It will not be long before China’s bubble bursts. The Shanghai index hit over 5000 yesterday, five times where it was mid-2005. Last November, it hit 2000; in March 3000; and in May 4000. One doesn’t need to be a genius to see a big bubble and to see one at the very verge of blowing up. When it does, it will have a huge impact on other markets – most of which are heavily into China’s. It will be viewed, additionally, as very embarrassing by the Chinese. China’s way of dealing with any international embarrassment is to act decisively and forcefully. Executions are common strategies, and you can be sure that heads will role (literally!).
China has tried to stop what is today already an 88% gain for the year. They just raised interest rates to no avail to cool things off. Only days earlier, they opened some access to Hong Kong’s market (previously closed to those on the mainland). And, that too has done little to stem the Chinese Market’s meteoric rise.
When China bursts, the credit crunch in the US will seem like a balloon in contrast. Markets will rock, and our market (and many, many hedge funds) will be particularly affected. As individuals, any investor still holding FXI or other positions should run for the door.
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