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).
“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.”
“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.”