China Stock Market Bubble ??

I think we have one on our hands based on the recent price action. In a little over a month we have rallied 34%

You just have to read some of the market chatter to see how dangerous this kind of one sided extreme behaviour is.

From the AFR.

There’s not an available seat or terminal at this public share trading centre in Shanghai and the queue to open new accounts is five deep. China’s first bull market in seven years is in full swing, led by retail investors, who have helped push the Shanghai Composite Index up 18 per cent in just 13 trading sessions.

Every available indicator points to a speculative frenzy, as trading volumes, margin loans and account openings have all spiked over the last month.

Turning to the sharemarket

As the Chinese property market falls away and yields on bank deposits decline, retail investors are once again turning to the sharemarket.

“All shares are worth buying at the moment, as China is entering a long bull market,” says Xie Ming. Between puffs of a cigarette, the 65 year-old retiree says the value of his portfolio has risen 42 per cent in the last eight weeks, to be worth 270,000 yuan ($A53,000).

“I’m fully confident on the outlook for the stock market,” he says.

This confidence took a solid hit on Tuesday, as the market fell 5.4 per cent, posting only its second loss in 14 trading sessions. The volatile day of trading, which saw the market rise 3 per cent in the morning session, shows the extent to which hot money has flown into the market in recent months.

But the longer term confidence of investors is due to government backing for this latest boom.

“China’s government, like everyone else, is aware that the property boom is over,” says Anne Stevenson-Yang, the research director at J Capital in Beijing.

“They hope that driving money back into a rising stock market could replace the household wealth frozen in the property market.”

Finally lets look at the growth in margin loans financing this speculative bubble.


It appears valuation is not the big driver here.

Saxo Capital Markets Asia Macro strategist Kay Van-Petersen said China has been one of the cheapest markets in the world for many years, even now after the recent surge, Shanghai is trading on a forward price-to-earnings ratio of 12.46 times, so it’s hard to believe valuation is the key driver.


One thought on “China Stock Market Bubble ??

  1. I see post this note, the market corrected 5% hey maybe I have my mojo back.

    Something else caught my eye in the paper today that flew in the face of the valuation comments in the article I posted: “the index is no longer cheap. It trades on 38 times earnings estimates for 2015.” according to research by Citibank. Saxobank say its 12.4x talk about confusion


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