Chinese Markets

Written By: Ailun Zhan Stock Forum ID: FirstConsul

Hi, I’m Ailun Zhan, a member of the Falkin Investing Organization, and I will be covering the Chinese markets for Stock Trading 101.

Chinese stocks have a total market capitalization of around $1 trillion, which is about 1/18th the size of US stocks. It has experienced a bull market for over a year, and is attracting more and more attention(as well as capital, due to the self enhancing nature of rising prices). The rather large volatility that is characteristic in an emerging market makes speculating in the Chinese markets have an attractive risk-reward.

Now recently however, the Chinese stock market became the most expensive in all of Asia, with an average PE of 40. Considering that the Nasdaq has a PE in the 30s, and contains such large companies as Intel (INTC), Microsoft (MSFT), Cisco (CSCO), etc, it is clear that stocks in the self-acclaimed “world’s workshop” are drastically overvalued.

The Chinese stock market (two exchanges, Shanghai and Shenzhen) have crashed (Shanghai was down about 5% and Shenzhen down 7.6%) on Wednesday, with a small bounce on Thursday, with continued selling pressure on Friday. It appears it will take some time for the market to regain its senses and for investment grade stocks to be attractive technically (they’re extended) and fundamentally (they’re “amply priced”). Shanghai index at the time of this post is around 2750.

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