China Economic Update

Today Shanghai stocks represented by the Shanghai composite index lost 5.8% on the day. China's Shanghai Composite index ended at 2870.63 down 176.34 points from Friday's close. This was the largest percentage decline in one day since November for the Shanghai Composite. In Shenzhen, the main stock index dropped 6.6% to 955.87. Hong Kong's Hang Seng Index fell 3.6%, led by a decline in China-related stocks. Read the whole story here. I reported a few weeks earlier about some of the problems in Chinese economy and urged people to take some profits in Chinese stocks.

As of Friday the Shanghai Composite was up over 100% since the 2008 low (see chart below).


Since the global financial crisis began the Shanghai Composite Index is still down over 50% from its all time high of over 6,000. See Chart Below.



Almost all global markets were down today from Shanghai, to Australia, to London. Many equities around the world were getting overbought particularly in the United States, no wonder the stocks pulled back some today.

Note: Source of both charts was Yahoo Finance.

China Recovery?

I have been largely positive on a Chinese economy recovery and the Chinese economy in general. However, evidence is coming in that is contradicting my China bullishness. Two days ago there was an article in Forbes very negative on China. Today a piece came out in the Telegraph by Ambrose Evans-Pritchard also very negative on the Chinese economy.

According to Evans-Pritchard,
"China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump."

The article goes on to lay out some of the troubles Chinese economy (and for that matter the global economy) may be in for. It is a very interesting read.

Anyone investing in China should be aware of this information; this information has made me reevaluate my very bullish position on the Chinese economy. I am now a tiped bull on China for the time being. However, it may be time to take some profits in Chinese stocks, after all the Shanghai composite index is up 70% since November. Having said that I think there are many great opportunities to invest in China, just exercise some prudent caution. Stay Tuned...