On bubbly stock markets in China and others...

Reading posts like http://www.nytimes.com/2007/01/30/world/asia/30china.html?ei=5094&en=5e482dafe4ede723&hp=&ex=1170219600&partner=homepage&pagewanted=all that talks about the "irrational exuberance" in China is almost like deja vu.

It's the more recent deja vu of the pre-bubble days of the late 1990s in US, and the even earlier days of the bubbles in Asia like Hong Kong before the '97 financial meltdown. Now we know how ridiculous that everyone seemed to suddenly become financial experts and doing their own "research." Rising tides lift all boats, including shipwrecks. No matter, while it's riding high, people think they're smart. Of course, back then, you could buy almost any company and it'll always turn profit. And if you're day-trading, you could earn decent profits...for a while, until the market dumps on you, and you would suddenly find that you have but a bunch of shits.

It reminds me of a friend back in Sydney. This was like late 1996, perhaps. I was bidding farewell to her as she's moving back to Hong Kong to join her fiance. She's in structured finance, so you would not think she's idiotic. Among one of the first topics we were chitchatting about was, she's going to put her savings in the B shares in the Shanghai stock market. I did not then, and even now, I still do not have faith in the health of those Chinese companies. There is no transparency at all. We would think Enron accountings did magic tricks, but I would bet my money on some Chinese companies who would out-do Enron or worse. Having the financials right is imperative in gauging whether a company is worth investing in. But for most "smart" day traders or average joes who are looking for stock tips, all they need is a name recognition (or not at all). It is that kind of blind faith that can propel a market to go from deep depression to sky high in the space of a year, like China did. It's always fun to be on a roller roaster, until you get thrown off.

Sometime later, after she moved back, and the market crashed, not least because the central government wants to clam down on the runaway spending in the provincial governments that had been feeding rampant inflations. I was just hoping that she had not done what she said she would do (ie. to put all her money in the Shanghai B shares).

I grew up in Hong Kong. I saw first hand how market rolls through the exuberant 80s. I was working part time in a financial advisory firm in October '87 when it crashed. Maybe I'll talk a bit about that tomorrow, and I'm in a writing/chatting mood. In any case, even today, it's common sight to have old folks and average joes/janes sitting in the lobby of banks watching stock tickers and interest rate movements and exchange rates fluctuations and commodity prices (like gold) ride to new highs. It's an almost scary sight, considering how these people put their life savings in the market, and wondering how it would be like if it all evaporates. But yet, they're brave. And their memory is short. Ask them if they got burnt in the '87 stock market, or the '97 property market downturn, and I'd bet you would get 100% positive response. But yes, they're brave. And they probably see it like a big casino. They go in with their eyes wide open. They know they're betting on odds, but they see the chance to make it big (or bigger).

That's why, yes, Chinese are big gamblers in the world. And they love casinos. It's in the blood.

If you would ask me, I would tell you that, for what I saw as the "irrational exuberance" in US in the late 90s, is nothing like those in Hong Kong. I grew up with that. Everyone talks about stocks. Everyone talks real estates. It's always been like that ever since I understand people's conversations when I was a toddler. Even the people selling dim sums can give you a lecture. It's like a Big Apple cabbie who thoroughly understands politics. It's always been that way, and it always will. There's nothing "irrational" about it. It's totally real to them.

But lets put things in perspective. People in Hong Kong have been brought up that way, since it's rebuilt after World War II. The economy evolves, and people adapt. And they move up the chain, from plastics, to electronics, to tourism, and finance. Wonder how a tiny colony of some 6 million people can make it one of the four major financial centers in the world? Wonder how this small outpost puts itself on the world map not even big enough for a pencil dot? The whole populace moves and adapts. It's really quite amazing.

Now, for those people who're day trading in China. I wonder how long they've been in the market, or whether they even know (or care) what stocks or shares actually are. I hope they have a high degree of adaptability and the intelligence and collective memory to learn from the last time when they got burnt. We can always hope.