Panic wipes £2tn off Chinese shares | Hacker News Reader

Panic wipes £2tn off Chinese shares

theguardian.com

61 pointsdanmaz7422 comments

The government should have been trying to influence prices downwards when they were at about 2 times the fair value of the assets, not prop them up when they are at 10 times. Overpriced bubbles just end up with money transferred from ordinary people into dubious schemes and are an inefficient use of capital. See the 1999 dot com bubble, the 2006 US house price bubble and the like.

You end up with a bunch of money pissed away in pets.com like ventures or thousands of houses/flats built somewhere where there isn't the demand. (I've got one of the latter as a result of my own dumb speculation).

If only we could know what the "fair value" of an asset is...

China has nothing similar to GAAP, so as far as I understand it the "value" of a public company there is just a guess (rather than an estimate based on data) or an outright fabrication. No way to know unless you have access to the financials of the company itself.

What makes you think there is no chinese GAAP? https://en.wikipedia.org/wiki/Chinese_accounting_standards

>similarity between the new Chinese accounting standards and the IFRS is almost 90–95%

I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements.

Thanks for the link.

> I didn't realize they had made these changes. Interesting. Historically, western investors avoided the Chinese markets because none of the data coming out of China could be trusted due to lack of transparency and the different reporting requirements.

It still can't. The existence of standards does not imply compliance. I view the Chinese market as similar to Russia's: there are rules, but there are a lot of people who are effectively exempt from following them (at least until someone more powerful decides they aren't). Add in the lack of cultural taboos against defrauding others and it's a very difficult market. Accounting standards were (some might say still are) a problem, but not the problem.

The Party's internal crackdown on corruption is apparently pretty comical according to mainland Chinese of mine as everyone there knows that pretty much everyone in power is hopelessly corrupt. C'est la vie.

If it is shares, consider the total value of company holdings if it was all sold off that day.

if you are looking at an asset price that is a multiple of that, you are basically betting the farm on the company staying afloat for decades.

That doesn't answer the question, we still need to know the 'value of the company holdings', as you say. It's not the same as selling all the physical possessions of a company.

You have to look at the income generated by the company, and then form an opinion of its worth. That's a subjective thing, so again we're back to the problem of determining a fair value.

Basically, there's no formula for it. Or at least, no formula that everyone agrees on!

In a theoretical sense, yes. In a practical sense, from a conservative perspective there are ways to tell market pricing probably exceeds actual value. And authorities could take steps at that juncture. But everyone wants to keep the petal as close to the metal as possible and keep pumping growth hoping reality catches up eventually. Which results in well deserved wrecks from time to time.

> If it is shares, consider the total value of company holdings if it was all sold off that day.

So, value of every tech startup everywhere ~= 0

Depending on how you want to round it off, I guess.

$EMPLOYEE_COUNT * ($PRICE_OF_MACBOOK + 5*$PRICE_OF_SODA) + $PRICE_OF_PING_PONG_TABLE

Enterprise value (total value of sold that day) is generally only used for liquidation scenarios.

Usually for a going concern, the share price is calculated as the net present value of all future cash flows (dividends or sometimes earnings), usually as some variation of the dividend discount model.

for real -- i feel like the entire existence of the stock market depends on lots of people disagreeing about what things are worth.

True it's tricky unless the company is just holding cash but you can get a rough idea if a market is reasonably valued by looking at measures like Tobins Q of price to cyclically adjusted earnings for stocks or prices compared to income and rents for property. A government can then say make it harder to borrow money for speculation if things look overheated. Apparently the Chinese market was trading at about 220 times earnings in April. Normal is like 10-20 times so it was looking pricey.

Seriously, "wiped value" -> "price corrected"

It's interesting to read the Chinese social media reactions to the stock market crash. In the beginning it was mostly hopeful mixed with a bit of schadenfreude. Then it was resigned with a lot of morbid jokes.

Now, there is a degree of anger you didn't see before. There is even a streak of nationalism with some rumors claiming western forces are conspiring to bring down the Chinese market. Some social media posts are literally "buy stocks if you love our motherland."

In September 2001 (and again in 2008) it was "go shopping for America!" Cynically manipulative nationalism knows no borders, sadly.

Warren Buffet in 2008 sold the line "Buy American [stocks]. I am."

(That gave him enough leeway to potentially insist he meant "I am American" not "I am buying American stocks"...)

Well, what goes up can go down. Considering the volatility of this stockmarket, this is not very surprising. Two things:

1. Seeing poor people (fruit street traders etc.) trading in their cell phone is not necessary a healthy sign.

2. I am not sure that Chinese mentality and stockmarket go well together. Seeing investors (stock holders) that you don't know as partners and giving money to them via dividends will sound absurd for many Chinese.

I wonder if this has anything to do with prices being grotesquely overextended? It's not normal for a market to double in less than a year when inflation is otherwise low.

Alternative explanation: the growth of money manifests itself by inflating some prices before others, e.g. the stock market before groceries. After all, money must flow through the system before price levels reach an equilibrium that matches the new total amount of money. And if the State keeps printing more money, there is no "equilibrium", just unstable price signals until the next crash or major change in the rate of money growth.

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