Word: shanghaiing
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Last year 2.4 million investors began trading stocks through the Shanghai exchange, a 250% increase in new accounts. That's an average of about 7,000 a day, a flood of fresh blood from san hu (as the Chinese call small investors) that is making seasoned traders nervous. "When you see shop assistants and taxi drivers racing out to borrow money to buy stocks, you've got trouble," says commodities guru Jim Rogers. "That's the market sucking in a whole lot of neophytes priming to get slaughtered...
Take the nation's largest life-insurance company, China Life, which trades in Shanghai, Hong Kong and New York City. On Jan. 31, its shares had a price-earnings ratio of around 70 (a stock's P/E ratio shows the amount investors are paying for each dollar of per-share earnings). That's a richer multiple than investors are shelling out for fast-growing Google...
...high prices confined to a few Chinese stocks. Webb estimates that the average P/E for "A" shares (stocks available to mainland investors on China's Shanghai and Shenzhen bourses) is 34; the current P/E for U.S. stocks in the S&P 500 Index is 18. Want more proof? A report by investment bank JPMorgan notes that of 37 Chinese companies listed jointly in Shanghai and Hong Kong, eight trade on the mainland at valuations at least double those quoted in Hong Kong. "The risk-reward picture is unhealthy at the moment," says Frank Gong, JPMorgan's chief economist for China...
...similarities, such as a frenzy for initial public stock offerings. As investor demand for Chinese stocks has increased, so has the list of mainland companies eager to cash in on the mania by going public. In 2006, Chinese firms raised more than $53 billion in the Hong Kong and Shanghai markets through IPOs and secondary share offerings, up from $24 billion the year before. Among them was the largest IPO in history, November's $22 billion listing in Hong Kong and Shanghai by the Industrial & Commercial Bank of China (ICBC). Despite the fact that Chinese banks are known for their...
...market correction is not inevitable, says Peter Alexander, chief analyst for Z-Ben Advisors, a Shanghai investment consultancy. He argues that Chinese companies are stronger and more efficient than they were a few years ago. "It's dangerous to bet against China," he says. Also, if China Life and banks that fueled last year's blockbuster IPOs are excluded from the picture, Shanghai stocks trade at prices comparable to those of Asian firms listed on other regional bourses. In fact, some of China's smaller manufacturing and textile companies are still relatively undervalued. "Judging from history, the stock market doesn...