They are distorting projections of Chinese energy needs so that square pegs can fit into round holes. Yes, the Shanghai Index has taken a pounding. Yet unlike Western industrialized countries, the stock market in China is no automatic bellwether for what is coming in the broader economy. The stock market and the economy are largely separate and distinct.
Chinese Energy Demands Remain
What has been lost thus far is largely paper wealth in a market that is still up significantly for the year. The majority of Chinese investors use unsophisticated trading strategies, buying on margin, having bought a government line that stocks will always go up. All of this has little if any relationship – direct or otherwise – to actual economic indicators at play in the nation as a whole.
To say, therefore, that the “historic” loss in the Chinese stock market is a harbinger for a massive industrial slowdown causing massive cuts in oil imports is not only incongruous, it is also quite misleading.
We would need about two quarters of figures to back up such a claim, not knee-jerk reactions from opportunists claiming their 90 seconds on TV.
Chinese economic expansion has to cool down at some point. It cannot be sustained at 7% or more indefinitely. Yet disposable income is rising, as is the population of the country’s middle class. Energy demand remains in a nation that will not meet its own needs domestically for generations (if ever).
This psychologically inspired market stampede is about to peter out. After all, not every thunderstorm ends up being the storm of the century.
I’ll continue to monitor the situation.
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