This Is A Bubble
In April I sent an update on China’s stock market (“We need to talk about China“).
In it I said,
“Six months from now, the market could double up or be down 50%.
This may not be a valuation bubble, but it’s clearly a speculative bubble driven primarily by massive retail market turnover with an appetite for a quick buck.
What we’ve seen in the past is that this market can fall just as quickly as it rises.”
It may have sounded trite at the time, but that’s the reality when you’re entering a bubble phase… the market can either inflate further as “investors” join the herd and the frenzy intensifies… or the market can reset quickly.
Nobody can ever call the top of a market like this one.
Well, in the 2 months since I sent that update:
- another 22 million China A-Share accounts have been opened,
- the Shanghai Composite Index is up 22.5%,
- the Shenzhen Composite Index is up 46%,
- the tech-heavy CHINEXT Index is up 59.5%,
- the outstanding margin trading balance has risen by 26%… or US$740 billion,
- and in the past 3 months alone, the FT reports that more than 4,000 new China hedge and private equity funds have opened.
I’m therefore tightening the trailing stop on my China A-Share recommendation (“The Bears Are Wrong“) to 15%.
Subscribers are up around 100% on this one so if the market pulls back then we’ll look to take excellent gains off the table quickly.
This is the biggest casino in town right now. We’ve got reports of retail punters quitting their jobs to become full-time “traders”… it’s absolute madness.
And the combination of massive margin trading growth and retail investors driven by pure speculation means that this bubble WILL burst.
I don’t know when. Like I said before, “Six months from now, the market could double up or be down 50%”… in this market, that’s still the case.
Buckle up! And good investing,
P.S. Next week I’ll be bringing you the first ‘Global Real Estate‘ edition of The Churchouse Letter… we’ll be offering up our best ideas for real estate related investments. (Just last week we closed out 3 property recommendations from last year… all for double digit gains).