Chen Zhao, managing editor of global investing strategy at BCA Research, has also crunched the numbers on the Chinese markets and sees reason for concern. But he isn't about to urge investors to pull out of that market just yet. "Our sense is that we are in a mania-building stage in which the rise in Chinese shares may become crazier and could last for a while longer," he said. So what might end the Chinese markets' run? Mr. Zhao thinks it could be overinvestment. He notes that the Chinese authorities are trying to encourage growth and job creation by holding down the currency and interest rates. "This policy inevitably causes overflows of liquidity as the current account surplus balloons, capital inflows soar and household incomes rise," he said. That in turn will likely inflate asset prices even further, driving down expected return on capital and in time, market valuations can no longer be supported by the capital returns and prices deflate. "That, however, could be one or two years away," he said. http://www.theglobeandmail.com/servlet/story/LAC.20071012.RSHANGHAI12/TPStory/Business
Did the Internet bubble really end after 2000? Just look at GOOG and BIDU. The China bubble will be the same. Stronger companies will always emerge from the crowd.