Bad Time To Invest In Mainland China?

If you can believe news reports, stocks trading in mainland China are really getting overheated. My exposure to the Middle Kingdom is of the indirect kind -- companies like General Motors (GM) or 3i Group [III/LN] having some business there --- but it seems as though now is surely not the right time to get in on the Chinese mainland.

Shares traded on mainland Chinese exchanges cost twice as much relative to earnings as they did 18 months ago, and double the average for emerging markets, after extending last year's 121 percent rally in the Shanghai and Shenzhen 300 Index. The surge sent their value above $1 trillion for the first time and prompted the government to caution shareholders that "blind optimism'' is driving gains.

If someone wanted to "get in" on China now -- and I'm NOT saying anyone should, since I'm not -- my humble advice would be to stick to the indirect approach. Something like Templeton's Jeff Everett told Barron's several weeks ago -- to look at banks in Taiwan instead of those trading on the mainland.

Or look at what Templeton's Mark Mobius says in the linked Bloomberg article:

While prospects for rising consumer demand make China attractive, H shares offer a better value than mainland stocks, according to Mark Mobius, who oversees $30 billion in emerging- market equities at Templeton Asset Management Ltd. in Singapore.

"The valuations are beginning to look stretched'' in A shares, Mobius replied in an e-mail to Bloomberg News.

Templeton, which was approved to invest in mainland shares in 2004, hasn't received a final allotment authorization from the government that would allow the firm to start buying and selling shares, according to data compiled by Bloomberg.

Comments

[Chamois16:]

Most of us (non PRC) can't buy A shares anyway. Plenty of H shares trading NYSE as ADR and there's always the iShares FXI. I haven't seen any peruasive rationale that H-shares in general are overheated, given the current growth in the mainland economy. Some individual mainland companies are obviously overbought, but that's true in most any market

2007 Jan 25 12:24 PM

[John Gaats:]

Bad Time To Invest In Mainland China? Define a good time. As far as I can remember, there are always "risk warning" regarding China for the last 30 years. The fact is that China has been growing at double digits at the same time. Big corporate U.S.A. from GS (glodman Sacks) to HD (home depot) have passed the pausing phase. They are making profits in China. For small time investors like myself, FXI, PGJ, CAF are the only way to share the return. And I am ready to take the risks. My understanding is that the biggest risk is the market risk right here in New York. People don't understand these stocks. They mislabel them. However, I don't mind people asking questions like: Bad Time To Invest In Mainland China? Afterall, you have to feel comfortable before you can invest.

2007 Jan 25 12:56 PM

[Trading God...:]

Hello,

Not that anyone asked me here, but fwiw, I am long China stocks throught the 2008 Olympics.

Good luck everyone!

:)

2007 Jan 25 02:07 PM

[Paul J. Lamont:]

When Chinese newspapers report "floods of newbies lining up to buy the market", it is usually the end of the current bull run. The Chinese markets are overheated, look out below.

2007 Jan 25 07:47 PM