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 [转帖] by MICHAEL KAHN "It's Not the Time for China" |
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theoretical
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作者：theoretical 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
10/22 At Market Close
It's Not the Time for China
WITHOUT A DOUBT, THE CURRENT RALLY in Chinese stocks has been a wonderful experience for those clairvoyant enough to buy into it in 2005. Indeed, it ranks up there with such market phenomena as the technology explosion in 1999-2000 and the Japanese market rally in the 1980s. (For another take on the topic, see last week's Barron's article, "Just How High Can China's Shares Fly?")
But as with those two examples of financial insanity from the past, the question now being asked is whether Chinese stocks are in a bubble or is the rally simply the market manifestation of an economic juggernaut. To me, the latter sounds like the highly questionable "new economy" mantra we heard in 2000.
The problem, however, with slapping the term "bubble" on any market is that the public does not fully appreciate the condition until it bursts. As stock prices are rising, the fundamentals look good and we read about trade surpluses, an insatiable appetite for raw materials such as oil and copper and the flood of investment capital coming in. And from the technical perspective, the trends across the board in Chinese stocks remain up.
So far, so good but as they say, "trees don't grow to the sky," meaning that at some point reality catches up with perception. Earnings growth will not continue on its sizzling pace and investors will wake up to the fact that they cannot extrapolate current price performance into the future.
Too much emphasis is being placed on the bubble classification for a simple reason that it does not help us decide what to do about it. Accelerating rallies, a.ka. bubbles, can continue a lot longer than any investor, or central bank, for that matter, can resist them.
For example, a chart of the benchmark Shanghai composite "A" index shows a parabolic rise over the past few years with more than a 111% gain in 2007 alone (see Chart 1). As can be seen on the chart, trendlines cannot describe the rally properly, even on a chart with a logarithmic, or percent change, price scale.
Chart 1
Logic says that buying at such inflated levels is the wrong move but on the flip side of that argument parabolic markets can bankrupt bears if they sell even one day too early. Risk is high on both sides of the trade.
Investors is this country are more likely to have exposure to China through the popular ETF ba<x>sed on the FTSE/Xinhua China 25 Index. Unfortunately, it is somewhat of a misrepresentation in that the index tracks Chinese related stocks trading in Hong Kong, not China itself and the chart is quite different (see Chart 2).
Chart 2
While Shanghai has gained 10-fold since 2004, the ETF has "only" quadrupled, despite its meteoric rise since this past summer. This is not a knock on the ETF as a way to chart the fortunes of Chinese stocks in general. Rather, it is just a warning that it is a slightly different animal.
In looking at the recent run-up in Hong Kong, we can see that it has pulled back significantly in recent days. Momentum readings on the ETF show a clear decline and typically that presages a correction, such as the one now in progress.
This brings us back to the idea that we cannot pick a top in a market that looks this bubbly but since we are talking about a market that is already 10% off its peak we can feel a bit more confident something has changed this month.
Because the ETF is very active, we can analyze its volume for confirmation. Over the past two weeks, volume swelled as it often does at turning points. And most importantly, trading on October 17 saw a huge rally to an all-time high on record high volume. It has been all downhill since and that suggests that the market has seen a blow-off to the rally. The appeal of chasing the market higher is apparently gone, at least for now.
Is it a bubble? Maybe. What investors have to do is let the market tell them when it has turned as indicators line up together and prices actually start to fall. So far, the Chinese market ETF has made a short-term reversal to add to the idea that the bull market is ready to rest.
We'll end with a long-term chart to show that even a severe correction now may pave the way for bargains next year as prices move down to a more sustainable rising trend (see Chart 3).
Chart 3
Bubbles don't rest, they burst. If the China phenomenon is truly a bubble then prices will fall a great distance for a long-time, somewhat mirroring their rise. If China is not a bubble and just an overheated market then we can expect a correction that unfolds in a more subdued manner and not last very long.
Either way, my view is that the time for throwing money at anything Chinese is either past or on hold. Without betting against China, we can still keep our powder dry for the next buying opportunity.
作者：theoretical 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 [转帖] by MICHAEL KAHN "It's Not the Time for China" -- theoretical - (5097 Byte) 2007-10-23 周二, 18:45 (1251 reads)
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