Monday, May 14, 2007

Nasdaq vs Shanghai

There is not much you can say about Nasdaq and Shanghai Index in the same statement. Not much you can say about the kind of companies in each of the exchanges. Looking at the chart, the trading pattern is eerily the same. Basically choosing the start dates are important. Some differences include some really spectacular earnings announced by a large number of Chinese companies in 1Q2007 (please read previous postings) while the Nasdaq Internet crazed was on hearsay and projections - but seriously folks, every excessive bull run will have their strong valid reasons at that point in time. Take from the chart what you will, or want to believe or conclude. To me, there are more similarities between the two markets than there are justifications for Shanghai index to break away from the fatalistic pattern of Nasdaq in 98-2000. When you look at the charts, it does not matter if it was Nasdaq to start with, it could be the chart for chillies or wagyu beef. What matters is the correlation, hence instead of finding justification for Shanghai index to move away from Nasdaq's fate, there are too much inherent similarities within both chart trends and underlying market forces. We have to be aware that sometimes we seek explanations and justifications for chart movements, which comes first? Many a times, the explanantions come after the chart movements.

What's QDII?

Its important to know because it sent Hang Seng index up by more than 2.5% today. They stand for Qualified Domestic Institutional Investor. This will expand the investment scope of the QDIIs. Now the banks may use up to 50 percent of their existing QDII quotas to invest in overseas equity markets. H shares traded on the Hong Kong bourse are the ones which saw frenetic activity today. The move will take some heat off the A-share market as H shares will attract funds because most of them are trading at a substantial discount to their A-share counterparts. This move will narrow the discount gap, and that could very well propel Hang Seng index to 21,500 without much of a problem. This diversion could help release some steam from the bubbling Shanghai and Shenzen markets, and at the same time allow QDIIs to spread their risk better.


There is a bit of markets' self-validation by looking in the mirror currently. When the US markets look at Asia, they are up and running. When the US starts to fear for the Shanghai market at 4,000 Asian bourses stayed steady and Shanghai seems to doing more base building at 4,000 and looking to go even higher. Asian bourses look to the US for US interest rates, and they come back good (going lower soon). Each is feeding off each other's positive energy - can easily start a self-help book here.

The smarter ones would be able to spot that the central government are now resorting to fiscal measures to tame the China stockmarkets. By allowing QDIIs to invest outside (50%), it helps to spread the risks for QDIIs. However, before evryone jumps the gun, the scheme for QDII involves US$15bn and they can only invest in fixed income currently. Hence the QDII scheme is not that popular at the moment: with the new ruling wecan expect the full allocation to be utilised very quickly. Thus we can expect to see about US$7.5bn going primarily into H shares in HK. Not a lot but its a good start, and we should see more sums being allowed under QDII in the near future.

3 comments:

ccdev said...

bro, nothing to do with the post and am not sure if someone has brought this up before, but...am i the only one who is "complaning" about the typewriter font u are using now for your blog? I'm sure u got your reasons but (imho)it sure is harder to read than your previous one. my bad if you already commented on this issue.

Salvatore_Dali said...

hope this is better, there are not many choices under google blogspot, this is Verdana large.

ccdev said...

man, i personally think it's better, easier to read. just my 2 cents. thanks.