On Tuesday night the Shanghai B-Share index fell 10%. The A-Share market fell 7%. I don’t suppose this came as much of a surprise to anyone except the hordes of novice retail investors in China. For some weeks now, most commentators, including several government officials, Asia’s richest man, Li Ka-shing, and even Alan Greenspan, have been warning of a bubble. The question now is not will China fall further (it probably will), but does it matter if it does? To that, the answer is that if you look at it rationally, it probably shouldn’t.
As Jonathan Allum of KBC, Belgium’s largest financial institution, points out, the total market cap of the Chinese markets is smaller by $3bn than just a quarter of the S&P 500, and “even this overstates the true size of the tradable market since around 70% of it is held by the government”. And despite all the stories of “stockmarket fever” (every single UK paper has reported this week the ‘fact’ that 300,000 trading accounts are opened every day in China this week), less than 10% of the population actually own shares. As is often the way in emerging economies, the stockmarket is not really much of a reflection of the economy as a whole and it is China’s fast-growing economy, not its stockmarket, that is driving global growth – and markets – in much of the rest of the world.
Still, the fact that it shouldn’t matter what is happening in a small and very overvalued market (average p/e 48 times) in which foreigners aren’t much invested anyway, doesn’t mean that it won’t. There’s not much value left in many markets (Japan and some of the eurozone aside) after the outperformance of the last few years, so, just as was the case when Chinese shares fell 9% on 27 February, sparking a global mini-crash, there are bound to be plenty of traders out there looking for an excuse to sell.
Our cover story this week (How to cash in on the renewable energy boom) looks at climate change and the many investment opportunities it throws up. We’ve written on this before, of course, and we’ve recommended you invest in everything from palm-oil plantations to carbon-trading firms and a company trying to create carbon credits by processing methane in Latin America. However, the growing obsession with global warming, be it justified or not, means that there is now money to be made in far less obvious ways.
As Nigel Milton (who is soon going to start writing a newsletter for us – more news on this soon) points out, we are seeing not only a massive transfer of resources into the alternative-energy sector (in the form of both private capital and vast government subsidies), but also a slew of new legislation that is creating huge opportunity in a variety of other sectors – think air-conditioners and reuseable packaging. We’ll be hearing from Nigel on this subject again over the next few months, but in the meantime, he also tips three of his favourite climate-change-related stocks.