........especially for those putting their faith in unknown companies of unknown value and unknown management in far-off unknown lands;


Times Online . April 18, 2007

Betex shares suspended after two senior staff arrested

Chinese lottery firm suspends sales of its software nationwide following police action
Robert Lindsay

Shares in Betex, the Aim-listed Chinese lottery scratchcard and gaming software operator founded by former banker Peter Greenhill, were suspended this afternoon after two of its senior staff were arrested by Chinese police and a third appeared to be on the run.

In a statement, Mr Greenhill said the company had suspended sales of the software product across China: "The Company has received information that two of the senior staff at its Beijing operation have been detained and that a further senior staff member is being sought by the Chinese police authorities in the province of Jilin."

He said the company was working with its legal advisers to try to obtain more information and was assisting the authorities wherever possible.

Betex said it believed the alleged illegal activity "relates to conduct by these individuals and does not call into question the legality of the Company's software product, or the conduct of the Company."

It added: "Owing to the uncertainty surrounding the situation, and the significance of these operations to the financial performance of the Company, the Company has requested a temporary suspension of trading in its shares on AIM pending clarification of the situation."

Betex's business is almost entirely dependent on the Chinese market. Its shares have collapsed from a high of 80p shortly after flotation a year ago, hit by fears over a clampdown on online gambling. They were suspended at 32.5p.

At the end of last year it unveiled a plan to begin selling lottery scratchcards in partnership with lottery authorities in Hebei province.

Scratchcards in China were a huge hit before being withdrawn during the 1990s after concerns over fraud.

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Be warned - for this will not be the last such company to disappear down the pan with your hard-earned loot!

China's April Inflation Adds Fuel to Stock Bubble - By Nipa Piboontanasawat

May 14 (Bloomberg) -- Inflation in China, the world's fastest-growing major economy, held above the benchmark deposit rate for a third month, adding fuel to a growing stock market bubble as households hunt for higher returns. Consumer prices gained 3 percent in April from a year earlier after rising 3.3 percent in March, the National Bureau of Statistics said today. The central bank's target ceiling for inflation in 2007 is 3 percent. Central bank Governor Zhou Xiaochuan is concerned about a stock market bust, after the benchmark CSI 300 Index rose more than 80 percent this year. Chinese households have flooded to the share market, partly because inflation outpaces the returns on bank deposits. The one-year benchmark rate is 2.79 percent.

``The central bank is increasingly concerned about asset bubbles,'' said Ma Jun, an economist at Deutsche Bank AG in Hong Kong. ``The social implications could be huge if there is a major correction -- most of the new investors in China are poor, low-income people and they will be hit the most.''

The yuan held near its highest close since the end of a fixed-exchange rate in July 2005, trading at 7.6785 against the dollar.

China should raise interest rates further to soak up excess cash and prevent the economy from overheating, the official China Securities Journal said today, citing research by the National Development and Reform Commission.


Switching to Stocks

Investors in China opened 8.58 million new accounts at brokerages in the first quarter, up from 5.38 million for the whole of 2006, according to the China Securities Depository and Clearing Corp. China's banking regulator last week announced lenders will be able to buy stocks abroad, a measure that may help to cool the local share market. ``The central bank is concerned about negative interest rates boosting the flow of funds to the stock market,'' said Michael Dai, an economist at Bank of China (Hong Kong) Ltd. ``Money supply and lending are still strong.''


Food Prices

Food prices climbed 7.1 percent in April from a year earlier after jumping 7.7 percent in March, the statistics bureau said. Prices of consumer goods increased 3.4 percent after gaining 3.7 percent. Food costs, which account for a third of the consumer price index, are rising as farmland shrinks and a growing and richer population pushes demand higher. The government has sold grains in auctions and subsidized farmers to boost the supply of food for 1.3 billion people. For the first four months, consumer prices rose 2.8 percent on the same period last year. April's inflation rate was the second-highest of the past two years. March had the highest rate.


Excessive Manufacturing

In India, the world's second-fastest growing major economy, inflation was 5.7 percent last month, nearly double China's rate. In China, overcapacity of manufactured goods is helping to hold down prices, along with government controls on electricity and fuel. About 70 percent of 600 consumer goods were in oversupply, the Ministry of Commerce said last year. China's economy, the world's fourth largest, grew 11.1 percent in the first quarter from a year earlier. The People's Bank of China on April 29 ordered lenders to set aside more money as reserves for the seventh time in 11 months to freeze money pumped into the economy by the export boom. It has raised interest rates three times since April last year and sold bills to drain cash from the financial system. Economists surveyed by Bloomberg News last month expect the central bank to raise the lending and deposit two more times this year. The one-year benchmark lending rate is at 6.39 percent.

FT (letters)- May 15 2007

The coming crash in Chinese stocks - By William Gamble


Sir, Six years ago, according to an article in the FT, Wu Jinlian, an economist with the State Council Development and Research Centre, described the Chinese market as worse than a casino. Not much has changed. The lack of transparency, corporate governance, free press and property rights has divorced the Chinese market from any economic reality. As Cheng Siwei, a senior member of the National People's Congress, pointed out, only 30 per cent of the more than 1,300 listed companies had investment value. In relationship-based systems such as China's, "truthiness" has been mistaken for the truth of a rule-based market.

What has changed are the effects. In the past six years the Chinese economy has become a major factor in the world economy. When a bubble bursts in China, it will not stay in China. If the government decides to support the market, it fortunately has the cash. Unfortunately, it is in US Treasury bills. If there is no intervention, the debris from a crash will unsettle a rising Chinese middle class and their political apathy.

Where Shanghai goes, Hong Kong is sure to follow. It is doubtful that investors will make a distinction between China and the rest of the emerging markets, so undoubtedly several more will fall. The problem in China is that the stock market is not the only bubble. Speculative bubbles also exist in property markets upon which much of Shanghai's economy depends. China's irrational exuberance has also been driving commodity prices around the world. These markets will be tested along with much of the financial engineering involved in private equity, hedge funds and credit derivatives. And pensioners in the US may wake up to discover that their interests are being determined in a Beijing court presided over by a retired Peoples Liberation Army major.

The collapse of the Chinese stock market is not a question of if, only when. The real question will be how many dominoes it will take with it.

William Gamble
Emerging Market Strategies
East Providence, RI 02914, US

Yahoo - Comment & Analysis - Friday May 18

Can China Defuse Its Stock Market? - By Frederik Balfour


Here's a surefire recipe for a stock bubble: Take blistering economic growth, throw in strong corporate earnings, add artificially low interest rates, and stir in a dash of inflation. Then rule out any viable investment opportunities besides equities, and you'll quickly find yourself moving past "pop" and into "kaboom" territory. That pretty much sums up the situation in China, where 250,000 new retail investors are crowding into the market every day. Together, the mainland's 70 million traders have pushed Shanghai's benchmark index up nearly 50% since the beginning of the year, following a 130% gain in 2006.

Beijing is terrified of what might happen when that bubble bursts. Many investors are pensioners and other jobless people who have plowed their savings--and sometimes even funds raised by mortgaging their homes--into stocks. If the market tanks, Beijing fears, it could dent consumer confidence and send disgruntled investors out into the streets. The rest of the world, meanwhile, is worried that any collapse would quickly spread to exchanges across the globe.

Financial experts say there's a way China could create greater stability: stock index futures. Sophisticated traders in developed markets use these wagers on the direction of shares to cushion themselves against massive losses if the market falls. Futures also theoretically dampen volatility as more pricing information is factored into investment decisions. China currently has no equity derivatives such as stock options and futures, and short-selling stocks--betting that the price will go down--is banned. That means people can make money only in a bull market, and have no choice but to cut their losses when prices tumble. And if everyone rushes for the exits, shares go into a tailspin.


DELAYS AND DOUBTS

Beijing understands this and had originally hoped to introduce index futures this spring. Now the launch has been delayed until at least September. The reason: While futures might eventually create more stability, in the short term investors who don't fully understand the concept might get spooked and start selling their shares. "There is a commonly held belief, which is wrong, that the introduction of futures causes underlying stocks to fall," says Fraser Howie, who manages the China portfolio for CLSA Asia-Pacific Markets. "The authorities are concerned about anything that could pop the bubble."

There's a second fear. To work well, futures markets require transparency, ample safeguards against insider trading, and a sophisticated investor base, all of which are glaringly absent in China. While futures can smooth out the bumps in the market, they also let traders leverage their bets, increasing their potential profits--but also the risk of bigger losses if they get it wrong. "Futures won't achieve what the government is trying to do," says Carl Walter, managing director at JPMorgan in Beijing. "They may even cause more volatility."

Previous Chinese experiments with financial futures haven't been particularly auspicious. In the early 1990s, China introduced bond futures but abruptly halted trading in 1995 after a securities company, acting on bogus insider information, lost billions of dollars on futures, driving itself into bankruptcy and landing its CEO in jail. Since then, trading in most derivatives has been banned, though futures contracts for commodities such as copper, soybeans, and corn are traded on three exchanges.

Daily Mail - 18 May 2007 - Sam Fleming

China could be heading for a crash


Asia's richest man warned China's stock market has turned into a 'bubble' that may be on the brink of collapse. Li Ka- shing, whose empire stretches from ports and bridges to mobile phone firm 3, said he was increasingly worried about dazzling valuations on the Shanghai exchange. 'There is a bubble in the China stock market,' he said. 'I don't want to see the bubble bursting, but investors should be careful about that.'

The warning came as US Federal Reserve chairman Ben Bernanke added his voice to fears about the debt-fuelled private equity takeover boom. He said the Fed is looking into 'significant risks' associated with takeover financing. Li's words will cast a shadow over world markets, as equities set new records every day. A brief setback in Shanghai in February prompted declines across the globe. Many analysts fear that was just a dress rehearsal for the real thing. China's main index is up 86% this year alone. Analysts have calculated the main Shanghai market trades at around 50 times earnings, compared with only 13 in London. The boom has come as Chinese citizens open hundreds of thousands of share accounts every day, yanking their cash out of banks and plunging it into equities. While the Chinese government has pledged to slow the pace of growth and damp down asset prices, its efforts have done little to dent savers' 'irrational exuberance', said Gerard Lyons, of Standard Chartered.

'There's no doubt that it's overheating. I would-n't be surprised if there is a near-term setback,' he said. 'What we are seeing is a reflection of a booming economy. People are looking for an avenue for their savings. Recently it was in housing, now it's in the stock markets.'

Last week the Chinese government eased its restrictions on overseas investments to divert savings from domestic equities, but Li said the amounts involved were too small.

So there seems to be a lot of negative sentiment on Cina, how best to play it? Put option on the Hang Seng? Set up a CFD account with a finger on the button to short ? Can you short the Chinese index?

IG do a Chinese 25 Tracker CFD which you could short quite happily; the danger being of course that everyone says the bubble will burst and it probably will, but when? In the mean time the a shorter could lose an awful lot of money.

The Observer - Sunday May 20, 2007 - Ruth Sunderland

Slump? Don't say they didn't warn you


It has been the Week of the Warning. The alarm bells are not being rung by the usual gloomy suspects, but by figures whose views command worldwide respect because they have generally read the runes right. First, Anthony Bolton, arguably Britain's most respected fund manager, stepped down from his throne at Fidelity saying he fears a stock market slump and worries about the banks' eagerness to finance private equity deals with risky 'covenant-lite' loans. The banks have embraced cov-lites, a US import, in their sheer desperation to mop up a slice of the private equity business, even though these relaxed contracts reduce their ability to intervene if a borrower shows signs of distress. The Bank of England shares Bolton's concern, as does Ben Bernanke, the chairman of the US Federal Reserve, who issued a warning of his own. Then yesterday G7's financial stability forum issued a report calling for greater protection against possible risks to the financial system from hedge funds.

Tycoon Li Ka-shing, Asia's richest man, voiced his belief that China's stock market is now a bubble that could burst painfully.

Even top-end art dealers are bemused by the exuberance in the markets. Prices for post-war works, fuelled by demand from Russian and Chinese buyers, hit a record this week when a 1950 Rothko sold in New York for $73m. That prompted seasoned Manhattan dealer Richard Feigen to liken the modern art frenzy to tulip mania. There are concerns over the mergers and acquisitions boom, not least the eyewatering 85 per cent premium Microsoft is paying to take over online advertising business aQuantive. Closer to home, the chief executive of Land Securities said the 710bn commercial property market had peaked and was already showing signs of a slowdown. Plenty of City folk have been bearish for some time about the domestic housing market, though they dare not say so publicly as prices continue to defy gravity, despite clear hints in the Bank of England's inflation report that interest rates will have to rise again. Whether a further increase will be enough to dampen the appetite for debt remains to be seen. Debt is no longer seen as a financial tool to be treated with caution, but as the magic lever that will unlock huge gains, whether in housing or in private equity deals.

Amnesia is part of the problem. Negative equity is about as real a concept to today's housebuyers as ration books. People have also forgotten that 1980s conglomerates like Hanson were the forerunners of the private equity players. They fell apart because they had to chase bigger and bigger deals to maintain momentum. The remnant of the group that still bears the Hanson name last week fell to a German predator. The mood in corporate Britain is uncertain. Profit warnings among quoted companies in the first quarter of this year leapt 17 per cent, according to accountant Ernst and Young, taking the number above 100. Companies are worried about interest rates and the strong pound, but another cause for concern is the cutback in public spending that will happen early in Brown's premiership. Bank of England governor Mervyn King said last week that women were already dropping out of the workforce because of a falling-off in public sector employment growth. With about 30 per cent of the working population employed either by the government directly or by firms heavily dependent on government contracts, firms are right to be jittery.

The Observer - Sunday May 20, 2007 - Heather Stewart

Is China's trick cycle on the turn?


China's stock market boom has all the classic signs of a bubble: taxi drivers poring over the markets pages, homeowners remortgaging to pile into equities, 30 million share-trading accounts opened in the last 12 months. The burgeoning middle classes have caught the trading bug, and their enthusiastic buying spree has sent prices rocketing. China-watchers are already asking how soon the boom will turn to bust; and how damaging the fallout could be for the rest of the world. 'The Chinese stock market is just a gambling pit,' says John Calverley of American Express, author of Bubbles and How to Survive Them. He says the anecdotal tales of ordinary investors rushing to stake their savings on shares are clear evidence of 'irrational exuberance', as former Federal Reserve chairman Alan Greenspan once called it. The authorities in Beijing are keen to bring share prices under control, and have already raised interest rates and bank reserve requirements several times, most recently last Friday; but as Greenspan himself discovered, bringing about a soft landing in these circumstances is never an exact science. 'The challenge confronting the Beijing authorities is to find the happy medium between doing too much and too little,' explains Stephen Lewis of Insinger de Beaufort. 'If they are heavy-handed, the danger is they will precipitate a financial crisis as the bubble bursts. If, however, their response is too gentle, the bubble could well go on inflating. This would reduce the chances of a soft landing for China's asset markets.'

When prices dropped 9 per cent in February it triggered sell-offs from Tokyo to New York, as anxious investors fretted that China could be the first domino to fall in an emerging-markets shake-out. Since then, Shanghai has bounced back - prices are now 45 per cent higher than they were in February - but another wobble could shake global confidence. 'It's just the perception that it's the first bubble to burst,' says Julian Jessop of Capital Economics. 'The next correction, when it happens, will probably be a bit bigger than the last, so I think it will be a shock.'

A frothy stock market is not China's only problem. In fact, some economists believe it is just one symptom of a much broader issue: with a cheap currency, a vast trade surplus and low interest rates, they argue that China's long-running growth spurt is unsustainable. 'It's clearly the case that the Chinese economy is overheating at the moment, and this is resulting not only in accelerating wage inflation, and China exporting inflation, but also in these bubbles; you have ample liquidity sloshing around,' says Diana Choyleva, a director at Lombard Street Research. She fears that the government has waited too long to act, and will have to clamp down hard to bring the stock market, and wider inflation, under control.

I heard (or possibly read) last week that we aren't at a market top yet, because that normally happens when all the retail investors pile in. Ironic given the activity in China at present. The statement rather made me wonder if the institutions are actually hoping the retail investor will pile in, to carry the can when it all goes pear shaped. I remember an article in January 06 though saying the retail investor was leaving the markets enmass, presumably learning the lessons of the tech market bubble.

Interesting times ahead I feel, and it could make for a good show if the doom sayers are correct.

Personally I've never been happier to have my cash in the bank.

Strawbs.

Chinese people are putting all their savings and worldly possessions into a very quickly overheating stock market. This, coupled with the inability of the Chinese (communist) government to adequately organise its financial structure, is going to lead to a massive economic crash which, in turn, could lead to nationwide rioting. This could quite easily overturn the present communist regime and bring about the installation of a new capitalist regime. For sure, the market is a bubble which just surely has to burst and the longer it balloons the greater the crash.

Markets will never spot the black swan

Interesting article (and book to which it refers).

I wonder what the global markets black swan will turn out to be......and the wonders of hindsight that'll explain how we should've seen it coming.

Strawbs.

It can only be a matter of time before the bubble bursts.

Very good thread. People will do well to take note.

Sunday Telegraph - 21/05/2007 - By Liam Halligan, Economics Editor

When China falls ill, it's acupuncture all round


For much of the past decade, fast-growing China has been the world's economic juggernaut. More recently, the People's Republic has accelerated anew and is now a run-away train. Is China's boom becoming dangerous? Figures released last week show the economy grew by an astonishing 11.1 per cent during the first quarter of this year. Consumption was up 13 per cent, investment 25 per cent. China's breakneck development - the biggest and most rapid industrial revolution the world has ever seen - is ringing alarm bells in the West. For instance, the country's rampant expansion has generated a near-insatiable demand for commodities. The resulting price rises, particularly for oil and gas, have changed the world economy for ever. The West has benefited from imports of cheap Chinese goods - yes. But is the emergence of this new economic superpower really good news for the rest of us? The answer - in the short-term at least - depends largely on what happens to China's stock market bubble. If shares fall sharply, there could be shock waves across the globe.

Earlier this month, the Shanghai Composite Index roared through the 4,000-mark, having passed 3,000 less than two months before. China's combined markets have just posted daily trading volumes greater than the rest of Asia combined - including Japan - and exceeding London too. The Shanghai and smaller Shenzhen exchange recorded trades of 24.6bn in a single day. And on Wednesday, the closely aligned Hong Kong market generated record volumes too. Having climbed more than 300 per cent in less than two years, there are now fears Chinese shares could crash. Given the widening inequalities in the People's Republic, and lack of political representation, tumbling shares could cause genuine social unrest. This is an issue of global significance too. Western investors - and pension funds - have gorged themselves on Chinese stocks. And, only a couple of months ago, we saw how a wobble in Shanghai could cause angst on markets elsewhere.

So, what can be done to bring the market back under control? Well, the main reason for the recent surge has been the flood of retail money now entering the market. Incredibly, small investors are opening more than 300,000 share dealing accounts every day. This share-buying frenzy is being driven by the restrictions imposed on Chinese savers. Having built up billions of dollars worth of savings, they earn very low interest rates from state-controlled banks, and are unable to invest abroad due to capital controls. With the average Chinese bank deposit yielding less than 3 per cent, and inflation now at 3.4 per cent, savers are struggling to maintain the real value of their money. That's why, when shares in Shanghai are buoyant, the money piles in. The authorities have reacted not so much by trying to talk the market down, as to shout it down. State-controlled newspapers and television channels regularly warn investors that "many of you will lose your money". And last week, Beijing raised interest rates and bank's reserve requirements in its latest bid to reduce liquidity and curb asset price growth.

All this is being watched with pursed lips in Western capitals. There is a common view that the Chinese have no hope of taming their stock market - and reducing the risks it poses to share prices elsewhere - unless they rein in their trade surplus first. Data published last week beggars belief. China's overall trade surplus reached $250bn on an annualised basis during the first three months of this year - more than double last year's total. This aggressive export performance, bolstered by an undervalued currency, contributes mightily to what Lombard Street Research has dubbed China's "savings glut". All that liquidity has to go somewhere. And one of the places it is showing up in spades is China's dangerously overheated stock market.

When Chinese vice premier Wu Yi meets Hank Paulson in Washington later this week, the US Treasury Secretary will no doubt enquire when China will let the yuan appreciate, so making its exports less competitive. That would take some pressure off US manufacturers, saving American jobs, and helping to stem the slide in President Bush's popularity. Beijing has just widened the band in which its currency is allowed to trade. But no one really believes China will abandon its mercantilist stance. Until quite recently, it has been easy to dismiss US demands for a higher yuan as nothing more than parochial, American carping. But given the role of China's over-inflated trade surplus in pushing up its over-inflated stock market, maybe the US has a point. Economists used to say that when the US sneezes, the rest of the world catches a cold. China, too, is now so important to the global economy, perhaps it needs an aphorism all of its own.

In 20 years or so, or even less, China will usurp the States and become the world's biggest economy. But even now, if China's stock market comes off the rails, the rest of the world will get caught in the wreckage.

China currently has no equity derivatives such as stock options and futures.
Short-selling stocks - betting that the price will go down - is also banned.

This means people can only make money in a bull market - by buying shares which they hope will keep on rising.
They will have no choice but to sell off and try to cut their losses when prices tumble.

When everyone rushes for the exits, shares will go into a frenzied tailspin.

e t

Why do you keep cutting, pasting and highlighting the downside? You shorting the whole Chinese stock market?

pt, ah - you haven't read the last post which tells you it isn't possible to short stocks in China.    Indeed, that's one of the problems, for if you could do so it would introduce balance into the scheme of things. Just watch what the consequence of that will be once the market starts to fall.
Good luck if you're holding.

Mon May 21, 2007 - By Herbert Lash

China's stock market becomes a proxy for risk


NEW YORK (Reuters) - Investors hunting for a bellwether for risk appetites are increasingly looking to China, whose frothy stock market has become a canary in a coal mine of sorts.

Investors fear a blow-up in Chinese stocks could again roil world markets and cause a global pullback like the one sparked by a plunge on the Shanghai stock market on February 27.

China is "both a proxy for risk appetites, which are relatively robust ..., and as a proxy for global economic growth," said strategist David Joy of RiverSource Investments, a unit of Ameriprise Financial Inc. "And maybe that equity market movement straight upward is a little bit of concern that bares watching."


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That last line just has to be number one contender for the understatement of the year !!!!