Via the Pragmatic Capitalist: Unlikely as it seems, BNP analysts see a bubble when they look at...

Via the Pragmatic Capitalist: Unlikely as it seems, BNP analysts see a bubble when they look at Chinese equities - and call a July crash.

Comments

[who]

Current run in Chinese markets is done with hot money. Fall will happen when the hot runs out. Not in July probably later.

Chinese companies may be not the most obaque but US companies given they the regulatory requirements, etc. can also be cloudy. E.g. Enron and current financial mess made the banks.

[DrBenway]

Also take into account that the vast majority of the Chinese earnings are manipulated to meet GDP growth target. Remember that the majority of the Chinese CEOs are still essentially communist party appointees (just look at an average "board of directors") and get compensated on how much they contributed to their regional GDP growth.

When I spent several week in China in May at Peking University taking MBA classes, the finance professor openly acknowledged that most of the earnings statements are "managed" (his research showed north of 80%).

The good companies understate their profits since their CEOs are measured on revenue, not earnings, and the "excessive" earnings are expropriated anyway by the largest shareholder (the goverment). The bad companies claim small profits anyway because the banks will loan them money regardless of their solvency (there is no such thing as bankruptcy in China).

So, all in all, P/E ratio is a weighted average of the economic earnings and the communist propaganda.

[Teutonic Knight]

I echo Drew Arnold's comment above.

Chinese equities are over-rated and over-priced because as a whole that country still has a lot to catch up to first-world standard with their inadequate equity accounting, judicial, legal, transparency, enforcement, media freedom processes commensurate with such high P/E ratios.

After all, how many investors actually have first-hand knowleddge of their companies day-to-day operations?

[herbert hoover]

The freaking P/E on the Dow is more than 50!!!!!!!!!!!!!!!!!

On Jul 14 03:07 PM Drew Arnold wrote:

> China would likely have more room to fall, given their higher P/E
> which represents the typical premium for emerging market growth,
> as well as the fact that a lot of China's current demand may simply
> be government-driven and not of a "real" nature as many are saying.
> We'll see.

[Drew Arnold]

China would likely have more room to fall, given their higher P/E which represents the typical premium for emerging market growth, as well as the fact that a lot of China's current demand may simply be government-driven and not of a "real" nature as many are saying. We'll see.

On Jul 14 03:00 PM j_remington wrote:

> How about the Dow/SP500 bubble?

[j_remington]

How about the Dow/SP500 bubble?