March 18,2009

Who Still Believes Goldman Sachs?

By CSC staff, Shanghai
In January 2008, Goldman Sachs issued a review of China's economy, Thoughts at the Beginning of 2008. It predicted, after November, 2007, that two downside risks, the deterioration of economic conditions in the United States and the strengthening of China's macro-control, would lead to a significant fall in asset prices in China and that these risks might carry continuing downside pressures.
 
At that time, many domestic fund institutions were still dreaming that the Shanghai Composite Index would crack the 8,000 barrier. Liang Hong, the former chief economist with Goldman Sachs China (GSC), frequently conducted roadshows to various fund institutions. For a time, Liang’s ideas became popular in the industry.

The 2008 avalanche in the stock market, with the loss of 70% of its value, completely confirmed the prediction, and Goldman Sachs?was acknowledged the oracle of China's capital market.
 
Some unconvinced domestic analysts, however, claimed that the Kodiak bear of a market in 2008 was entirely due to the collective panic of domestic investors triggered by GS propaganda, rather than the oracular insight of GS.

Recently, GS opened its investment strategy telephone conference on China's stock market in 2009. It again issued a cold recommendation for investment strategy in the face of the recent rebound in China's stock market. It suggested that China's stock market in 2009 will be up and down within 10% of 2000 points of the Shanghai and Shenzhen 300 Index and a high-throw bargain-hunting operation.

On March 17, the Shanghai and Shenzhen 300 Index rose by 3.6%, closing at 2322 points, a strong lift.

By Goldman's strategy, it is now an excellent moment for a massive sell-off. Will the rebound in the stock market once again pull a U-ey as predicted? Will Goldman's voice have its spell-like effect as before?

Li Daxiao, director of the British Institute of Securities, notes that he does not agree with Goldman's view, and he boldly asserts that a new bull market is setting in.

Many domestic analysts agree, saying GS is mistaken in its analysis of the current situation because of its great damage in the financial crisis. The exodus of talent, it is thought, has left their business in China a total mess.

Liang Hong, who became famous in 2008, has been recruited by China International Capital Corporation (CICC). The brain drain from GSC’s research team has resulted in a significant decline of its status among domestic institutions. Talent is said to have fled GS in droves for its bad business performance and the people remaining are basically sales staff recruited by GS from preeminent brokerages such as Shenyin &Wanguo Securities in better times.

As a domestic brokerage analyst points out, "In 2008 GS talked one way and acted another in the performance of international crude oil, showing people its true face. Profits of domestic investment research institutions and customers are symbiotic prosperity, while that of GS is based on the zero-interest of and confrontation with clients, even at the expense of clients, such as the gambling between GS and Shenzhen Nanshan Power Co.Ltd.."

In his view, the profit model of GS as an investment bank has taken a wrong road and its opinions on the market can no longer be taken seriously.

 

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