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Blog : …Toil & Trouble and China’s Bursting Bubble
by John Whitefoot on June 8th, 2007
Watching the international markets of late has created a sense of déjà vu…at least if you’ve been paying any attention to China’s growing stock bubble. And by ‘paying attention’ I don’t mean giving it any serious thought…I mean just watching it fluctuate.
Earlier in the week, the tight rope walking, crap shoot, Shanghai stock index dropped 8.2 percent, the biggest decline since the 9 percent drop 3 months ago. As is often the case, the Shanghai stutter was triggered by nothing more than speculation of another policy move by China.
Unlike the Shanghai market's February plunge, this weeks drop had no impact on the North American markets. As it turns out, the global stock market isn’t vulnerable to what happens on China’s exchanges.
Nor should it be; the Shanghai stock exchange is an emerging market with a market cap of $1.5 trillion. The NYSE and Nasdaq have a combined market capitalization of $19.30 trillion. China’s economy is also just one-fifth the size of the U.S.
Sure a sharp drop in any international market will make penny stock investors a little uneasy, but those fears should be quickly laid to rest. If anything, the Shanghai’s two recent dips have shown us that China’s stock market is not linked to the global finance system. At least not in the same way that Wall Street, London, Tokyo and Toronto are.
In the end, a wobble in Chinese equities doesn’t necessarily mean other markets will suffer as well. That lesson followed the global stock sell-off in late February that was triggered in part by a nearly 9 percent single-day drop in the benchmark Shanghai Composite Index.
Investors of every ilke feared that decline signaled trouble for the Chinese economy and, in turn, other economies around the globe. It didn't.
What the February sell-off did do was open up a short window of opportunity for astute penny stock investors to pick up excellent stocks. That window was closed tight this time.
Since then, penny stock investors have realized that China’s equity markets are, for better or worse, in a league of their own. Most Chinese shares are off-limits to foreign investors and financial controls bar most ordinary Chinese from buying foreign stocks and bonds.
“What people are looking at is a market that really is walled off and enclosed. Therefore, it tends to move to its own beat," said one San Francisco based portfolio manager.
Penny stocks also move to their own beat. But they move to the beat of the North American free market. And with the Dow and Penny Stock index still trading aggressively, there’s no reason to sit on the sidelines.
Looking to add to your penny stock portfolio? As per usual, there is always an abundance of penny stocks to shift through; and not surprisingly, the number of quality penny stocks to choose from continues to be small.
But…find those penny stocks with great valuations and you’ll always beat out Wall Street and the S&P Indexes. With penny stocks, there’s always a bull market going on somewhere, and that’s a lot more than I can say for some international markets.