Bulls in the China shop

Report from the Economist on the makings of a likely stock market bubble in China:
WOULD-BE share punters, keen for a piece of China's booming stockmarket, are queuing to open accounts at a Beijing branch of China Merchants Securities. A busy manager, handing out application forms, says he is taking on 100 new clients a day, perhaps five times as many as a year ago. Bunches of small investors, ranging from students to pensioners, crowd around computer terminals to carry out their trades, keeping an eye on the prices as they flicker across big electronic screens. China's biggest-ever stockmarket boom may be turning into a bubble—and the country's leaders are getting worried.
...
Some economists fret that share prices are moving far ahead of companies' earnings, to a degree scarily reminiscent of Japan in the late 1980s just before its crash. With the help of new share listings, the combined market value of the Shanghai and Shenzhen exchanges has risen to some 15 trillion yuan ($1.8 trillion), 87% more than at the end of last year and surpassing that of Hong Kong.
The growing involvement of low-income groups such as students and pensioners, who were more cautious during the last bull run, could make a crash more painful.
...
Twice this year—on February 27th and April 19th—the markets have wobbled alarmingly amid rumours of tougher measures to control the flow of cash. The latest upset was caused by figures showing the economy growing even faster than expected: in the first quarter of this year, output was up 11.1% on the same period of last year. But the bulls have quickly returned. Outside the China Merchants Securities branch, a group of investors debates the market's prospects. “It's like a casino set up by the Communist Party,” says one. Another says only fools are still investing. But none has any plans to cash out.

Certainly looks to be exhibiting many of the classic bubble characteristics, fuelled (as was the late-90s bubble in the West) by the widening adoption of online trading:
A big difference between this bull market and the last is the penetration of the internet and mobile telephony... The widespread installation of broadband in homes over the past four years has made it easier for pensioners and housewives to join in.

Tech buyouts and bubbles

Here's a feature I wrote recently for Corporate Financier (the magazine of the Corporate Finance Faculty of the ICAEW), as a handy downloadable PDF. It's looking at M&A activity in the tech sector, examining what's driving the current high level of deals, and asking whether there's any risk of another tech bubble. There's also some nice pictures of balloons.

The feature also ties in with a couple of bits of original research I'm currently working on as part of my Master's in Economics & Finance. The first is an event study for the Industrial Organisation module, which is focusing on a deal mentioned in the feature - Sage Group's acquisition bid for Norway's Visma, which was trumped by a rival bid from HgCapital. The main question is whether the market saw the failure of Sage's bid as damaging its prospects, as potentially reflected in the group's share price.

The second is my dissertation, which I'll be working on over this summer. My proposal (yet to be formally accepted, and subject to modification) is an analysis of recent market behaviour in the clean energy sector, with an eye to identifying behaviour characteristic of a speculative bubble. As I briefly mention in the CF feature, the public markets are currently showing a strong appetite for clean energy and related businesses, and there has been some talk that there's a bubble developing (for instance, see this report from Forum for the Future). I'll be doing a little number-crunching on that question. More as it happens.

Of towers and falcons

Latest development in the Tinsley towers saga - reports of protected peregrine falcons nesting on the concrete structures. The Sheffield Star reports:
The birds could also be a saviour for the controversial cooling towers which are due to be demolished later this year.
[RSPB spokesman Margaret Overend] said: "While the nest is in use – when it is being built or being used by the birds – the demolition could not take place.
"The protection clause states that you cannot damage a nest or nesting site and the offence carries a very heavy penalty.
"However, once nesting season is over and the birds have moved on there is nothing to stop the demolition going ahead."
An E.ON spokesman said: "We sent steeplejacks up to inspect the top of both cooling towers late last year and found no evidence of the birds nesting there."

Shades of a similar situation here in Halifax last year, when restoration work on the church spire overlooking the Piece Hall was put on hold after suspected peregrines were seen nesting there. They turned out to be non-protected kestrels, but falcons have again been seen there (BBC Look North report here). One suspects they can't be that rare after all...

So it goes

Sad news of the death of Kurt Vonnegut, that most humanist, humorous and bleak of writers.

His suggested last words for mankind, to be carved into a wall of the Grand Canyon for the benefit of later visitors, still seem as relevant as ever they were:
"We probably could have saved ourselves, but we were too damned lazy to try very hard... and too damn cheap."

Tinsley tower competition

Sustainable development group Groundword Sheffield has announced an architectural competition for plans to redevelop the land around the previously discussed Tinsley towers -

Competition entrants are required to produce a Masterplan for the site, with proposals for use, development and access. Design ideas for buildings should be included where appropriate, as well as landscape design ideas for the riverside area of the site. The competition will follow an Open Ideas format and is being organised on behalf of Groundwork Sheffield by The Royal Institute of British Architects (RIBA).
The landscape is currently dominated by a two-tier motorway viaduct and the disused Cooling Towers - the last vestige of the power station previously located on the site. The Cooling Towers were recently selected for Channel 4's Big Art Project, and the intention would be to reuse them as a public artwork. However, due to their ongoing maintenance liability, the landowner's preferred option is demolition. For the purposes of this competition, the decision whether to demolish or reuse the towers is at the discretion of competition entrant.

So is there still hope for the landmark towers? We'll see.

Tax attraction

A counter-intuitive (or maybe just counter-doctrinal) finding on the effects of corporate taxation on inward investment, from a team at the Universities of Nottingham and Dundee. The countries which attract the most investment turn out to be the ones with higher taxes and levels of public spending - the opposite to what most neo-liberal economists would claim.

Holger Görg of Nottingham's Globalisation and Economic Policy Centre comments:
“Most economists have always argued that globalisation leads to a 'race-to-the-bottom' as countries compete to cut tax rates in the hope of attracting multinational investment and the jobs that come with it. The traditional theory is that this then leads to a shrinking of tax revenues and undermines the welfare state.

“But our evidence shows that overall effective corporate tax burdens do not appear to have fallen in response to capital and trade liberalisation, that countries aren't competing to cut taxes and actually, when investing abroad, firms find countries with higher taxes attractive because they associate them with a happy, stable workforce.”

One possible explanation is that multinationals are able to shift book profits between locations, so that the bulk of their taxes aren't necessarily paid in the locations where they have their main profit-generating operations. That may, in turn, further weaken the case for national or regional government bodies to pimp themselves out to potential inward investors by proffering subsidies or favourable treatment for investment which, in some cases, last only as long as the bungs. And it certainly makes a nonsense of much of the rhetoric of 'regional competitiveness'.

Full press release from Nottingham here.