Shine My Shoes – Stocktips from Xiaochi’s

China VankeJoe Kennedy, in 1929, is oft-quoted to having said that when his shoeshine boy started giving him stock tips, he knew it was time to get out of the market. I always thought this quote was hilarious, but mostly because I told my father to buy Microsoft stock when I was ten years old. At that time, he asked me: “Do you know what overvalued means?” To which I obviously replied no, and he laughed and gave me a pat on the head – and didn’t buy. That was 14 years ago now.

In Beijing University, there is a xiaochi right before you get to the CCER (China Center for Economic Research) building. I used to get dumplings from this place in the mornings. When you walk in, there are concrete floors, a vat of boiled eggs, and not enough space to walk with two people side-by-side. However, starting 6 months ago, the little lady running the shop bought a computer. I would walk into her shop at 8:30 am, order some dumplings, and she would send her cook to boil them up for me out front while she would sit there, at her computer in the back of the shop, staring at daily trading prices and volumes of whatever stock she happened to be looking at. It took a week before she told me she owned about 500 shares of Vanke – or approximately, at the time, 10,000 RMB worth. It was also the only stock she owned.

This is a huge gamble on her part. 10,000 RMB is not small change for a store whose average products sell for 25 cents, and have a profit margin even slimmer than that. She did not “advise” me, per se, to buy Vanke, but she did say that she thought it was a good company, and that she wasn’t afraid of the Chinese stock market crashing because China is getting more developed, not less. The government would not let the market crash.

Upon reflection, although the government probably does not have the absolute financial power to simply “not let” its markets crash, it certainly has been upgrading the markets. On February 1st of this year, the limits to the amount of foreign currency a Chinese national could buy rose from $20,000 to $50,000 a year. Even more recently, the $50,000 foreign currency purchase restriction has been lifted even further. This means that Chinese are allowed to buy more foreign currency on a yearly basis, allowing them greater investment opportunities abroad – one method of cooling the local markets. Chinese nationals are now allowed to openly buy stocks traded in the Hong Kong Stock Exchange, giving Hong Kong a surge in its index value. As China becomes more and more open, the market shifts have been playing the same tune as the government in general – that of growth, growth, growth.

There may be a bubble. Dumpling providers have now installed computers in their shops and are trading online. However, unlike the Internet bubble, there are actual businesses in this one, businesses that make money and provide jobs and pay taxes, and don’t have CEO’s golden parachuting their way into the Carribean after selling their customerless websites.

China’s Vanke has tripled in price this year. As of August 22nd, it was selling at 34 RMB per share.

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