May 26, 2015

MONOGRAM, today warns of the threat of a bubble in the Chinese stock market, following a rise of 140% in the Shanghai Composite Index in the past 12 months (the best performer in the main 35 global stock markets).

Paul Marson, Chief Investment Officer of Monogram, commented:

If this is not a bubble then it’s hard to imagine what one looks like. The average daily stock market turnover has increased 10 fold in the last year (830 billion Yuan v 80 billion).

Monogram 1

The root cause of this is the expansion of bank balance sheets in China. Over the past four quarters, Chinese bank balance sheets have grown by the equivalent of 35% of GDP – remarkably this is less than the 55% expansion at the start of the crisis.

If [and that is a big and qualified IF] GDP is expanding seven percent then that leaves an enormous amount of liquidity that has gone from inflating the property market, which is now deflating, to inflating stock prices.

Monogram 2

“This is a very unhealthy sign for the global economy. It can only end in tears. Bubbles always leave behind more problems than they resolved.”