Wednesday, November 28, 2012

Stock Market: Shanghai Blues - An Invitation?

This morning the stock market in Shanghai fell to its lowest level since 2009 (bloomberg). This is surprising because the economic indicators suggest that China`s economy has reached its bottom in the 3.rd Quarter and is now gaining speed again (reuters). Industrial companies’ profit grew 20.5% in October, while factory output and exports both rose last month by the most since May, reports Bloomberg (bloomberg).

But the Chinese stock market market ignores all this improvements. Regarding to Bloomberg Chinese investors are very gloomy and have "no confidence in long-term growth prospects" (bloomberg).

This reminds me of spring 2009 as stocks on Wall Street fell in a deep hole. The sentiment then was equally gloomy and many dumped their stocks because they didn`t believe in a economic recovery. With the benefits of hindsight we know that the gloom & doom created a huge opportunity. Since spring 2009 the US stock market, represented by the S&% 500, gained more than 100%.

I reckon that the Chinese stock market offers now similar rewards. The gloomy sentiment & the ignorance of the economic improvement create very low prices which are very good opportunities. The Shanghai stock markets trades at 9.5 times estimated profit for 2012, compared with the 17.7 average multiple since Bloomberg began compiling the data in 2006 (bloomberg). I reckon that the Chinese economic improvements will continue in the coming months and will lure the investors back to the stock market.

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