credibility to the quality and stability of these markets we might be in for a nasty surprise. I continue to feel the cat is already out of the bag and the underlining Chinese market has been correcting for some time , so even a significant correction may at this point have little consequence to out side investors.As they say it is hard for me to believe the most anticipated bursting of the China Equity bubble will have the impact of all the dire warnings .