Sunday, June 03, 2007

India and China Boom or Bust

In the last few days the Chinese Stock Market has risen exponentially, and is prone to high volatility. Though on a smaller scale the same thing is true about the Indian Sensex and Nifty Indices.

Some people (Bulls) might say that this is due to deep structural changes due to higher profitability of these firms, some may say it is due to the Yuan being undervalued, some may say due to the growth of exports and the resilience of the US economy and the American consumers still consuming has led to this growth.

Where as on the other end the skeptics remind us that these are all the signs of a bubble. Remember the Nikkei Crash in 1989. (the Japanese Stock Index Nikkei 225 was nearly 39,000 then and it crashed to reach 15,000 thus losing 60% of its value) This crash has been followed by 15 years or recession or depression. (I am not qualified enough to use the correct terms)

Similarly the South East Asian crisis in 1997, left South Korea, Malaysia, Indonesia scarred.
The currency plunged, and stock markets crashed. The companies went belly up.

Its 10 years since that crisis. And we can see similar signs of exponential growth.
An article in Livemint , by Subramanian Swamy looks at the possibility of India and China facing a slow down or a bubble burst, in case proper financial reforms are not made in the two fastest growing countries.

Also will populist politics in India pull all this growth down?
The Honourable Prime Minister Dr. Manmohan Singh has considered liberalization with a human face, while his leftist coaliation partners from CPM, have totally denounced liberlisation, and are asking for further control of the economy.
I remember May 2004 when the Stock market tanked on comments made by the Left.

Will that happen again?

Only time will tell. Right now let us all make hay while the Sun shines.

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