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Jakobsen: The Chinese bubble that just won't burst

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Since its peak on June 12th, the Chinese stock market has fallen more than 22%. It closed up on Tuesday and then down by almost 5% on Wednesday, a proper rollercoaster ride. However the market is up 100% over the year and so the bubble may have shrunk, but it's not bursting. China's central bank is adding bouyancy with easing polices, including rate cuts.    

Speaking from Shanghai, Saxo Bank's Chief Economist Steen Jakobsen notes that the mood there seems much more sombre compared with his previous visits. Jakobsen says that Greece isn't helping the situation but the real problem is that Chinese equities are three times the price of European equities. China's stock market is still largely closed off from the rest of the world and so only really reflects the limited opportunities for Chinese investors. Generally speaking, if the property market slumps then the stock market rises and vice versa.  

He also notes that the Silk Road project is the most ambitious economic plan in the world. The internationalisation of the RMB currency is, though, what will take the country to the next level, claims Steen. Within five years, he foresees CNY overtaking Sterling as one of the most traded currencies in the world.