John Mauldin, the man behind Mauldin Economics and author of “Bull’s Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market,” gave some background on the China crisis. He credited the current problems in Chinese markets to a shift away from the previous top-down command economy to an organic market. “Inevitably, this transition is causing pain for people accustomed to the old ways,” he said in his weekly Thoughts from the Frontline blog.
That pain came in the form of a 20% fall in the Shanghai Composite over two weeks. Even after the government cut interest rates and bank reserve requirements, halted trading on some stocks, required and participated in stock buybacks, the market fell another 3% on Monday and 6% after that. “Western traders sniffed panic and headed for the exits,” Mauldin said.
And Mauldin doesn’t believe the red ink is over yet. “Expect more volatility from China in the second half of this year and, really, for years to come,” he warned.
When asked if he would invest in China at this point, he was not enthusiastic. “Probably not—at least until we see more signs of a bottom and Chinese buyers piling in again. China is a traders’ market right now and will be for some time. The best you can do: Follow the momentum and get out quickly when it starts to fade. I think that longer term, China is going to be a fabulous market, but most people are just not going to be able to handle the volatility.”
Harry Dent, author of Survive and Prosper newsletter and the book “The Great Boom …read more