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Gone batty

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 12 September 2015.

From my office I can look out the window across town, over to the Peel River, where a colony of bats have made a home. The bats (or the grey-headed flying fox to be more specific) are a busy lot, flying from one side of town to the other, presumably looking for food or maybe they just like the exercise. Literally thousands of them will descend in on a small area, only to fly off a short while later, heading for somewhere else that offers food or shelter. I was reminded of the busy bats while thinking about the current turmoil in financial markets. It seemed to me that the behaviour of the media, in regards to the financial turmoil, was just like that of the bats. It certainly seems that the media (or parts of it) delight in dropping in on a crisis, squeezing as much news and airtime out of the crisis as they can, before lifting off in search of the next calamity. Just like the bats.

For some weeks now, the lead finance story on the evening news, or occasionally the lead story for the entire news bulletin, has been the ‘collapse’ of the Chinese stock market. While it is certainly very newsworthy and quite unsettling that the main Chinese stock market, the Shanghai Stock Exchange, lost over 30% of its value in just a few short weeks, you will struggle to recall the same level of attention paid to the Chinese market in the twelve months before that, when it went up like a rocket headed for Mars. The real story here was the clearly unsustainable boom in the Chinese market which commenced in May 2014 and ended in mid-June 2015 – a neat 149.90% return in just over a year. But that story didn’t make the news of course – ‘good’ news seldom does. Only when the Chinese market started correcting, as was inevitable, did the media turn its hungry gaze in that direction, delighted at finding another bad news story to ramp up, wring out and drag on for as long as possible.

The truth is that the current ‘crisis’ can be traced back to two very simple facts – the inevitable popping of the Chinese stock market bubble and that Chinese economic growth is slowing. Both of these facts were known to anybody who could read a newspaper or had access to the internet. Still, with enough money spent on flashy graphics and shots of ‘anxious’ investors watching the screens at the stock market, it’s easy to conjure up a crisis. As always, stick to your investment plan and ignore the ‘noise’ – the ‘bats’ will bother you only if you let them.