China Stocks Drop to 2009 Low on Concern Slowdown Will Persist

The following Bloomberg Chart is telling:

Chinese stocks were the hardest hit from the Global economic crisis, and has not responded well to the rest of the world’s intervention efforts. While US and Europe equities have pushed above 2009 high, Chinese stocks are heading into 2009 low. If there is a perfect example of heaven and earth, this is it.

Why are Chinese stocks behaving this way? A fell plausible explanations:

1) US/EU equities are overbought/hyper-inflated
2) Chinese stocks were overbought/hyper-inflated themselves before 2007/2008 and we’re now looking at the proper equilibrium
3) Chinese stocks are fundamentally different from US/EU stocks and hence this behavior is perfectly reasonable.

The truth is possibly somewhere in-between the 3 reasons.

China’s stocks fell, dragging down the benchmark index to the lowest level since January 2009, after a central bank adviser said the economic slowdown may extend into next year.

The economic slowdown may persist into 2013 amid a lack of funding for approved infrastructure projects, according to Song Guoqing, an academic adviser to the People’s Bank of China, while a survey showed China’s manufacturers and retailers are less optimistic about sales than they were three months ago. Anhui Conch Cement Co. and Sany Heavy Industry Co. led declines among construction-related stocks. Foshan Electrical and Lighting Co. dropped to the lowest in almost a month after saying a manager was fined for insider trading.

“There was no positive news such as government stimulus over the weekend so investors anticipate the current slowdown in the economy hasn’t stopped,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s still some room for the market to drop.”

The Shanghai Composite Index slid 0.7 percent to 2,012.36 as of 10:13 a.m. local time. It plunged 4.6 percent last week after a report on manufacturing signaled a contraction and escalating tensions with Japan threatened trade. The CSI 300 Index fell 0.7 percent to 2,183.20 today, while the Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong lost 0.7 percent. The Bloomberg China-US 55 Index added 0.7 percent in New York on Sept. 21.

Via – Bloomberg

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