China stocks lose US$748b in market value
Four years after China’s growth helped lead the global economy out of a recession and won the admiration of luminaries from billionaire George Soros to Nobel laureate Joseph Stiglitz, the nation’s stock market has lost more money for investors than any other in the world.
The Shanghai Composite Index, which doubled in 10 months through August 2009 as the government poured US$652bil of stimulus into building roads, railways and housing, has tumbled 43% from its high, destroying US$748bil in market value.
Only Greece’s ASE Index has fallen more in percentage terms.
The Standard & Poor’s 500 Index, the benchmark gauge of American equity, erased all of the losses from the worst recession since the Great Depression and has gained 68% since the China peak, reaching a record this month.
China looked unbeatable in 2009, surpassing Germany as the world’s third largest economy and growing 6% in the first quarter while the United States shrank 4%.
Templeton Emerging Markets Group executive chairman Mark Mobius, who oversees about US$53bil, said in July 2009 that China’s stock market could be larger than America’s in three years. Now, China is poised for the weakest expansion since 1990 as the government orders more than 1,400 companies to close factories.
“The Beijing consensus as endorsed by some Western observers as an alternative to the market economy is indeed a sham,” said Hao Hong, the Hong Kong-based head of China research at Bank of Communications Ltd, whose forecasts for stock losses have proved prescient. “Now we are all paying for it.”
While the country contributed most to the global economy’s rebound from the 2008 financial crisis, growth is slowing as the Communist Party reins in an unprecedented US$1.6 trillion lending boom in 2009 that helped send home prices to all-time highs and left local governments with record liabilities.
Premier Li Keqiang is trying to transform China, where per capita incomes are 88% lower than in the United States, into a consumer-led economy from an exporter reliant on a managed currency.
Chinese companies dropped out of the ranks of the world’s 10 biggest by market value for the first time since 2006 last month.
They claimed five of the top spots when Soros, the billionaire former hedge fund manager, and Stiglitz, who won the Nobel prize for economics in 2001, endorsed the nation’s economic policies in 2009. Soros declined to comment. Stiglitz didn’t reply to an email and a phone call seeking comment.
The country’s stock market is like a “dead animal”, Carter Worth, the New York-based chief market technician at Oppenheimer & Co, who predicted the end of the Shanghai Composite’s rally as it peaked on Aug 4, 2009, said by phone on July 23.
While the index did not have the same downside as four years ago, the likelihood of gains was low, Worth said.
The Shanghai Composite rose 0.2% to 1,993.80 yesterday, paring its 2013 drop to 12%, after the ruling Politburo pledged to stabilise growth while pressing on with economic reforms. — Bloomberg