China stock market: first two weeks of 2016

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The first days of trading of Chinese stocks (SSE A Share Index) in 2016 looked like a very serious correction:

A roundup of subsequent commentary:

  • Eswar Prasad: 5 myths about China’s economy

  • Wonkblog: How China could trigger a global crisis

  • China Daily: Multinational firms confident in China's economic prospects: Despite China's cooling economy, the enthusiasm of the world's top 500 firms for setting up new business in the nation shows no signs of abating.

  • Nikkei: China slowdown a worry for Southeast Asia: "While China's economy continues to grow much faster than those of Japan and most Western countries, according to official figures, the country's mix of slowing imports, wobbly stock markets and a weakening currency is a growing concern for Southeast Asian countries that have grown increasingly dependent on trade with Asia's largest economy."

  • Wonkblog: What’s really important about China’s stock market disaster, and what’s not

  • Houze Song: Why Beijing's Economic Caution Is the Risky Approach

corporate governance and moral hazard issues are still rampant in the domestic financial system. As domestic financial institutions continue to expect life support from Beijing when crisis strikes, liberalizing the financial sector alone is unlikely to change the behavior of financial institutions much. ... finance and real-side reform are complementary—one cannot yield substantial benefits without the other. Radical financial reform can’t compensate for lackluster real-side reform. Without more fundamental reform, such as allowing private firms to enter sectors that are currently dominated by the state-owned sector, financial reform will not provide a significant boost to economic growth—and might even cause financial instability. In other words, such reform strategies might backfire, creating even worse problems, instead of soothing China’s economic transition pains.

  • Bloomberg: The Simple Truth About China’s Market: "The median stock on mainland exchanges still trades at about 57 times earnings—at least twice as expensive as any other major market. (Leading China stock indexes don’t look nearly so pricey but are weighted to financial companies, which tend to carry lower valuations.)"

Previous fall (a reminder)

Paul Krugman, March 2007: The Big Meltdown

The truth is that efforts to pin the stock decline on any particular piece of news are a waste of time.

Wise analysts remember the classic study that Robert Shiller of Yale carried out during the market crash of Oct. 19, 1987. His conclusion? “No news story or rumor appearing on the 19th or over the preceding weekend was responsible.” In 2007, as in 1987, investors rushed for the exits not because of external events, but because they saw other investors doing the same.

  • What made the market so vulnerable to panic? It wasn’t so much a matter of irrational exuberance — although there was plenty of that, too — as it was a matter of irrational complacency.

Weekend reading, Saturday January 16th, 2016

Economics & Business An interview with Richard Thaler: ‘Misbehaving’: When Psychology Meets Economics Catherine Rampbell: What will the economy look like in 2016? Wres-Lewis: Is mainstream...

Chinese economy, early 2016

The correlation between Shanghai Composite Index and S&P500 is not always positive With headlines such as "Falling Chinese stocks trigger sell-off in the...