Stock Market: The China Pessimism Bubble Revisited

(Drivebycuriosity) - Stock Markets worldwide are hovering close to all-time highs. But there is one major exception: China. The Shanghai Composite Index, which represents the Chinese stock market,  dropped 9% year to date. This index has tumbled 43% since its temporary peak in 2009, wrote Bloomberg (bloomberg).

Today Chinese stocks are much cheaper than shares elsewhere. According to Bloomberg the Shanghai Composite Index is valued at 9.1 times estimated earnings, compared with multiples of 13.04 for the MSCI Asia Pacific Index (Asian stocks in general) and 15.02 times for the Standard Poor’s 500 Index, that represents the U.S. stock market (bloomberg).

This is the result of a gloomy sentiment for China (driveby). China bears like Jim Chanos, a hedge fund manager and notorious short seller, have been banging the "China crash drum" for years. Even the influential New York Times (Krugman column) joined the crowd, that predicts a "hard landing" of the Chinese economy. The majority of fund managers and other professional portfolio managers seems to believe them.

They all are ignoring that China´s growth didn`t fall below 7.5% in the recent 10 years. They are also ignoring signs that China`s economy is getting stronger again. Factory output, exports & imports and industrial electricity demand all grew faster in July (driveby).

I reckon that the extremely low valuation and the backlock compared to the global stock markets are an invitation to invest in Chinese stocks.