China's Outrageous Rally: Largecaps, Property Stocks Lead

China's Shanghai Composite is now up over 107% year to date. However, the average stock in the index is actually up 199% year to date. So an equal-weighted index of the Shanghai Composite is up nearly double that of the cap weighted index.

This discrepancy is because two stocks that collectively make up over 13% of the index are up less than 10% on the year. With the exception of these two large companies holding the index back, most of the largest stocks in the index are actually doing better than the smaller ones.

Below we have broken up the stocks in the index by market cap and calculated their average year to date performance. As shown, the decile (each decile represents 10% of the stocks in the index) of the largest stocks is up an average of 251% versus the decile of the smallest stocks that is up 163%.

The Shanghai Composite is broken up into five major sectors: communication, property, utilities, conglomerates and industrials. Below is a chart of the index's sector performance for the year.

As shown, the property sector in China has actually been the best performer year to date. This is a stark difference from the horrendous declines of property stocks in the US this year.

click to enlarge

We were also able to group the stocks in the index by the sectors that US investors typically follow. As shown below on an equal-weighted basis, energy, materials, financials, utilities and industrials have outperformed the overall index, while consumer stocks, health care, technology and telecom have underperformed.

Comments

[jimmydazzle:]

Perhaps the bubble is near?
The incredible "V" shaped rally from the August (16th) bottom is mind boggling-- actually, very silly.. it has gone straight up without very little hesitation.
It has been very painful for the ones who are short the Hang Seng, FXI, etc...

2007 Oct 01 10:14 PM

[armadillo:]

I am wondering where all this Chinese growth is comming from...is it the US housing market and cheap Chinese Imports? If so, the weak dollar will put a serious hurt on these new Chinese longs. I think this recent rally in the US stock market is a flight to relative quality. I am looking for weak US consumers to lead to lower rates and a lower US dollar. Then Chinese Banks fall through the floor followed by their real estate market (or vice versa). We need a fulcrum event first, followed by a recovery then a fade off and fall. What do you think?

2007 Oct 02 01:49 AM

[raylo:]

What goes up must come down and it's just a matter of time. The bigger the bubble is, the harder it'll burst. Just wait and see.

2007 Oct 02 07:39 AM

[jimmydazzle:]

Anonymous: You're absolutely right with your comment regarding the maasive growth in China; I recently lived there (Beijing) for 7mos, and Hong Kong for a year, for a recent work project. But regardless of the growth potential that exist, stocks that move in parabolic fashions (ie- PTR,CHL,CEO,CHA, etc) can not sustain these moves, not to mention, rallies such as yeasterday from the Hang Seng - up another +1,057.28 (+3.90%).
"Stair-step" advances are fine, but:
Hong Kong's Hang Seng Index Surges: World's Biggest Mover
(10/2: headline via Bloomebrg.com)

2007 Oct 02 09:45 AM

[jimmydazzle:]

In additon, check out the recent article, Just How Big is the China Bubble?
posted on: October 02, 2007 | about stocks: FXI
by Garret Beauvais on this site:
seekingalpha.com/artic...

2007 Oct 02 09:52 AM