China Bubble: CSI 300 Will Turn Into A Crime Scene

Send the crime scene investigators to China to investigate the CSI 300 index. The index is a combination of the yuan-denominated A-shares of the biggest firms on China’s two big exchanges, in Shanghai and Shenzhen. It’s up 88% this year, in dollar terms. It will probably crash soon.

It’s not a crime scene yet. But just you wait. After the crash, there will be accusations of fraud, negligence and general misbehavior. If it’s a big enough crash, we would consider getting Foxtel to watch some of the riots on the street live. For smaller riots, we will stick with Youtube.

Then again, no crime is committed when the market separates a fool from his money. In fact, it’s a kind of economic justice. Anyone fool enough to believe you can get something for nothing is going to have his lunch eaten sooner or later. “People get what they deserve, not what they expect,” so says Bonner’s Law of Perverse Outcomes.

What’s most surprising at times like this is just how eager investors are to be taken for a ride by the market. Yes, it’s fun, even exhilarating on the way up. But in emerging markets all over the world-especially places like Brazil, Russia, and even Australia-the next correction could be a brutal one. Free fall is only fun if you have a parachute to arrest your fall. Yet investors seem to flock to the scene of an impending slaughter through some sixth navigational sense that invariably seeks out the highest risk behaviour. Go figure.

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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