The Shanghai market has been dead money this year. The market p/e ratio has been receding as
China tightens money and credit to thwart the acceleration of inflation. The gov. and the central
bank -- The Peoples Bank of China -- have mucked up matters as well. The gov. has instituted
selective price controls but has provided little follow up. The PBoC says it is revamping how it
accounts for the money supply, but has reported no monetary data past the Feb. 2011figures. So
the bank has obscured how well it is doing in reducing the high rate of money growth which has
been the primary source of China's inflation. Through 2/11, China's M-2 had been reduced to a still
to high yr/yr growth of 17%+. My argument has been the PBoC needs to get that rate down inside of
15% yr/yr to relieve inflation pressure down the road. We know the economy is slowing, and we
know that global inflation pressure has eased off some with the recent sell down of commodities.
It would have been helpful to see how the central bank is progressing in taming money and
credit growth.
I have argued this year that the Shanghai stock market should be primed for a nice move up starting
later in 2011. Too bad the PBoC has fumbled the money supply / credit issue. At any rate, the
market is getting itself oversold here in the short run. So, even without the helpful fundamental
backdrop, the market may soon draw some trader interest. I would be much happier to see if
the central bank is progressing in drawing down money and credit growth, but I did want to point
out the developing oversold. Shanghai chart
The chart shows that longer term resistance is well up there at 3200, so the potential is there --
whether now or later this year as I have been expecting -- for a good sized upside pop even if
longer term issues are unresolved.
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