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COUNTRY INSIGHTS

July 10 – The Shanghai Composite and the Keynesian beauty contest
CHINA FINANCIAL · In Brief · 10 Jul 2015 · 3 responses

For months I have been arguing that the most worrying source of volatility in the Chinese stock market was not its speculative nature nor even the unprecedented use of margin. It was the large share of Chinese investors whose strategy was to ride what they believed to be a bubble. This to me is w...

July 10 – A collective decision to rally
CHINA FINANCIAL · In Brief · 10 Jul 2015

With the market up 5.2% by 1 pm, I think the “correction” is over. Analysts have pointed out the many reasons for skepticism, most importantly, I think, that over half of the listed companies have suspended trading in their shares. The full buying power that Beijing can command, plus the return o...

Elections for the President of the Legislative Assembly Unsettles Political Balance
PANAMA · Report · 09 Jul 2015

On July 1, the first-year anniversary of the Varela administration, elections for the new president of the National Assembly (Panama’s legislative branch) took place. The importance of the National Assembly’s Presidency resides in the fact that it sets the legislative agenda, budgets and commitme...

Does size matter?
CHINA FINANCIAL · In Brief · 09 Jul 2015

The Chinese stock market panic is unlikely to trigger a financial crisis in China, but not, as many argue, because of its relatively small size and narrowly dispersed ownership. What matters is that although nationally there are significant mismatches between assets and liabilities among individu...

Why do financial crises happen?
CHINA FINANCIAL · In Brief · 09 Jul 2015

Financial crises are analogous to bank runs. They occur when the liquidity needed to bridge the gaps created by mismatches between assets and liabilities suddenly becomes unavailable. Insolvency by itself is not a sufficient condition, and only leads to a financial crisis when it causes creditors...

Should the government have intervened?
CHINA FINANCIAL · In Brief · 09 Jul 2015

After a terrifying beginning with Shanghai down 3.2%, markets turned around dramatically and Shanghai closed up 5.8% on the day. But 194 more companies suspended trading today. Over half of all companies now don’t trade. As I suggested yesterday, it wasn’t the subtle measures that proved most eff...

Default talks bring volatility at the FX market
UKRAINE · In Brief · 09 Jul 2015

In early July serenity at the FX market was finally broken. The first disturbing signal came from black market few days ago when foreign currency operations’ spread started widening. Finally yesterday official market also reflected the tendency: on July 8th sell bids on cash operations moved to n...

Does the Chinese stock market crash matter?
CHINA FINANCIAL · In Brief · 08 Jul 2015

· It is hard to argue that the stock rally had any significant positive economic impact, so some analysts argue that it collapse will not impact the economy either. · This may be true in a direct sense. But there are three important ways the stock market decline might matter. The first is direct....

What can the government do to move markets move in China?
CHINA FINANCIAL · In Brief · 08 Jul 2015

· Because China’s market is highly speculative, policies that are directed at improving the fundamental value of stocks will have almost no impact on market prices. · Uncertainty is currently so high that it will have sharply undermined the ability of speculators to agree collectively on how to i...

What might cause speculators to buy?
CHINA FINANCIAL · In Brief · 08 Jul 2015

Broadly speaking speculators buy or sell assets for two reasons: 1. Some event is expected to cause, either for technical or fundamental reasons, a near-term change in the supply of or demand for an asset large enough to affect prices, even if only temporarily, and they transact in anticipation o...

What policies can stabilize the market?
CHINA FINANCIAL · In Brief · 08 Jul 2015

We must avoid the tendency to think of interventions aimed at stabilizing markets as being independent of the structure of the market. In my Peking University seminar I warn my students that because most of the world’s leading economists have been directly or indirectly trained in a tradition tha...

China’s markets are unpredictable but mechanical
CHINA FINANCIAL · In Brief · 08 Jul 2015

China’s Spinal Tap stock market is a volatility machine whose every knob has been turned to eleven. Value investors lack the tools they need to project or value cashflow, and so cannot play their stabilizing role no matter what policy enticements are implemented. Policy interventions undermine th...

Signs of Trouble, Despite Growth
MEXICO · Report · 08 Jul 2015

Executive Summary Economic activity continues to grow in 2015. During Q1, aggregate supply and demand of goods and services grew by a real 3.5% from Q1 2014. GDP expanded by 2.5% y/y, but just 0.4% q/q, seasonally adjusted, extending the flattening trend experienced since early 2013. The prospect...

2015 First Half Report: A False Dawn
CHILE · Report · 07 Jul 2015

Executive Summary In the first months of this year, economic data gave us some hope. But the optimism did not last long. In addition, the absence of presidential leadership during the first half of this year has been noticeable and damaging. In January we witnessed what could have been the ...

2015 First Half Report: A False Dawn
CHILE · Report · 07 Jul 2015

Executive Summary In the first months of this year, economic data gave us some hope. But the optimism did not last long. In addition, the absence of presidential leadership during the first half of this year has been noticeable and damaging. In January we witnessed what could have been the ...

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