Financial News Video: China crash may be next
Today's Financial News - Posted September 22, 2008
China is desperately pumping liquidity into its failing stock markets. As industries fold and debt loads swell, we could head into a China-sized crash by 2009. Click here to view…
by J. Christoph Amberger
Baltimore — (TFN): With all the insanity in the world markets, it’s easy to overlook the one market that has been all but wiped out in the mess.
You may think that the downside to Chinese stocks now is contained. Don’t count on it: China’s stock exchanges by now have dropped lower and faster than any other losing asset except for Fannie Mae and Freddie Mac stock. (Alright, throw in Lehman Brothers.)
Since last October, the Shanghai stock exchange has lost 67% — two thirds of its October 2007 valuation.
To make it short and painful: I see financial catastrophe brewing in China. And that is bad news for U.S. consumer prices… and for commodities.
Remember, China’s growth and the increasing prosperity of the urban Chinese are considered the prime movers for commodities and especially gold consumption.
The decline in Shanghai not simply represents a loss in market valuation — but a very real destruction of Chinese middle class savings — which, as you will remember, were pumped from more traditional savings accounts into trading accounts by the billions last year.
The lower valuations also will work their way into Chinese bank balance sheets: Plenty of corporate portfolio punting was undertaken using indiscriminate loans issued by Chinese banks to party functionaries working in corporate executive positions. If you think paying back upside down mortgages reflecting 10-20% in valuations were dynamite for U.S. mortgage lenders, just wait until last years punting loans come due in Beijing…
You may think that the downside to Chinese stocks now is contained. Don’t count on it: There are rumblings in the big four Chinese banks that not just their real estate loans, but their legacy load of non-performing loans are about to hit the headlines before the year is over. When that happens, people will die — quite literally. I believe there is a corruption purge imminent that will result in at least a dozen top financial official being executed.
And the Shanghai stock exchange may plunge another 1,000 points.
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Next Article: Retail sector doomed: Weak holiday sales will destroy Under Armour (UA)
Posted by J. Christoph Amberger · Filed Under Featured Video, International Investing, Videos
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