Is China Stock Market A Colossal Casino?

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Investing in emerging markets involves more risk than developed markets. Among the major emerging markets, the Chinese equity market is considered by some investors as one huge casino. This year the Shanghai Composite Composite Index is down about 19% year-to-date. Last year Chinese stocks had a tumultuous year to say the least.

The following chart shows the long-term return of the Shanghai Composite Composite Index with all the ups and downs over the years:

Shanghai Composite Long-term returns

Source: Yahoo Finance

Though volatility in emerging markets is expected, the China equity market is a class of its own. Unlike other emerging markets, the Chinese market is dominated by retail investors who seem to be extremely impatient to get wealthy. Here is an interesting cartoon depicting the Chinese investors and the stock market:

Click to enlarge

China Stock Market Casino

Credit: Nichols Cartoons

In China, people spend their past time watching the stock market. Brokerage offices have giant monitors with theater like settings so that investors can sit and watch the market. Senior citizens especially seem to spend their past time even their whole day in these places.

An excerpt from a recent BBC article:

Making friends and money

Last year I went to a brokerage house in Shanghai, the sort of stock exchange shop floor. All around me were people of a certain age, all busily trying to fill the family coffers.

They arrive in the mornings with their flasks of green tea and spend the entire day watching the red and green flashing lights and making bold decisions about their future. It’s also a venue for socialising: people are making friends and, of course, passing on tips of the trade.

This isn’t just an interesting phenomenon – it does have implications on the market.

Large numbers of small traders can move in unpredictable ways, which can add to the swings we’ve seen in the last week. Experts call it “herd behaviour”.

Source: China’s stock market and the rise of the ‘pyjama traders’, The BBC

Some photos of retail investors in China:

HAIKOU, CHINA - AUGUST 26: (CHINA OUT) Investors have a rest at a stock exchange hall on August 26, 2015 in Haikou, China. Chinese shares plunged on Wednesday with the benchmark Shanghai Composite Index down 37.68 points, or 1.27 percent, to close at 2,927.29. The Shenzhen Component Index fell 298.22 points, or 2.92 percent, to close at 9,899.72. (Photo by Luo Yunfei/CNSPHOTO/ChinaFotoPress/ChinaFotoPress via Getty Images)

China Brokerage Office-3

China Brokerage Office-2

Note: In China, red means stocks are up and green means they are down. 

Sources: Time, BBC

I do not know the answer to my title question. But one thing is clear. Investing in China is not the for the faint of heart. In addition to high state invention in the functioning of markets, extremely high retail participation makes volatility even higher since retail investors are the usually the first to bail out when markets decline and tend to pile on to equities when markets keep rising.

Knowledge is Power: Oil Stocks For Income, Emerging Markets Myths, Global Exposure Edition

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Andre-3

Photo Courtesy of: Andrej Ciesielski in Hong Kong

For more awesome photos of Andrej visit his site.

Five Bank Stocks Yielding More Than 5% Dividends

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After the recent rout in equity markets worldwide some of the banking stocks are worth a look at current levels. Since share prices have declined, high quality banks have dividend yields of more than 5%. Unlike banks that are still bogged in credit-crisis era issues, the following banks are relatively in healthy shape and are listed here for further research:

1.Company: Nordea Bank AB (NRBAY)
Current Dividend Yield: 6.66%
Country: Sweden

2.Company:Svenska Handelsbanken AB (SVNLY)
Current Dividend Yield: 5.30%
Country: Sweden

3.Company: DBS Group Holdings Ltd (DBSDY)
Current Dividend Yield: 6.55%
Country: Singapore

4.Company: Banco Latinoamericano de Comercio Exterior SA (BLX)
Current Dividend Yield: 6.90%
Country: Panama

5.Company: Westpac Banking Corp (WBK)
Current Dividend Yield: 6.40%
Country: Australia

Note: Dividend yields noted above are as of Mar 2, 2016. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Dividends from Aussie banks are franked. So dividend withholding taxes will not be deducted for US investors. Singapore is one of the few countries in the developed world that withholds 0% for investors.

Disclosure: Long WBK

US Stocks Have Performed Better Under A Democrat President Than Republican President

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The U.S. election drama is in full swing. Generally US elections tend have lots of lights, fury and shows just like Hollywood movies and very little substance. One party’s billionaire candidate promises to “Make America Great Again” without explaining what that actually means. He also says that he will bring the jobs back from foreign countries ass if a president has any power to do that. Regardless this candidate is pull record crowds. A candidate from the other party goes to the other extreme promising to do many things which are practically impossible to happen in this country. One such thing he promises is free college education. Another candidate from the same party hopes to win the presidency claiming she is best suited to run this country not only because of having well-heeled international experience but also being simply a female. Apparently having the first female president seem to mean something to many people similar to having the first black president for some others.

Anyway how do US stocks perform under a democrat president vs a republican president?

According to an research report by Fidelity portfolio managers Aditya Khowal and Nick Peters,  US stocks have outperformed under democrats than republicans.

From the report:

Stock markets under Democrat presidents have, on average, outperformed those under Republican presidents, with average returns of 10 per cent over a Democratic president’s term since 1928, against 1.8 per cent for a Republican president.

Out of the 22 terms of office since 1928, four terms under a Republican president ended with negative returns, which compares to just one negative return under a Democratic president, Roosevelt’s second term in office.

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US Stock Returns-Under Democrat versus republican presidents

US stock returns under presidents

 

Source: Democrats versus republicans: who is best for the US stock market?, Money Observer

It is surprising to see that stocks perform under democrat presidents than republican presidents since republicans are traditionally big supporters of businesses.