At the start of last year, Chinese stocks were cheap, and only 200 were valued highly enough — had they been American — to have qualified for the blue-chip S&P 500 index.
Today, Chinese stocks are very expensive, and 482 are worth more than the smallest US blue chip, the Financial Times reports.
The report highlights Beijing Baofeng Technology, which it says has produced perhaps the wackiest share price performance in history.
In 33 trading days since the firm was listed in Shenzhen, it has risen by the daily maximum on 32 of them, for a 2,827 percent gain — on no news.
Baofeng has gone from a small-cap firm worth less than US$200 million to a valuation of more than US$4 billion, equivalent to America’s 494th-placed company and almost as large as US Steel.
It makes a video player, and, at least last year, not much money: it is valued at 494 times last year’s earnings, the report said.
Baofeng is merely the frothiest of what looks increasingly like a “babyccino” market: like the caffeine-free children’s version of a cappuccino, China’s market is still missing a crucial ingredient: profits.
The bubbles are especially extreme in Shenzhen and in technology: the median tech stock traded in the city is priced at 65 times forward earnings (compare the ratio for the median Nasdaq tech stock, which is 19 times).
There are exceptions, the newspaper points out. Banks, which make up more of the Shanghai market, are still priced for bad news.
And Shenzhen-listed companies’ profits are forecast to grow a little slower than those of US biotechs, so it makes sense that the Chinese stocks are priced a little lower.
After the latest, widely predicted interest rate cut on Sunday, one in eight Shenzhen stocks leapt by the 10 per cent daily limit, as did one in 12 of Shanghai’s.
Easier money means more leverage for speculators, which means higher prices, but only as long as the froth lasts, which could nonetheless be a long time, the report said.
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