Q&A with Dr. Mark Mobius on China

I read the article "Q&A with Dr. Mark Mobius on China" last week. There is a paragraph which is insightful. Full story.

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Is it time to take profits in the Chinese stock market? What is your outlook about
growth? Is the current trend sustainable or is it due for a correction?

There is no way anyone can predict whether a market is at its peak. No one can predict the
market direction and a bear or bull market could start or end at any time. However, the good
news is that bear markets are shorter in duration than bull markets and bear markets go
down a smaller percentage than bull market increases. This is why one must invest with a
long-term view. It’s true that the excess liquidity in China is sending the A market valuations
higher and higher but since China's capital account is still under control, this situation of
expensive valuations could last longer than most could expect. The Chinese government
has realized that the risks associated with an overheated stock market could be tragic and
we believe that it will introduce more measures to contain the excessiveness. Having said
that, we also believe that they would not like to see the stock market experience dramatic
falls as the impact would not just be limited to the economy. There could be social and
political implications as well.
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No one can predict the top and bottom of a market, just like what we have witnessed these two years. Just as when everyone thinks that it is all the way up, a sudden crash happened. Just when everyone thought it is going down, it rebounded strongly. There are too many players in the market which affect the supply and demand situation. The advance of technology and financial market, emergence of hedge fund and momentum player would increasingly magnify the price swing. However, the good news to fundamental investor is you got more chance to pick up good stock at bargain price.

The situation at China A share market makes the whole world worry. However, worry is not enough. There should be concrete measures to cool the speculation. Since the bull run, I have been reading the news on how speculative the A share market is and how a novice has been making tons of money. Cleaner lady put her life saving into stock and double it within 6 months. People borrow money to buy stock to get leveraged return. The stock mania has spread to everyone.

My view is it is unlikely to fade anytime soon. Once the people has tasted the sweet return of stock, the confidence is unlikely to collapse anytime soon. The uniqueness of China situation are there are too much idle deposit which earning pathetic return and the retail population is sufficiently big enough to absorb big selling. The China government should be planning for additional measure to cool the speculation. Get the situation under control, not suddenly burst the bubble. A correction is highly possible but a total collapse is unlikely.