Bubble – Shanghai Index?

BarroMetrics Views: Bubble – Shanghai Index?

I was surveying the stock indices and what caught my eye was the gyrations in the Shanghai Index in yesterday’s trading – plus:

  1. The fact that since  July the index had gained 46.5% (Figure 1); and
  2. Of that 46.5%, 30.62% was gained since Oct 31 (Figure 2)

Reports  in FT and the local press suggest that participants are betting that the poor data of recent times will result in more easing.

For me, what is most telling, is the fact that margin trading is on the increase. Permissioned  in 2012, the loans from broker, as at Friday’s close was up in excess of 70% since Sept (see Four Things….). Now FT reports that banks are getting into the act.

Given this increase in leverage, it won’t take much of a pinprick to cause the bubble to burst. Another potential Black Swan?

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FIGURE 1 Shanghai Index Monthly

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FIGURE 2  Shanghai Index Weekly