Dollars and Jens
Thursday, May 31, 2007
Chinese stock market
Let's engage in some rumor spreading; I haven't checked the following statistics from a reliable source, but heard them from someone I largely trust.
The Chinese stock market is up somewhere between 50% and 100%, and the P/E ratio is about 50. The denominator there — earnings — are up nearly 100%, though, which makes it sound sustainable — except that the same phenomenon is at play here as was in Japan twenty years ago, in that a lot of the companies on the Chinese stock exchange own each others' stocks, and a lot of the reported "earnings" are capital gains. Operating earnings — the amount that, if you owned a basket of stocks, wouldn't amount to pulling money out of one pocket and putting it into the other — are up about 10 or 15%. Still, that's positive; twenty years ago in Japan, that figure went negative a good year or two before the top of the market. I'm also told of a lot of other indicia of mania: people mortgaging their houses to buy stocks, jokes about it being easier to make money in stocks than in crime, etc. China may well have a prosperous future — in fact, that's the way I'd bet — but there's every reason to expect a bump or two in the next couple years.