Deltec's Think About This Big Trouble in Little China? | Page 4

Think About This
INVESTMENT RESEARCH
Looking at the scale of the stimulus, the relative
valuations of the Chinese market and the fact that
we are still below the 2015 peak in terms of margin
and index price, we think this run may continue a
little further. But we must warn that we have seen
this game before. In 2015, encouraged by stimulus
and state media, margin debt expanded to 2.4
trillion Yuan. Investors borrowed to bet on the local
stock market, which rose 150% in 6 months before
halving in the next two, erasing $5 trillion in value
as the bubble burst.
The government is aware that this volatility is
unhelpful and is looking to control the mania.
China’s security regulator published a list of 258
illegal margin lending platforms and the National
Pension Fund publicly began selling stocks last
week. This is a fair attempt to contain speculation.
We think there are reasons to believe the Chinese
market can continue this run: it is relatively
inexpensive but the warning signs are there. Be
invested, but be nimble.
“Hahahahaha! It looks more
and more like a bull market!”
– Shanghai Securities News (Jul. 3rd)
“The clicking of the bull’s hooves
is a beautiful sound for our
post-virus era,”
– China Securities
Journal (Jul. 6th)
“The painful lessons of the abnormal stock market
volatility in 2015 is still vivid in our minds, warning
us that we must promote a healthy and prosperous
stock market in a proper manner,”
– China Securities Journal (Jul. 6th)
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