China

[papadad111]

It's not a vanguard effort. It is the MSCI EM index that is considering adding China listed AShares.

Note: Back In November 2015 the MSCI EM index added some 13 ? Chinese companies - those shares added are traded as US listed companies. This is Unrelated to the a-share quest, which are China domestically listed shares that foreigners have had very little access to by past market design.

Whether or not It is a highly manipulated and or regulated market is maybe a red herring to the key issue which is : to not include shares of the worlds second largest and most emerging economy in an EM global index is simply a gap now that those shares "can" be owned globally. IE, To not have global access to the a-shares market represented by the index is equally restrictive.

So, Now that the restriction on ownership has been partially lifted, the index can include, and so should include ...

One could always choose a different vanguard etc. Fund that is ex-China. That would be the best way to play if one did not want direct china exposure.

Note too: Approx half of all listed companies across the globe have some degree of China exposure anyway. It's the second largest economy. We can't ignore it ... Despite the desire to bury heads in sand... China's economic stomach ache is now the world's economic indigestion....

Larger Impact to USA Market - due to rmb currency depreciation , not directly China equity prices.

Our USA market is overvalued and in what is now a fed tightening cycle and market valuation is naturally resetting ...

look out below. 1850 SP500

 

[papadad111]

In July I mentioned the lockup period and now that is set to end this week and we've seen 2 days of limit down -- likely a new lockup period will be enacted.

Incentives have been enacted but not working so well.

Auto is hot. But watch for an auto industry bubble. Deja Vu all over Again. The USA auto exporters will be first to show weakness ..

As for the market. My personal opinion is that a temporary government sponsored floor is now in place to halt a panic and likely the market will drift around this level for a few weeks to months and then I suspect it will drift lower as the lockup on trading specific shares expires (not all at once mind you) and the government will continue to prop up the market via a quantitative easing mechanism where the PBOC may be the buyer of last resort.

Consumer confidence is the real issue now in china with housing flat, markets down significantly, and GDP now liked below 6 percent. Inflation has been running less than 3 percent too... A real worry. Rest of the world needs to worry about consumption of china. Auto industry is going to be in trouble later this year if china doesn't boost consumer confidence via tax incentives as they did in late 2007 post Olympics. Also I suspect those plans are already on the drawing board ...

 

[papadad111]

Back in July 2015 I mentioned China markets after the first round of state sponsored bull market got popped and where we might go. It seems this is playing out as predicted. We are back to 2800 level on the Shanghai exchange, still about 700 points higher than when the bull began in later 2014. Since July, it has been propped up by Govt regulation. Limits on selling and stock lock ups. Finally the government is letting the remaining air out of the bubble ahead of Chinese New Year to clear the decks.

Interesting indeed.

.

As for the market. My personal opinion is that a temporary government sponsored floor is now in place to halt a panic and likely the market will drift around this level for a few weeks to months and then I suspect it will drift lower as the lockup on trading specific shares expires (not all at once mind you) and the government will continue to prop up the market via a quantitative easing mechanism where the PBOC may be the buyer of last resort.

Consumer confidence is the real issue now in china with housing flat, markets down significantly, and GDP now liked below 6 percent. Inflation has been running less than 3 percent too... A real worry. Rest of the world needs to worry about consumption of china. Auto industry is going to be in trouble later this year if china doesn't boost consumer confidence via tax incentives as they did in late 2007 post Olympics. Also I suspect those plans are already on the drawing board ...

 

[samclem]

Some sanity from MSCI. (article from the WSJ). They are delaying the inclusion of Chinese A-Shares into their emerging market index. Before plunging ahead, they want to see how Chinese authorities behave in the next period of turmoil. From the article at the link:

MSCI Inc., a widely-followed global index provider, said on Tuesday it wasn't adding China’s local-currency shares to its benchmark emerging markets index, a fresh setback for China’s efforts to join international markets.
The inclusion of China’s local-currency shares, known as A shares, had been widely anticipated by global investors and Wall Street. It was expected to bring tens of billions of dollars into China’s stock market at a time when its economy is cooling and capital is fleeing.



. . . .
“International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index,” said Remy Briand, global head of research at MSCI.

IMO, MSCI is right in being cautious, and FTSE (and, with it, Vanguard's emerging market index MFs and ETFS) were premature to jump into these shares last year. We need to know a lot more about the dedication of Chinese authorities to "free" markets. These A-shares would be on track to constitute about 30% of the total size of these emerging market ETFs/MFs, so it's not a minor issue.

 

[papadad111]

I agree completely.

 

[neihn]

the dedication of Chinese authorities to "free" markets.

This is just a dream. Hmm, or a joke?

 

[Ed_The_Gypsy]

This is just a dream. Hmm, or a joke?

It must be.

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