January 19, 2005


China moves to cage its rampaging bears: After a disastrous performance last year, Chinese stock markets have opened 2005 on an even more dismal note. The authorities have promised to intervene, but as experience shows, that only results in short-lived rebounds. With bears roaring for over three years now, it's time for more than just cosmetic surgery. (Asia Times, 1/20/05)

The root cause of ailing investment confidence is that there is very little or even no return for investors, said Cao. For more than a decade, many listed companies have regarded the bourses as cash cows and did not care about investor sentiment - rarely paying dividends and often providing fake information. Cao pointed out that the market remains weak as the mechanism for protecting investors' interests has yet to be fully established.

It has been suggested that the role of the market be defined as a venue for investment, rather than a place to raise funds. And listed companies should create fortunes, not just for themselves, but for the public investors too. Regulators have started to make progress on this. However, the biggest obstacle confronting the implementation of the reform plans is the bourses' split share structure. The fact that about two-thirds of the shares of domestically listed companies are non-tradable and lying in the hands of the state has left very little room for public investors to improve their situation. The existence of these non-tradable shares, a result of the planned economy, has offered the actual controllers of the listed companies more of an advantage than public investors in terms of the disposal of the money raised from the stock market.

Realizing these flaws in the system, regulators are looking for ways to gradually reduce and float these shares, but it is hard to find a solution that will please everyone.

And folks wonder why they're so eager to trade cheap labor for our bonds?

Foreign Investors Undaunted by Prolonged Dollar Weakness (Tom Petruno, January 19, 2005, LA Times)

The sinking U.S. dollar was supposed to scare foreign investors away from U.S. assets. Instead, it may have whetted their appetite for more slices of the American pie.

Foreigners pumped a net $81 billion into U.S. stocks and bonds in November, up from $48.3 billion in October and the most since June, the Treasury Department said in a report Tuesday.

The wave of buying came as the dollar was falling further against the euro and other key currencies. The greenback's slide sparked widespread hand-wringing that the huge U.S. budget and trade deficits were causing overseas investors to abandon U.S. assets.

Instead, the Treasury's data suggest that the weaker dollar encouraged foreigners to view American securities as being on sale, some analysts said. As the dollar falls, U.S. assets become cheaper for overseas buyers.

Foreigners' net purchases of U.S. stocks totaled $14.5 billion in November, the most since May 2001, the Treasury report said.

Net purchases of Treasury bonds by overseas investors rose to $32 billion for the month from $20.8 billion in October. They also snapped up corporate bonds and government agency issues.

The stock purchases, in particular, could be considered a vote of confidence in the U.S. economy, and not simply bargain-hunting, said Drew Matus, a senior economist at brokerage Lehman Bros. in New York.

"It's a sign that foreign investors expect the economy to be strong going forward," he said.

Posted by Orrin Judd at January 19, 2005 10:00 AM

Not the first time this happened. I commented about it months ago on this site RE: an article on the opposite case. The real problem for the stock market will occur if the dollar regains its value rapidly and the foriegn investors all bail out to secure their profits as well as the late investors to minimize their losses. That's happened before too.

Posted by: Genecis at January 19, 2005 11:35 AM

Remember when the smart set put all their worth into D Marks?

Posted by: LUCIFEROUS at January 19, 2005 2:50 PM