Will the Shanghai Composite Ever Eclipse its 2007 Peak?

• Posted by Robert Sinn
• on October 29th, 2011

Since monthly charts are back in vogue again as we wind down the 9th best month ever for the S&P 500 ($SPY), I thought I would highlight what I view to be the most important monthly chart for long term equity investors (if there are any left). The Shanghai Composite Index ($SSEC):

 

Chinese equities made a NASDAQ bubble-esque (bubble-esque is mine but you can use it) parabolic move between the “Shanghai Swoon” in late-February 2007 and its peak on October 16, 2007. Remember when PetroChina ($PTR) had a market cap above $1 trillion? Nothing says bubble quite like this New York Times piece from November 5th, 2007- PetroChina shares triple value in record IPO

 ”People are heavily influenced by their families, friends and colleagues at work. A lot of them don’t have any knowledge of the market or any idea of the risk.”

 

Anyone can see that October 2007 was a major top that won’t be eclipsed anytime soon, but will the SSEC ever make a new all-time high above 6124? It is a complex question especially considering that the Chinese yuan ($USDCNY) was on a fixed peg to the US dollar in 2007, whereas now the PBOC is allowing the currency to steadily appreciate. Moreover, China faces severe future demographic problems due to its “one-child” policy. I could envision a scenario in which the SSEC hammers out a multi-year base between 2250-3500 before finally launching into a second major bull run which would at least match its 2007 peak. What do you think?

 

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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