Grasping At Straws
The New Media / China
As I have mentioned before, the excessive focus and deluge of coverage by the media on all things, and in our case the business world, have required us to have a more critical mindset and also layers of filters in place when coming across so called "news / commentary / analysis". Take yesterday's drop around the globe. News editors around the world would want an article written immediately; analysts will be pestered by journalists and clients for reasons for the declines; dealers will try to make sense of the whys and hows; and the general public will just pick up whatever that is being broadcasted as coffee shop talk. Note the vicious cycle reconfirming and validating the purported news / reasons. What I am trying to get at is that sometimes why the market moves like that is "nothing significant". Media and analysts claim that a sharp pickup in the pace of China's economic growth underscores the challenges Beijing faces in trying to control and rein in the country's vast, far-flung economy.
China's statistics bureau announced yesterday that gross domestic product expanded 11.1% in the first quarter from a year ago, an acceleration from the 10.4% year-over-year growth recorded for the previous quarter. All major indicators, including retail sales, factory output, capital spending and inflation, accelerated during the period, raising new worries about excesses in an economy that has grown by more than 10% a year for four straight years. Concern among Chinese investors that the government would respond by seeking to slow growth by raising interest rates sent the Shanghai Composite Index down 4.5%, even before the economic data was released, and contributed to weakness in markets across Asia.
We have to learn to get more comfortable with the volatile China and India markets. I mean, look at the silly 9% correction in early March which caused a huge round of selloff ... and what was the reason, rumours of a capital gains tax on stocks!!?? Just a rumour can send the charged up market down 9%, so I guess a 4.5% fall really indicates very minute concerns.
Just like before, yesterday's correction was mainly due to a natural cycle of the need to correct, not because of any earth-shattering change in fundamentals. Its like when you poop, and journalists surround your toilet banging for reasons why you have to poop and why now! When you got to go, you got to go, its a normal cycle! Global markets have been chugging along to retest their all time highs - its only natural to have a bit of stop-start as markets try to get past those psychological levels. So, sometimes, no need to go searching for reasons too hard.
At the end of the day, the government is unlikely to try anything drastic as they need to keep a happy face for the world to see for the Olympics. Nothing more important than "paper face".