These two factoids won’t settle the debate as to whether China’s stock markets are currently in a bubble, but I thought it was worth putting them out there — one bullish, one bearish:
- While the Shanghai Composite is up a fairly staggering 158% year-to-date — and 188% over the last five years — the five-year return works out to an annualized return of
123%. Granted, that isn’t tiny, but it also isn’t utterly daunting either. After all, with profits doubling in many Chinese companies year-over-year, and with the Shanghai Composite having been flat from 2002 to late 2006, it can, perhaps, be forgiven for a playing a little catch-up, can’t it?
- China Life, PetroChina Co., China Mobile Ltd., Industrial and Commercial Bank of China Ltd. and China Petroleum and Chemical Corp. are now in the list of the world’s 10 biggest companies by market value. Only two of those are in the top 50 by sales.
To add to point 2, China stocks can learn from their dot-com counterparts. When you have a frothy stock valuation the way to make sure it doesn’t end badly, or to at least make that less likely, is to buy things. Now.