The annals of financial history contain their fair share of so-called "black" days of the week.
The stock market crash of October 19, 1987 was a Black Monday; September 24, 1983, Black Saturday, saw the – then unpegged – Hong Kong dollar hit an all-time low. The 1929 stock market crash saw metaphorical darkness fall in the US on Thursday, October 24 and stick around for the next three trading days.
In recent weeks, there was a growing consensus in China that a new Black Tuesday could be penciled in to mark February 27, 2007 – the day the A-share market saw its biggest drop in 10 years, sending stocks sliding around the world.
The extent of China’s role in the global slump remains debatable. The country’s GDP is 5% of the global total and its stock market accounts for just 2% of total global market capitalization – there is only so far you can go from that base.
Falling confidence in the US or perhaps the Bank of Japan raising interest rates and thereby draining a fair chunk of Asian liquidity must also be blamed.
Anyway, how accurate are China’s stock markets as an indicator of overall economic health? Not particularly, was the economists’ response as they joyously torpedoed most of the reasons given for the fall and reassured us that everything is still fine in the mid to long term.
Having slumped from over 3,000 to under 2,800 in the space of one day, the Shanghai Composite Index spent the ensuing weeks creeping back towards the 3,000 line. No one is discounting further short-term volatility as the government looks at new tightening measures.
We gritted our teeth at the prospects for Bank of China 601988 (bought February 14 at RMB4.71) as the markets tumbled but it now sits happily at 5.29.
Basically, investors were quick to buy in once blue chip prices had corrected and then Bank of China announcing 2006 profits of more than 50% certainly didn’t do any harm.
As for the rest, we had responded to the warnings of a stock market correction that first emerged a number of weeks ago, and cleared the decks. Daqin Railway 601006 was the last to go in mid-February as, after a very profitable run for us, selling signals emerged.
When it comes to talking down the market, special mention should go here to economist-cum-politician Cheng Siwei, vice-chairman of the National People’s Congress Standing Committee.
We’re not quite sure what Cheng’s brief is, beyond having a fancy title that ensures people listen to him. But based on his performance in recent weeks – negative remarks have hit stocks on a couple of occasions – it wouldn’t be surprising if Beijing had appointed him official market hatchet man and bubble burster-in-chief.
A timely purchase
Unsurprisingly, we were looking to buy in at the bottom end of Black Tuesday and then ride our way up as the market rebalanced itself. We picked Jiangxi Copper 600362, which reported a very healthy RMB1.23 earnings per share figure for the first three quarter of 2006.
With copper prices high, this always looked like a potential winner. Trading was suspended in early March as Jiangxi’s parent company injected further assets into its listed entity. It restarted just as we were totting up our books for the month but we were in time to see a 10% jump.
A US dollar devaluation and a tight supply scenario will only boost demand for non-ferrous metals and gold so we go into April with reasonably high hopes.
It seems that fateful Tuesday wasn’t so black after all.