Despite phenomenal economic growth over the first decade of the new century, the Shanghai
Composite is no higher now than it was over the 2001 - 02 period when the index first topped
the 2000 level. Shanghai Comp. Long Term It has been a classic mercantilist market boom/ bust
which goes on to the resmes of Hu Jintao and Wen Jibao, who, as long term readers of the blog
know, are not two of my favorite political characters. Now the new guys coming along have to
work to build and realize capital. And, word has it, they appear to be MIA currently. Over the
Hu / Wen years the money supply compounded somewhere near 18% annually, far in excess
of what a liberal measure like 10% real economic growth would warrant. Yes, vast sums went
into building physical capital, but real estate development including the famous "ghost cities"
soaked up the bulk of the excess liquidity, with the stock market serving as a speculative
stepping stone to build war chests for the real estate game. There is the obvious question of
whether physical capital and labor can generate the returns needed to service the glittering
new spectacle China has become. Family have recently returned from China armed with
photos of the most spectacular and modern urban settings ever seen.
I have made a little money trading China stocks, but the market has been a side show to the
development which has taken place. Hope the new guys, wherever they may be, do a better
job of building capital markets that befit China's emerging place in the world.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!