James Lewis

China Stocks: Is Now the Time to Buy?

It is not the bottom yet....

However we could be approaching it, the only safe way to buy this market is to wait for a washout. This may come as we approach 'Golden Holiday' here. What worries me is effectively we have been consolidating around 2300 - 2400 recently. I have been looking at potential support for the market for some time at 2195, however a break of where we have been consolidating suggests we could even go lower than 2195. So picking a level is very hard. The Government will not let the market fall below 2000 due to psychological consequences. So this suggest very very strong support in the 2000-2195 zone, best bet would be to track the market and watch how it trades at these levels.

In terms of PE ratios etc, you can not use them with any degree of accuracy because earnings, revenue and profit is all overstated. Their is no transparency what so ever in these companies accounts. Every company has off-balance sheet liabilities. Even the ADR traded in the US do not conform to suitable accounting standards, just the US regulators/exchanges have not wanted to rock the boat.

I disagree with other commentators that China does not have the resources to kick start the economy and growth. On the contrary China has a lot of money it can flood into the economy, the very act will create improved sentiment in the stock markets/property markets. Which in the short term is needed very badly in order to set domestic demand back on the right track.

But long term at some point, China is going to have work off its mistakes of the long term imbalances that exist within its system. It is quite possible that this won't be until the trough of the next business cycle in 2012, however of course it very possible that we have come to the end of the 30 year cycle that started in 1978 and the mistakes of the past will start to manifest. Of course having a huge amount of money saved up for a rainy day, makes rainy days a lot easier to deal with.