I didn't mean it won't fall. My argument #2 actually indicates the bumpy road ahead for the china market. Smart US investors want the china market volatile. When the market is too high and they see too risky for them, they will try all means to create a serious correction for them to have a safer entry point. Only those retail US investors who buy China funds will suffer from the panic selling. The pyschology of chinese people is very different from that of US people. If you ask your chinese friends and see if they dumped their stocks after 9% correction, most of them didn't. So who dumped the china stocks - those china funds. Who are the investors of those funds? US people. Higher reward comes with higher risk. If you want an annual return of 100%, you have to take a higher risk.
Of course. Because the china stock market is not as mature as US market, there are a lot of manipulation. Look at US markets. A decade ago, it was rare to have djia to move more than 100 points. Now, it happens every week. (I didn't look at the statistics, this is just my impression.)
people, honestly, do you really expect 50~100% grow for for all firms listed in china, even including gain in FX?
my gut feeling is they will drive it higher still, what's the different between 100 PE and 150 PE realistically if they are over value across the entire market? (er.. think internet stocks)
Boom or bust _ Don't blame Chinese stocks MICHAEL R. SESIT Four weeks ago, most investors blamed the 9.2% plunge in the Shanghai and Shenzhen 300 Index for the sudden drop on stock markets from Tokyo to Toronto. Yet no matter how tempting it might be to proclaim China the engine for world equities, investors should resist the urge. Because of its size, its population of 1.3 billion, the 10% growth rates, a voracious appetite for commodities and growing influence in world affairs, China looms like the bogeyman of the global economy. Indeed, its stock market, reflecting the country's boom, has ballooned in value for the past four years. ''The sudden rout on Feb 27 had 'Made in China' written all over it,'' says David Fuller, chief global strategist at Stockcube Research Ltd. in London. ''Ten years ago, nobody would have blinked, except for the Chinese, at a 9% fall in China's stock market. It demonstrates that we now live in a multipolar world.'' China's sway over global stock markets is more psychological than fundamental. Instead of altering people's perceptions of world growth or earnings _ or even China's economy _ the February sell-off in Shanghai and Shenzhen offered investors the occasion to retreat from all high-risk markets, including stocks, that many folks believed had risen too far, too fast. In fact, investors' biggest concerns had more to do with the US than a Chinese economy surging at a 10.4% clip. US Slowdown The US economy _ home to the world's biggest stock market _ is slowing: Gross domestic product expanded at an annual rate of 2.5% in the last three months of 2006 compared with 5.6% in the first quarter of last year. Corporate profits are shrinking: Per-share earnings growth of the companies in the Standard & Poor's 500 Index will slow to 6.7% in 2007 from 16% last year, according to a Bloomberg survey of Wall Street analysts. Productivity growth is declining. Other concerns focus on the leverage that investors, particularly hedge funds, are employing to boost returns; fissures in the US housing market; and the potential unravelling of the yen carry trade. ''News about the deterioration of credit quality in subprime credit markets raised concerns that the US economy could suffer a hard landing,'' says Larry Hatheway, London-based chief economist at UBS AG. For months, many world stock markets experienced uninterrupted advances, and expectations of risk were low, he says. So just how important is China's equity market? ''As a share of world market capitalisation, it's very small,'' he says. ''Chinese macroeconomic policy and performance are more important.'' 'Third-class sport' Based on its so-called free float, or those shares that international investors can purchase, China accounts for only 11% of the Morgan Stanley Capital International Emerging Markets Index and a mere 0.9% of the MSCI All-Country World Index. That's less than South Korea and Taiwan, and about the same as Russia and Brazil. It also resembles more of a casino than a legitimate investment venue. ''The Chinese equity market is the financial-market equivalent of what dog racing is to gambling _ a third- class sport attended by fourth-class punters,'' says David Roche, Hong Kong-based president of financial and economic consulting firm Independent Strategy. What's more, before declining 0.5% on March 29, the Shanghai and Shenzhen 300 Index rallied to five successive records, while US, Japanese and most European share markets have yet to recapture their pre-Feb 27 peaks. So while China's market can upend the world, it may not be able to lift it. Local Influences The inability of other markets to advance at a pace equalling or surpassing China's is mostly explained by apprehension about the US real-estate market, the 15% increase in oil prices since March 19, and the decline in US consumer confidence this month. None of these is China-induced. Of course, markets in the US, Europe and Japan have climbed since their post-Feb 27 lows. Yet even those recoveries owe more to local influences than Chinese ones. Euro-area economic growth remains buoyant, especially in Germany. Japan is slowly emerging from its decade-long funk. On March 21, US stocks staged their biggest rally in eight months, after traders interpreted the Federal Reserve's decision to drop its bias toward higher borrowing costs as a signal that the central bank will consider cutting interest rates by June. Nonetheless, investors should still be prepared to awaken one morning to discover that an exotic investment vehicle is collapsing, dragging other markets down with it. If stock markets are predisposed to shock, it can come from anywhere. Chinese bubble It might be Russian, Argentinian or Indian equities, collateralised debt obligations, junk bonds or China _ again. After all, the Shanghai and Shenzhen 300 Index is selling at a lofty 37 times past earnings _ compared with a two-year average of 21 times _ and a hefty forward price-earnings ratio of 30. It has also risen 36% in the past three months, or a whopping annualised advance of 252%. Sound like a bubble? If Chinese stocks take another dive, other shares may follow _ justifiably or not.