Chinese Market Looks Dangerous
I hate to be a party pooper, but the Shanghai Stock Exchange, along with all the China stocks, and Chinese IPO’s remind me of the Nasdaq exhuberance of 2000. Granted China is growing at 10%, but does that justify a multiple of 80 that is currently sported by the Shanghai stock exchange compared to the meagre 16 multiple of the S&P?
It seems like everyday, all day, I see these tickers scroll across on my TV screen with new companies I have never heard of. China Digital, China Natural, China Finance, China Development … the list goes on. Most of these guys have no history of earnings and don’t even pull up on Yahoo Finance!
The Chinese market is up 110% this year so far, and ocver 200% since Jan 2006. Even stocks like China Mobile, China Telecom, China Life and Bidu, stocks that actually have an earnings history and have some claim to investor confidence are up like the Cisco’s and Ariba’s of the tech bubble. I don’t know when the party will end, but it will definitely end unless we see a near term decent-sized correction, and when it ends, I would hate to be holding anything that starts with the word China.
My recommendation – If you are a gambling person, keep betting on China until one day you lose a lot of money. Otherwise, reduce your exposure to China (note I say reduce because I don’t know when a top will come – nobody does). Go long Russia (RSX), India (IFN), South Africa (EZA), France, and even Indonesia. Alternatively, you can pic up selected names in Latin America, Europe, Turkey and Brazil. Plenty of ways to make 30-40% returns a year without the risk of losing your shirt.
– Faisal Laljee
Full Disclosure: I am long China Mobile but have taken half my position off over the last week.
Faisal, first I agree 100%
Second, congrats on your publication on Thestreet.com of this article
People are playing with fire and “this time its different” I’d also like to know why there is not a daily fascination with Indian stocks which have all the same trade winds behind their back along with a western style govt and capitalist society. Their populations will be about equal in the next generation. Yet all I hear is china china china china. I guess every era needs a buzzword
of course it looks dangerous, but please don’t compare it to the 2000 bubble. china is a different beast. they’re experiencing wealth for the first time. it’s difficult to tell if current stocks are overvalued or undervalued still with the rate of growth that they’re experiencing. i’m not saying it won’t correct itself. it has to sooner or later, but the 2000 tech bubble is a poor comparision and misleading.
Faisal, I took your advise and sold JRJC Friday even though I was down $5,000. I was hopeing for a quick bounce back to $42.00 where I bought it so I could get out without a loss. I know you know what you are talking about. Thanks for the great advise and saveing me from more of a loss. Frank
Hi,
Once again after crash Nifty has started going up. Now we suggest all rises should be used as an opportunity to exit old long positions.
This bull run will continue for few more days. Overall market is in bearish mood as in medium term its just a small rally due to short covering
and result season.
Happy Trading,
ShareGyan
Hi,
It’s a well know fact that stock market is affected by elections and now Election 2009 are about to begin in some time so for sure they will also have some sort of impact on Indian stock market.
One can find complete report on Impact of elections on stock market Apart from Elections another major concern for Indian stock market is Inflation. There was a time when we were concerned about rising inflation but now we are conscious about this falling inflation.
So big question is what should day traders and investors do?
Frankly speaking day traders are least concerned about the market they simply follow trend and make maximum out of it. But yes investors should keep there portfolio light till the elections get over.
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