LFC, Shanghai, and QE or other forms of stimulus.

LFC is the US traded ADR of the China Life Insurance Co. It is not updated to today, but in China this stock is trading at a new low. This is what it looks like, together with the index;

lfc feb 29 2016shanghai feb 29 2016

There are previous blogs on the Shanghai. In fact we warned about this index right from the very beginning. The question here, however, is why one of the largest insurance companies is doing so badly. Insurance is a relatively new business in economies like that of China (centrally planned, communist, family centered etc.), which is why so many of our own insurance companies have set their hopes for growth on China. Manulife is a good example. Maybe things got a little too exuberant but the immediate future does not look all too hot.

All we really need is that the PBOC throws in a few 100 billions of Yuan stimulus every now and then and things will just be honky dory. Not according to Bloomberg;

China Real estate v stock

We know that water always  flows to the lowest point, so does money, only central bankers do not know that. In other words you can flood the place but you cannot direct the flow. That lesson is being learned fast in China as is witnessed by the above chart from Bloomberg. The stock market over about the last year, say all of 2015 plus Jan. and Feb. of this year, is down close to 50% (right scale) and home prices are are up 100% (left scale). If you are mathematically challenged, that is the same! Furthermore, to the extent that money can freely flow across borders, this phenomenon is spread around the world (even if it is not immediately recognized by the local powers that be, such as our own Bank of Canada). The effects are also amplified as each central bank is trying to outdo the other. All we are left with, for another 5 years, is Ms. Christine Lagarde, who, by the way, has her own stimulus package , does not pay any income taxes and is the world’s highest paid civil servant, to warn us against “beggar-thy-neighbour” policies.