Tuesday, October 30, 2007

China will end in Tears

A recent report on Bloomberg highlighted the fact that of the 10 largest publicly listed companies in the world, 5 of them are Chinese.... Only 3 of them are American. This seems a little out of whack. The Chinese CSI300 Index is up 168% this year! The CSI300 is trading on a forward P/E of 43. While I believe there is a lot of growth to come out of China, a forward PE of 43 seems a little optimistic. If you want to trade the emerging markets story from the long side, I'd recommend having a look at India, whose Sensex Index is up a 'conservative' 48% this year, and only pricing in a forward P/E of 24.4. The interesting thing will be to see if a Chinese correction will cause global equity markets to slow down. It has happened twice this year that China had a decent size drop and on the first occasion (in Feb) markets dropped 3% globally, the second time it happened, no one seemed to notice.

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