Date
17 January 2017
Mounting economic challenges will continue to discourage investors from getting into stocks. Photo: internet
Mounting economic challenges will continue to discourage investors from getting into stocks. Photo: internet

Cracks emerging in China stock markets

Although the stock markets in mainland China have been rangebound in recent days, a large number of stocks have already fallen below their previous bottoms in January.

About one-fifth (551) of the stocks listed on the Shanghai Stock Exchange have hit fresh lows for the year to date, the China Securities Journal reports.

These stocks come from a variety of industries, including the pharmaceutical sector, biotechnology, media, electronics, computers and machinery.

But one thing is common to them — they usually trade at a very high price-to-earnings ratio, suggesting that investors have become less tolerant of high valuations in a lackluster market.

The average PE ratio of the 551 counters is still more than 160 times, the report said.

Artificial support measures from Beijing can perhaps prevent the bottom from falling out of Chinese stocks, but mounting economic challenges will continue to discourage investors from getting into stocks, especially those that have gone up too much on flimsy trading themes that have never translated into solid profitability.

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FL

EJ Insight writer

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