Chris Thomas

China: Too Much, Too Fast

Dave, it might be safer to wait until the bubble bursts and then go bottom fishing. People lost fortunes trying to short the tech bubble - right call, wrong time. It could pop tomorrow, but I could equally imagine that this bubble could last until after the Olympics. I wouldn't have too large of a short position, else you could get burned pretty easily.

China: Too Much, Too Fast

China's stock market is clearly overvalued. As of 2005 no one would have touched their exchanges, due to the immaturity of their financial system, the lack of the rule of law, and the fact that the state dominates many of its companies (CNOOC, a darling of Shanghai, is 70% owned by the government). So as an investor, it's important to ask "what changed in 2006?". Certainly, there have been small improvements, but obsolutely not enough to propel the market forward 130%. There will be a crash - the question is not if but when. However, I would not go about shorting these stocks, as tempting as it may be. As the saying goes, markets can stay irrational longer than you can stay solvent. Some of the largest fortunes were lost attempting to short the tech bubble. Right trade, wrong time. Personally, I'd wait until the crash and then go bottom fishing, because China's economic growth still is remarkable and will continue for many years to come.

On that note, I disagree with the assessment that China's ECONOMY is overheating. It's inflation is still insanely low, with a CPI of around 2%. Productivity is booming, which means that the economy has the capacity to expand at a rapid clip. Fundementally, I like the Chinese economy for years to come. That said, there's way too much liquidity - don't touch Chinese equities. The best way to invest in China's growth is to invest in companies that supply China; the current lull in commodities is a great buying opportunity.