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Chinese learning market’s ups, downs

Scott Tong Apr 14, 2008

Chinese learning market’s ups, downs

Scott Tong Apr 14, 2008


KAI RYSSDAL: For those who think American stock markets are shaky, we’ve got just one word for you today — Shanghai. The benchmark Shanghai Composite index tumbled 5.6 percent overnight. I’d point out that’s its biggest drop in more than two and a half months, but then you might miss the real story here, which is that two months is nothing. The index is off almost 35 percent so far this year. Since what goes around international stock markets tends eventually to come around, we’ve got Marketplace’s Scott Tong on the line from Shanghai to talk things over. Hey Scott.

SCOTT TONG: Kai, how are you?

RYSSDAL: I’m good. Listen, last time we heard from you about the stock market over there it was that nannies and cab drivers were getting into the stock market. In fact, I think your nanny was getting in, right?

TONG: Well, everybody was getting in, and our nanny and her sister were thinking about getting in, and thank goodness they didn’t get in, because they would have got in at the peak, last summer or so, and lost a whole lot of money. The point is, there was just this frenzy. You couldn’t go out in the street and not have a conversation with anybody about the stock market, and what was happening was you had basically all these retail investors who were just getting in, and they were speculators. They were playing the momentum of the stock market to kind of get in really quickly. In Chinese, trading stocks is the word for stir-fry, so you get in and out really quickly and play momentum. Now, that momentum was great in 2006 when the market was up more than 100 percent, and last year when it was up more than 70 percent, but the momentum came quickly on the downside, and so now we’re down more than 40 percent from the peak last year.

RYSSDAL: Alright, so here’s the tough question. What happened? Why is it down?

TONG: Well, a lot of people just decided to sell all at the same time, and that’s part of what the pack investing has happened here in China, and a lot of investors, they’re not particularly sophisticated. There was one poll, granted it was not a whole lot of people in this poll, but it found that 18 percent of retail investors knew what a price-to-earnings ratio was, so that’s part one. The other part of it is, a lot of what people buy and sell is based on what the government does or what they think the government is going to do, so we had in China, is a lot of talk of inflation, starting from last fall and last winter, and the government had some of these tightening policies to limit bank lending and to raise interest rates, and all these things were these government interventions where people said “Oh no, something is going to happen and we need to sell.” Now, what’s happening now is the government has been pretty silent as this market has been going down, so in the blogosphere there are a lot of people saying, you know “Oh, big brother where art thou, because you bailed us out before, where are you now?” This is the Olympics year and everything is supposed to be stable and the government is kind of missing here, and that’s what people are talking about.

RYSSDAL: What about out on the streets though, Scott? I mean, is there a sense of things being really dire?

TONG: You hear a lot of anecdotes of people being angry, of people losing their shirts, but if you think about the broader economy, it’s not showing up in the numbers. Only a small percentage of Chinese nationals play the stock market compared to most other countries, including the United States, and if you look around China, they’re still buying cars. They’re still buying flat screen televisions, corporate earnings still look pretty good, so no sign that the stock market is kind of sending the Chinese economy over a cliff. I mean, we’re still talking about growing maybe 9 percent this year.

RYSSDAL: What’s the takeaway though for the American economy, just because, you know, these two countries are so closely intertwined? Are there worries that the fall over there could mean bad things over here on Wall Street?

TONG: Not the stock market. Of course there is a lot of trade going on between the US and China, but the Chinese stock market, where it trades in Shanghai and the southern city of Shenzhen, is subject to a lot of capital controls. It’s pretty hard to bring a lot of hot money in and out of China, so those capital controls limit the effect of what happens in the Chinese stock market and the rest of the world. One economist said it’s kind of like a different planet.

RYSSDAL: Marketplace’s Scott Tong for us in Shanghai, thank you Scott.

TONG: OK Kai, thank you.

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