{"id":77516,"date":"2015-08-28T05:18:57","date_gmt":"2015-08-28T09:18:57","guid":{"rendered":"http:\/\/countingpips.com\/?p=77516"},"modified":"2015-08-28T07:41:22","modified_gmt":"2015-08-28T11:41:22","slug":"the-real-story-behind-chinas-market-implosion","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/08\/the-real-story-behind-chinas-market-implosion\/","title":{"rendered":"The Real Story Behind China\u2019s Market Implosion"},"content":{"rendered":"
August 28, 2015<\/div>
\r\n<\/div><\/div>

By WallStreetDaily.com<\/u><\/a> \"China<\/p>\n

By Carlton Delfeld<\/a>, Special Correspondent<\/em><\/p>\n

Winston Churchill famously referred to the Berlin Wall as the \u201cIron Curtain\u201d that separated the free from the oppressed.<\/p>\n

In the investment world, there\u2019s an \u201ciron curtain,\u201d too \u2013 namely, between retail investors and privileged, high-end investors, such as hedge funds, pension funds, and institutions.<\/p>\n

In short, most individual investors unfortunately receive secondhand, conventional, run-of-the-mill advice.<\/p>\n

But sophisticated investors like my former client, the Tiger Management hedge fund, value private, timely, on-the-ground intelligence. They expect a global perspective, coupled with local acumen.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

I saw this firsthand on my recent investment tour across Southeast Asia<\/a>, where I got the real lowdown on what\u2019s happening in China\u2026<\/p>\n

Problems Mounting<\/h2>\n

While in Singapore, where wealth assets have surged by 1,120% since 2000, I had fascinating meetings with tycoons, bankers, and ambassadors about the state of both the global and local markets.<\/p>\n

The topic of conversation obviously turned to China. Not just because of its recent stock market woes, but because for centuries, countries like Singapore have been China\u2019s competitors, suppliers, investors, and borrowers all rolled into one.<\/p>\n

So they have to know what\u2019s happening behind the scenes in China because their very survival depends on it.<\/p>\n

But right now, they\u2019re worried\u2026<\/p>\n

For a start, the main concern is that China\u2019s economy is slowing, as the two drivers of past growth \u2013 investment in manufacturing\/industry and exports \u2013 pull back for different reasons.<\/p>\n

In addition, China\u2019s real estate bubble is unwinding, industrial manufacturing capacity is way beyond current needs, and the country\u2019s once-powerful labor cost advantage has evaporated, as countries like Vietnam, Indonesia, Bangladesh, and even Mexico now have lower labor costs than China.<\/p>\n

To put things in perspective, manufacturing wages in China have risen 10-fold over the last decade.<\/em><\/p>\n

This decline in competitiveness has hit export growth hard, with an 8% year-over-year decline recorded last month.<\/p>\n

Consumption is also spotty at best, with domestic auto sales actually declining for the first time last month.<\/p>\n

Weaker exports and manufacturing has led to factory closures, bad loans, and unpaid wages piling up. In turn, this has sparked protests \u2013 more than 200 public demonstrations have occurred already this year, according to an independent watchdog group.<\/p>\n

This sort of activity is watched closely by the Chinese government, which fears unrest above all else.<\/p>\n

China\u2019s Government: From Help to Hindrance<\/h2>\n

So you can\u2019t blame politicians for trying anything and everything to stimulate growth.<\/p>\n

They took measures to beef up the stock market early this year \u2013 a strategy that resulted in a 60% rise through June. But their clumsy and heavy-handed interference eventually backfired \u2013 turbulence and panic cut the year-to-date return down to 23% in less than a month.<\/p>\n

You know the story from there, as the Chinese markets have continued to fall.<\/p>\n

Next on the government\u2019s menu is \u201cadjusting\u201d how the value of the yuan is determined.<\/p>\n

By basically pegging the yuan to the U.S. dollar since 2004, it\u2019s made China somewhat uncompetitive as the Japanese yen, Australian dollar, Canadian dollar, euro, and regional currencies have significantly cheapened against the greenback.<\/p>\n

This has put Chinese exporters at even more of a price disadvantage.<\/p>\n

The official line is that China is moving to more flexible exchange rates that are driven more by the currency markets.<\/p>\n

But keep in mind that a policy of weakening the yuan comes with significant risk.<\/p>\n

    \n
  1. To many in China, a weaker currency is a loss of face and prestige.<\/li>\n<\/ol>\n
      \n
    1. The perception of a weakening yuan will accelerate outflows of money from China. This is already a major problem as tycoons, entrepreneurs, and even middle-class Chinese are increasingly moving their wealth overseas to places like San Francisco, Vancouver, Singapore, London and Sydney.<\/li>\n<\/ol>\n
        \n
      1. A weaker currency drives up the costs of all imports, including food.<\/li>\n<\/ol>\n
          \n
        1. China\u2019s 100 million tourists like a strong currency that makes overseas trips and shopping cheaper. Not to mention the 10 million Chinese students who study abroad each year. A weaker yuan drives up costs, especially for politically sensitive middle-class families.<\/li>\n<\/ol>\n

          As China struggles with all these issues, what does this mean for investors?<\/p>\n

          How to Catch Profits From China\u2019s Meltdown<\/h2>\n

          For a start, forget buy and hold. China is a pure trading market.<\/p>\n

          Follow China\u2019s capital flight \u2013 it will point to great opportunities.<\/p>\n

          Look to China\u2019s competitors, especially Asia\u2019s other big dog, Japan, as it benefits when China falters.<\/p>\n

          As far as commodities are concerned, remember that just a few years ago, China bought over half of the global supply of many of these commodities. Be wary of trying to catch the bottom as they crash.<\/p>\n

          Stay tuned \u2013 more on all this in the coming weeks.<\/p>\n

          Carl Delfeld<\/p>\n

          The post The Real Story Behind China\u2019s Market Implosion<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

           <\/p>\n

           <\/p>\n

           <\/p>\n

           <\/p>\n","protected":false},"excerpt":{"rendered":"

          By WallStreetDaily.com By Carlton Delfeld, Special Correspondent Winston Churchill famously referred to the Berlin Wall as the \u201cIron Curtain\u201d that separated the free from the oppressed. In the investment world, there\u2019s an \u201ciron curtain,\u201d too \u2013 namely, between retail investors and privileged, high-end investors, such as hedge funds, pension funds, and institutions. In short, most […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-77516","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77516","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=77516"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77516\/revisions"}],"predecessor-version":[{"id":77529,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/77516\/revisions\/77529"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=77516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=77516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=77516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}