Chinese stock market bubble
Jan 4, 2007

In the world stock market scene, there is the May, 2006 peak, followed by a deep correction, then a long up surge for 6 months which developed into a bubble. When the bubble will burst is difficult to forecast. The author's forecast is that the first stock market bubble to burst is the Chinese stock market. The author has written four articles ( 4/28/2001; 7/5/2001; 8/14/2001; 11/19/2001 ) forecasting the last Chinese stock market final peak in 2001, and scored a very accurate forecasting.

From fig. 1, one noticed that there were congested area between 1,400-1,800 pts for Shanghai A shares index, so the author anticipated that Shanghai A index cannot penetrate 1,800 pt without a long struggle, but fuel by booming economy both in the international scene as well as a 10% growth within China, so Shanghai A gethered enough mometum to penetrate this barrier with just one short hesitation, and followed with an up shoot with accerlerating rate of rise. ( see fig. 2)

This is a typical bubble in an emerging market. From the author's point of view, the Shanghai A index behave just like the penny stocks that he specialize on. When one compare the Shanghai A with HSI or the DJIA, Shanghai A clearly is a big lagger. Both DJIA and HSI start the bull run in early 2003, while Shanghai A pull itself upward only in mid 2005. Just like penny stocks, once started to catch up, the rise is very fast and very extensive. Due to the fast rise, it developed into a bubble like most penny stocks in the rising phase due to the herding psychology of unexperienced investors. The author anticipated that Shanghai A will develope further, just like most penny stocks would. The bubble will burst, and the index would crash or at least a big correction within one or two months.

If Shanghai A's bubble did burst, it will create a chain reaction in the world stock markets because most markets are very high and unstable. The author anticipated that Hong Kong market definitely will follow with a crash because HSI ( see fig. 3) has been rising for 6 months in a narrow channel without a correction, so looks like a bubble too. Besides HSI is now dominated by red chips linked closely with the Chinese market.

To guard your significant gain by now, in Hong Kong or elsewhere, you should closely follow the movement of the Chinese market. When you see any sign of trouble, get out as fast as you can, because the fall can be very fast and dramatic.

http://www.asiawind.com/pub/hksr/mark/ma...