Friday, June 20, 2008

Chinese stocks are hot.

After amazing growth in 2007 Chinese stock market has been among the biggest decliners in 2008. Chinese index SSE Composite is down around 50% since the beginning of the year.

Based on P/E valuation China seems to be cheap. P/E ratio has gone down from threatening 50 (a year ago) to current 20. Average earnings growth for Chinese companies remains strong and is on average 30%. Quotient of P/E and earnings makes interesting valuation (PEG ratio is 0,67).

Chinese economy isn't so much dependent on export as others. Share of export on total GDP is only 38%. It makes relatively safe peer in case of global slowdown.

Next factor is Chinese currency which is undervalued against USD and in future we can expect more and more tension for bigger liberalization.

The point to be considered are interest rates. Endless rates hiking doesn't pull rates for deposits which are artificially kept low. That's why there isn't still other alternative for local investors than stock markets. Any significant rise for fixed income assets could outflow money from stocks.

Related tickers: (FNI), (FXI), (PGJ), (FXP), (TAO), (CHN), (CYB),
Author doesn't own any Chinese stocks or ETF.


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