Two Points on the China Bubble

These two factoids won't settle the debate as to whether China's stock markets are currently in a bubble, but I thought it was worth putting them out there -- one bullish, one bearish:

1. While the Shanghai Composite is up a fairly staggering 158% year-to-date -- and 188% over the last five years -- the five-year return works out to an annualized return of 123%. Granted, that isn't tiny, but it also isn't utterly daunting either. After all, with profits doubling in many Chinese companies year-over-year, and with the Shanghai Composite having been flat from 2002 to late 2006, it can, perhaps, be forgiven for a playing a little catch-up, can't it?
2. China Life (LFC), PetroChina Co. (PTR), China Mobile Ltd. (CHL), Industrial and Commercial Bank of China Ltd. and China Petroleum and Chemical Corp. (SNP) are now in the list of the world's 10 biggest companies by market value. Only two of those are in the top 50 by sales.

To add to point 2, China stocks can learn from their dot-com counterparts. When you have a frothy stock valuation the way to make sure it doesn't end badly, or to at least make that less likely, is to buy things. Now.

Comments

[evilll:]

Another fact, the majority shares of the big companies like PTR or LFC are non-floating, government-owned shares ( I don't have the number, but believe that less than 20% of the shares are currently publicly held for most of the big companies out there).

2007 Oct 30 02:51 PM

[alivinlee:]

That last sentence doesn't work for me. It's supposedly the answer to prevent a train wreck. Yet what exactly does Paul mean "... is to buy things. Now" Buy what? Other companies? Land? Commodoties? Buildings? Expansion? Other stocks? Merge? Doesn't that just make things worse?

2007 Oct 31 03:44 PM

[alivinlee:]

That last sentence doesn't work for me. It's supposedly the answer to prevent a train wreck. Yet what exactly does Paul mean "... is to buy things. Now" Buy what? Other companies? Land? Commodoties? Buildings? Expansion? Other stocks? Merge? Doesn't that just make things worse?

2007 Oct 31 03:44 PM

[User 86999:]

You're right; the last full sentence (not the single-word sentence), is sloppy. It doesn't quite tell you what it's supposed to mean. Maybe the author is in a rush to go out for trick and treat.

2007 Oct 31 09:38 PM