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Alibaba Is the Canary in China’s Coal Mine – BloombergView 09-01-15

Salient to Investors:

William Pesek writes:

Alibaba’s shares slide with each new report of middle-class Chinese raising cash and delaying spending. Alibaba’s $166 billion market cap exceeds the annual output of many countries.

The Chinese economy will weaken further: domestic and external demand is sliding along with the stock market. China will experience a negative wealth effect as stocks fall. Mass austerity has only just begun. Most Chinese under 50 only know annual growth of above 10%.  Sentiment will plunge as more and more mainland Chinese sense that the economy’s and stock market’s troubles are beyond the government.

The conventional wisdom is that few mainland Chinese own stocks, but it said the same about Americans in the late 1990s.

Beijing appears to have given up trying to save the market. Directing banks to buy shares, turning off half the market, loosening curbs on margin trading, suspending IPOs, letting stock speculators put up houses as collateral, are all signs of desperation.

Wang Tao at UBS said risks are to the downside despite policy efforts.

Morgan Stanley lowered its forecast for 2015 Japanese growth to 0.5% from 1%.

Glenn Stevens at Reserve Bank of Australia warned of downside risks associated with developments in China.

Read the full article at http://www.bloombergview.com/articles/2015-09-01/alibaba-is-the-canary-in-china-s-coal-mine

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