Shanghai stock market crashes

China is well worth watching at the moment. Quietly, away from the headlines, the Shanghai stock exchange has been collapsing. It is now down 44% since its October peak, and fell over 5% on Wednesday.

This matters to the chemical industry for two reasons:

• The immediate cause of Wednesday’s fall was news that Sinopec and PetroChina lost money in January and February. Their shares fell over 8% as a result. This shows the level of ‘subsidy’ now being offered to Chinese consumers following the government’s decision to freeze oil product prices in January. It turn, this subsidy delays any rebalancing of demand (as I noted on Wednesday), putting more pressure on western consumers.

• The collapse itself indicates that the Chinese ‘growth story’ may be about to take a break. The government has been raising interest rates very steadily, because of worries about ‘over-heating’ in the economy, and rising inflation. The stock market is forecasting that these measures will work, and that we may well see a major slowdown after the Olympics. This would be extremely serious as China was the powerhouse behind the recent boom in global chemical demand.

Of course, stock market collapses do not always lead to economic downturns. But they are often linked. The establishment of contingency plans for dealing with a global slowdown is fast becoming an urgent priority for chemical industry managements.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Shanghai stock market crashes

  1. ThePowerStocks.com Team 13 October, 2008 at 10:29 am #

    This blog is really nice and informative. We are pleased to know this blog is really helping people and it’s our pleasure to post informative content on this useful blog created by webmaster.

    Here’s our market view on American stock market for 10th October, 2008

    The stock market has collapsed – since Sept. 19 the DJIA is down 25% and the S&P 500 is down 28% and down 42% from a year ago.

    How can this happen so quickly and so dramatically when so many good things have occurred? Oil is down to $82 a barrel; interest rates are very low; the dollar is up; valuation levels are extremely attractive among many blue chip stocks.

    What’s the real problem? The problem that is killing the stock market is a lack of hope about the future.

    Hope springs from optimism that is based on facts and history. Look at the history of America and really all of mankind. Life is full of setbacks and problems – that’s just the deal. But this too shall pass, as all scary periods have.

    Doomsayers have been around forever and their batting average is zero. Buying stock is based on hope – hope for the future. If one doesn’t have hope, they shouldn’t be in this business.

    So what is the best service we, as professionals, can provide for our clients?

    First, discuss the fact that we are dealing with serious problems but it is not at all like 1929. The Federal Reserve and the Treasury Department are doing many things to restore confidence in the financial system. There is global coordination in attacking the problem, which is lack of confidence.

    Tell your clients to look at history of our great nation and what has happened since 1776 when we faced very serious problems. The stock market actually rose steadily about six months after Pearl Harbor and until the end of WWII even though the outcome was not at all clear for several years.

    No one knows when the stock market will bottom and a new bull will commence. We do know that stocks and mutual funds offer the best values we have seen since Black Monday, Oct. 19, 1987.

    Almost all Americans have hope about the future of our nation, but they need help to control their normal fears.

    ThePowerStocks.com Team
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