Ever hear of Hanergy Thin Film Solar Group Ltd? If you're like most Americans, the answer is no. Nevertheless, this Chinese company may be an important harbinger of bad things that are coming for the world economy.
Hanergy is a Chinese company in the solar power industry. For the last year and a half, the company's stock has been soaring on the Chinese market. Few people understood any reason why the stock rose to such great heights, but there was a rush to invest in the shares. Well, as they say, "not anymore." Today, the stock of Hanergy is down by roughly 65%. In less than a day, something like 20 billion dollars of market value has been wiped away. Despite the plunge, there is still no one who understands why the stock collapsed. First it went up for no real reason and now it is collapsing.
This collapse is the sort of event that many have predicted as coming soon for the entire Chinese economy. For the last two decades, China has grown and grown for the most part on the basis of massive investment in housing and infrastructure. There are literally empty cities in China that have been built but which remain unsold. Some of the Chinese have purchased apartments in empty buildings as "investments", with the hope being that prices would rise with concomitant profits. Eventually, however, the market for empty apartments runs dry. The same thing happens when airports are built but few, if any, flights use the facility. At some point, the bottom falls out and prices (and the economy) collapse.
The collapse of Hanergy's stock may be another example of this type of disaster hitting the Chinese economy. On the other hand, we may learn that there was a reason specific to Hanergy for the plunge, but that is not likely. Remember, no one has announced any reason for the collapse; so there could not have been widespread panic that drove the price down. It may just be that buyers for the overpriced company finally went on strike and decided to sell instead.
The importance of Hanergy is more than just one collapsed stock, however. It is more a symbol of the sort of Chinese company of which there are a great many. These are companies that survive and thrive on the basis of a story rather than on earnings. If the world's investors start looking at Chinese companies as potential Hanergy clones, the Chinese market could decline quickly. That could lead to a recession or even a depression in China. And for those who really don't care about China, remember that a Chinese recession will cause major problems for the entire world economy.
Hanergy is a Chinese company in the solar power industry. For the last year and a half, the company's stock has been soaring on the Chinese market. Few people understood any reason why the stock rose to such great heights, but there was a rush to invest in the shares. Well, as they say, "not anymore." Today, the stock of Hanergy is down by roughly 65%. In less than a day, something like 20 billion dollars of market value has been wiped away. Despite the plunge, there is still no one who understands why the stock collapsed. First it went up for no real reason and now it is collapsing.
This collapse is the sort of event that many have predicted as coming soon for the entire Chinese economy. For the last two decades, China has grown and grown for the most part on the basis of massive investment in housing and infrastructure. There are literally empty cities in China that have been built but which remain unsold. Some of the Chinese have purchased apartments in empty buildings as "investments", with the hope being that prices would rise with concomitant profits. Eventually, however, the market for empty apartments runs dry. The same thing happens when airports are built but few, if any, flights use the facility. At some point, the bottom falls out and prices (and the economy) collapse.
The collapse of Hanergy's stock may be another example of this type of disaster hitting the Chinese economy. On the other hand, we may learn that there was a reason specific to Hanergy for the plunge, but that is not likely. Remember, no one has announced any reason for the collapse; so there could not have been widespread panic that drove the price down. It may just be that buyers for the overpriced company finally went on strike and decided to sell instead.
The importance of Hanergy is more than just one collapsed stock, however. It is more a symbol of the sort of Chinese company of which there are a great many. These are companies that survive and thrive on the basis of a story rather than on earnings. If the world's investors start looking at Chinese companies as potential Hanergy clones, the Chinese market could decline quickly. That could lead to a recession or even a depression in China. And for those who really don't care about China, remember that a Chinese recession will cause major problems for the entire world economy.
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