I posted bullish on China on Jun. 3, 2014. There were easy, low risk trades. I even raised my
fair value level on the Shanghai for 2015 to 2750 subsequently. The market is now parabolic
and we are witnessing the same sort of folly we saw over 2006 - 07 and in 2009. Shanghai
China has the PBOC abandoning its monetary discipline again to grow the money supply
vigorously in view of continuing tepid economic performance. Because the Xi government is
also trying to implement reforms, it remains unclear how unabashedly aggressive the central
bank will continue to be in wielding policy. China Money M-2
The Shanghai market is now hugely overbought on the indicators and is trading a whopping
36% above its 40 wk. m/a. Whatever upside is left on the current parabolic run higher, figure
there is a 1,000 points of downside if Xi and his guys put the leash on the PBOC at some
point out ahead.
For those who want to stay long China equities, it is essential to watch central bank monetary
operations from week to week. The S&P China Spyder GXC is in the bottom panel of the
Shanghai chart. It is a version of an index fund and does not exhibit the craziness of the SSEC.
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