2009-04-09

This explains the rise in the Mainland market?

Earlier I posted Chinese loans making their way into the stock market, and another time I linked to this Naked Capitalism piece:
One analyst estimates that more than 1/3 of the total "new" lending (assuming that the loans were truly extended) may have gone into the stock market.

Yesterday, I read this at the end of Michael Pettis' most recent posting:
There is a lot more I wanted to discuss today, but this blog entry is getting to be way too long. But just one quick thing, yesterday I was having coffee with some visiting friends from Goldman when one of them received a notice that there were credible rumors on the March increase in new loans. We had all been expecting a very big March number – between RMB 1.3 and RMB 1.6 trillion.

It turns out that the true number may have been an astonishing RMB 1.9 trillion.

That means that for the first three months of the year we have had loan increases of RMB1.6 trillion, RMB 1.1 trillion, and RMB 1.9 trillion. This amounts to RMB 4.6 trillion for the first quarter of 2009, compared to RMB 4.5 trillion for all of 2008. Notice to my students: learn more about how to resolve and restructure bad loans. This will be a great career option for you over the next few years.

China's Shanghai market is up 31% through April 9. My back of the envelope calculation of market capitalization, just using the September figure from here and calculating the change in index value, put the market at $1,409 billion at the end of 2008, or RMB 9,581 billion (using a 6.8 RMB = $1 exchange rate, and ignores IPOs, delistings, and secondary offers.) With the market up 30%, it has risen to about RMB 12,455 billion, an increase of RMB 2,874 billion, or RMB 2.87 trillion.

One can't draw a straight line from the increase in loans to the increase in the market cap because it is not a 1 to 1 ratio, but if the one-third figure is correct, there is a straight line from a massive increase in loans to a 30% rally.

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