I always say bubbles burst much faster than they grow. And after exploding up 159% in one year, Chinese stocks crashed 35% in three weeks.
This all happened while the Chinese economy and exports continued to fall. And two thirds of these new trading accounts belong to investors who don’t have so much as a high school degree. How crazy is that?
As Rodney wrote earlier this week, the Chinese government is taking every desperate measure to stop the slide:
Artificial buying to prop up the market…
Banning pension funds from selling stocks…
Threatening to jail investors for shorting stocks…
Allowing 1350 out of 2900 major firms to halt trading in their stocks indefinitely, and stopping trades on another 750 that fell 10% or more…
It’s madness!
This second and FINAL bubble in Chinese stocks occurred precisely because real estate stopped going up. Over the last year it actually declined.
So after decades of speculation, the gains stopped coming in, and rich and poor investors alike switched to stocks.
But the funny thing about the Chinese is – they don’t put most of their money in stocks. Only about 7% of urban investors own stocks and half of those accounts are under $15,000. In fact, it’s estimated that the Chinese only put 15% of their assets there, and that may be on the high side.
What is so unusual about the Chinese is that they save just over half their income! And the top 10% save over two-thirds!
And where do those savings go? Mostly into real estate!
China’s home ownership rate is 90%. It’s just 64% in the U.S. even though we’re much wealthier and credit-worthy.
That’s because home ownership is a staple of their culture. A Chinese man has no chance of getting a date or getting laid unless he owns a home – no matter how small.
Just look at this simple chart:
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Chinese households have 74.7% of their assets in real estate vs. 27.9% in the U.S. – which helps explain why theirs is one of the greatest real estate bubbles in modern history!
