Still A Lack of Clarity

11/13/2013 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

Looking at data from China, and the upcoming meeting, hasn't clarified outlook for their stock market. This makes MoneyShow's Jim Jubak cautious about their policy path.

Right now, the Chinese market feels, well, schizophrenic. The Chinese market really always has this element of political gambling in it, that investors try to figure out, "Well, okay, so regulations are going to go this way, so I will put my money there, the government is going to announce this program, so I will put my money here," and investors, traders, whatever you want to call them, they tend to try to game the situation, try to guess where the policy is going to go.

That is really what is happening in China right now. We have the Third Plenum coming up, and that is going to introduce all kinds of policy changes. It is not so much that the market right now is trying to decide what specific policy changes the government is going to introduce. What they are trying to do is to see whether those changes introduced are too little, or enough, or big.

The worry is that there is hope about the changes being introduced as a way to get the Chinese economy growing again. The fear, therefore, is that these changes are going to actually disappoint, in which case, you get something like the November 5 event, where the Shanghai market sold down to a low from October 29 on really, really, low volume, about 20% less volume than its 50-day moving average of volume. That is sort of one side of it.

You get people worried about, "Well, maybe this is going to disappoint." On the other side, you then get a bounce back, like you got the next day on the 6th, where people say, "Oh, well, we are going to get stuff if we are feeling really pessimistic about it. We are going to get big changes. We are going to get announcements of more efficiency in the government-owned enterprise sector, the state-owned enterprise, and this will be good for stocks and they will go up."

One day you have the people trying to guess, "Oh, okay, so it is going to be disappointing." The next day, you get it is going to be supportive.

And the market is bouncing back and forth between those. I think that is exactly what you get when there is real uncertainty about where the government is heading in China, what the economic policies are going to be, and how much China is going to resemble the sort of liberalization of the economy versus the state-run top down economy that harks back to the days of Mao. That is where we are right now, and that is why the market in China is so schizophrenic.

This is Jim Jubak for the MoneyShow.com video network.

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