Half price sale
You remember Shanghai 6000, don’t you? It was only a few months ago, as we observed the other day. How time flies. Now there’s a 50% off sale going on. WSJ:
The benchmark Shanghai Composite Index ended Friday’s trading down 4%, and has lost 50% from its mid-October record high of 6124.04. Despite this, analysts at Bespoke Investment Group estimate the forward price-to-earnings ratio of the index at 20.90, which ranks second among 13 major world indexes, trailing only the tech-heavy U.S. Nasdaq Composite Index…
the Shanghai index is further from its 52-week high than 21 other major world equity markets. “I don’t know that the froth is still there, but whether it’s inexpensive enough to step back in, well, the Chinese government is still trying to slow the economy to a certain extent,” says Malcolm Polley, president and chief investment officer at Stewart Capital Advisors. “The danger is that it slows a bit too much and in that case, I think you still have to worry about valuation.”
For what it’s worth, we think that the slowdown in the US will migrate to Europe and beyond, and that the combined consumer spending sluggishness will slow China’s overall exports, much as has already happened to its exports to the US. In turn, this slowdown in the developing world will translate into some curtailment of grand infrastructure spending and capacity expansion, as the countries that have been growing 9-11% in recent years confront a world they have not experienced in a long time — where there is little need for such capacity expansions and the foreign exchange isn’t piling up like it used to. And then the bank loans run into trouble, and the usual things of a recession transpire, like commodity prices reverting to the mean, and so forth. No one has repealed the business cycle to our knowledge. But of course we’ve been saying this for quite a while and it hasn’t happened yet. So it really may be different this time around. But that’s really not what the half price sale in the Shanghai stock market would appear to foretell.