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Michael Pettis Profile picture
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18 Jun, 4 tweets, 1 min read
1/4
 "Much to the chagrin of market officials, the world’s second-largest stock market is abound with millions of traders who buy and sell stocks on rumours and pay scant attention to fundamentals for fear of missing out."

scmp.com/business/marke… via @scmpnews
2/4
 That's not quite true. Chinese investors ignore fundamental investment strategies in favor of speculative ones mainly because fundamental investing in China lacks the appropriate tools. Questionable economic data, poor financial statements, a confused...
3/4
 corporate governance framework, extensive moral hazard, active government intervention, changing rules of the game, aggressive insider activity, etc. make it very hard for fundamental investors to value future expected cashflows except at the very high...
4/4
 discount rates (i.e. very low prices) needed to account for all the uncertainty. You cannot expect a stock market to trade mainly on fundamentals if fundamental investors don't have any of the tools they need to make accurate value calculations.

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More from @michaelxpettis

Michael Pettis Profile picture
20 Jun
1/4
 Very good article by Yu Yongding: "As a developing economy with a per capita income of just over US$10,000, China can tolerate higher inflation."

scmp.com/comment/opinio…
2/4
 But while a moderate increase in CPI inflation may be a good thing for China to the extent that it reflects a bigger increase in consumer demand than in production, we shouldn't ignore the balance sheet impact. If interest rates don't rise in line with CPI inflation, they...
3/4
 worsen China's income imbalances by effectively increasing the "inflation tax" on household savers in favor of banks and borrowers. If interest rates do rise, they put pressure on highly indebted borrowers by effectively accelerating debt servicing costs.
Read 4 tweets
Michael Pettis Profile picture
20 Jun
1/10
"Trade shocks fuelled by unilateral tariffs between the United States and China have undone three to five years worth of growth among global value chains in affected countries, according to a United Nations policy brief."

bloomberg.com/news/articles/…
2/10
That shouldn't come as a surprise at all, but of course it is largely irrelevant in determining whether or not these tariffs were good or bad for the US, China, or the global economy. No one will acknowledge this irrelevance, however, and in fact analysts will argue...
3/10
that this study tells us something meaningful about the net impact of the specified tariffs.

I am not a fan of import tariffs, but I am even less of a fan of these kinds of studies that try to measure the impact of tariffs by measuring their direct costs.
Read 10 tweets
Michael Pettis Profile picture
19 Jun
1/8
 Interesting article, even if there is much about it about which to be skeptical. But while this condition may be more extreme in England, I think contempt for their countries identifies the cultural elite in many places besides England.

unherd.com/2021/06/the-se…
2/8
 And its a weird, almost provincial type of contempt, because, as the author notes, it often involves idealizing the people of nations whose cultural elites are no less contemptuous of their own people, and for the same reasons.
3/8
 In part this contempt is supposed to be justified as a reaction against and corrective to the previous idealization of the nation. But I think it really reflects a shift in the membership of the progressive "classes".
Read 8 tweets
Michael Pettis Profile picture
18 Jun
1/6
 Many analysts have been warning of slowing credit growth in China, with the implication that this is negative for China's GDP growth. This article by Tom Hancock (@hancocktom) is a very useful...

bloomberg.com/news/articles/…
2/6
 corrective, pointing out – as I have proposed since late last year – that this year’s economy is structurally different from previous years, and it will be able to generate far more growth than what the credit growth numbers would normally imply. I would add two things.
3/6
 First, the consequences of this growth – on commodity prices, Chinese imports, EM currencies, bond yields, etc. – will be very different than in the past. This is because nearly all the growth this year will be driven by “healthy” growth in...
Read 6 tweets
Michael Pettis Profile picture
17 Jun
1/12
I thought in this thread I'd explain why "rebalancing" is so important for China. For 10-15 years China has been locked into a growth model in which debt must inexorably rise faster than GDP, which itself is rising faster than any meaningful measure...
2/12
of real debt-servicing capacity. At this rate if Beijing tries to keep the average GDP growth rate above 4-5%, within a decade debt will rise from 280% of GDP (the official level at the end of 2020) to anywhere from 370-410% of GDP.
3/12
Even if the real debt level wasn't higher than the official data claim, and even if GDP didn't overstate real growth in the underlying economy, this would still be an unprecedented level of debt.
Read 12 tweets
Michael Pettis Profile picture
17 Jun
1/4
 "Liu was responsible for direct oversight of Liaoning’s city commercial banks, a sector plagued by mounting bad loan risks."

"His case was linked to a crisis at local lender Bank of Jinzhou."

caixinglobal.com/2021-06-17/lia…
2/4
 One lesson from financial history (e.g. German and Austrian banks in the 1930s, US S&Ls in the 1980s, Japanese banks in the 1990s, etc.) is that as a banking sector becomes insolvent for whatever economic and credit reasons, we usually see two other things happening.
3/4
 First the amount of excessive (and often hidden) risk-taking surges as managers at first think they can gamble their ways out of insolvency. Second, perhaps because of a collapse in career prospects, fraud and conflicts of interest explode.
Read 4 tweets

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