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谢国忠

谢国忠博客:只说出心中真相

 
 
 

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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bubble glum   

2008-04-17 19:15:51|  分类: 言论 |  标签: |举报 |字号 订阅

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谢国忠博客 http://xieguozhongblog.blog.163.com/


The following was just printed in South China Morning Post.

There should be no bailouts for mainland stock market pundits, no matter how loud they scream

Andy Xie

Apr 17, 2008



Bubble glum
谢国忠博客 http://xieguozhongblog.blog.163.com/

Manypundits in mainland China are screaming for a government bailout of thestock market. Merely six months ago, the debate was about whether therewas a stock market bubble. The same pundits cheered on the bubble, andclaimed that international valuation methodologies didn't apply to themainland market. That market has nearly halved from its peak in thepast five months. Now, these pundits are shifting people's attentionaway from their bad calls by making loud noises about a bailout,appearing sympathetic to the millions who lost their savings on theiradvice. They even claim that those, like me, who oppose bailouts areunpatriotic. They merely hide their mistakes and ignorance behind anationalistic mask; they disgrace Chinese nationalism.

Eventhough the market has nearly halved, the sad thing is that it still hasconsiderable downsides. High valuation, a deteriorating earningsoutlook, macro tightening due to inflation and the supply overhang areserious headwinds for the stock market. The bear market may lastanother 18 months.

In terms of valuation,the A-share market still trades at about 3.5 times book value. Thiswould make it among the most expensive in the world. The marketconsensus is for 34 per cent earnings growth in 2008. The listedcompanies have achieved half as much thus far. The trend is down;earnings last year were grossly exaggerated by stock market gains fromcross-holdings and asset injections. As the stock market reverses, thegains in 2007 are becoming losses in 2008. The chances are that theearnings growth will be 10 per cent to 15 per cent, at best, this year- and worse next year.

Over the nextthree years, the amount of so-called legal person shares becomingtradable will be comparable to the total amount of tradable sharestoday. Improving liquidity is good for the market in the long run.Digestion, however, could be quite painful. The acquisition prices forthese shares are a small fraction of the current market prices. Asthere are considerable uncertainties over capital gains tax or even thelegality of their acquisition, the owners of these shares have powerfulincentives to cash out.

A major reasonthat mainland China's market has been expensive, even during a bearmarket, is the small free float. As all the legal person shares becomeliquid, the market will become more like others. Hence, the massivevaluation premium of A-shares to H-shares may become a thing of thepast.

The mainland is facingunprecedented inflationary pressure. Unskilled workers are finallygaining pricing power after seeing their wages stagnate for 10 years.This redistribution of the economic pie is good for the economy in thelong run, but it is generating inflationary pressure across the board.Skyrocketing food and energy prices are also driving up inflation.

Thegovernment is resorting to price controls to contain inflation. Thisdepresses corporate earnings and casts a bearish pall over the stockmarket. When this approach proves insufficient, Beijing may have toraise bank deposit rates above inflation to stop consumers hoardingessentials. When negative real interest rates disappear, theovervaluation of the property and stock markets are exposed. The returnto normal valuations could send both markets down sharply.

Abubble is primarily a redistribution game. The losers are usually theweakest groups in a society. As with previous bubbles, those who havemade money include insiders, controlling shareholders, marketmanipulators and even some government officials.

Astock market bubble on the mainland always redistributes wealth fromthe poor to the rich. It takes a really cold heart to cheer on abubble, like many pundits did last year.

Asstories of individual pain mount, the government is rightfully worriedabout social stability. But isn't it too late? No government can turnback the clock; it can only try to limit the economic damage.

Overthe past two decades, the economy has shown little sensitivity to stockmarket fluctuations. Investment and trade drive the mainland economy.The former depends on bank loans, the latter on the global economy.Hence, the bursting of the stock market bubble won't have a majoreconomic impact. The social impact, however, is considerable. Likegambling in casinos, the mainland stock market ruins many who areopportunistic. So, should the government bail out those who lost big ina casino? The government's money is the people's money, after all. Whyshould it be used to bail out gamblers?

Thegovernment should, instead, investigate the ill-gotten gains of thebubble. Did companies misrepresent their earnings? If so, did thecontrolling shareholders work with market manipulators to profit fromthe information? Did some government officials gain from insiderinformation? If ill-gotten gains can be retrieved, they could be usedto compensate retail investors.

China must prevent future bubbles; it is too late to stop the pain from this one.

谢国忠博客 http://xieguozhongblog.blog.163.com/

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