RK this is just the beginning and it's already made tens of millions of Chinese poorer. And this is the beginning. On a 1 year time frame all but 8% of the year's gains have been wiped out and that number is still decreasing.
"The ideal situation would be several years of a steady bull market to cover the restructuring phase," Societe Generale's Yao Wei wrote in a recent note. "Conversely, the worst-case scenario would be a stock-market crash before restructuring has even begun."
The ripples this will cause across the world will strike hard like America. Europe is in for interesting times.
That article is misleading, inaccurate and whoever does their math should be fired. Yes, it's wiped out a chunk of gains for the year. But when those gains were over
150% to begin with, even a chunk is pretty damn impressive. Let's do the math:
On 7/8/14, the Shanghai index was at 2064.02.
As of the moment I googled it a little while ago, the index was currently at 3507.19. That's a one-year gain of nearly 70%. You won't find that kind of performance in ANY Western stock market, even in boom years (with an important exception, but more on that in a second)
The 52-week high for the Shanghai is 5178.19. Which was 151% gain. So at most, it's currently wiped out around 54% of the YTD gain. No idea where they get this "all but 8%" bullshit.
Now, as to the more serious point -- that this isn't institutional investors getting screwed, it's mom-and-pop investors (or more commonly, young professionals just dipping into the market). Gee, where I have heard that before....oh yeah, the
dot-com bubble. Yes, it sucks for those folks. But a speculative bubble is completely unsustainable, and the Chinese bubble has outpaced all but the most irrational moments of the dot-com bubble in terms of growth. It sucked for people who lost money in the dot-com bubble too. But that's what happens when you buy Pets.com at $11/share, when the company NEVER TURNED A PROFIT.
I hate to sound like the heartless evil capitalist here, but -- you pays your money, you takes your chances. This isn't manipulation or ethical wrongdoing like the Wall Street crash, this is the laws of economics asserting themselves. The vast majority of these "gains" were hot air and dreams, and they're evaporating.
Now, it does suck for the Chinese government in that a lot of retail investors are going to be gun-shy now and hesitant to get back into the market, just as American retail investors were spooked for most of the 2000's (and still are, to some extent). But that's not always a bad thing. Retail investors are an inherently destabilizing factor -- they don't do good research, they're more easily manipulated, and they're panicky. All of that leads to a more volatile market. What the PRC needs to do is encourage the growth of "investment collectives", sort of like investment clubs here, where people would pool their money and let someone who actually understands the market do the investing. This way they tap into that growing consumer wealth while ameliorating some of the tendency towards bubbles.
And again, the ripple effect is NOT going to be huge. Foreign investment in Chinese markets is low because of regulatory barriers. Chinese consumers, in return, are not bigtime investors outside of China. The only real contagion link could be large Chinese institutional investors who are also active abroad, but I don't think they're going to be hammered all that bad. The other possible contagion link is simply fear -- Western investors see poorly-written stories like this one, go "OH NOES CHINA IS GOING BROKE" and panic and convert all their stocks into gold, ammunition and cans of baked beans.
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