Taoyuan Nights

You may remember that I blogged a few times about how crazy the Shanghai stockmarket had become, back in March. Well…. it’s not been sitting around twiddling its thumbs. It’s now a full 70% more crazy. The profits being reported are now largely fictitious. Companies are reporting increases in shareprices of companies they hold, as profits; which in turn leads to a rerating of everyone’s shareprice upwards; which results in more illusionary profit for everyone; which results in another upwards jump in shareprice…. and so on.

But even taking these imaginary profits into consideration we’re looking at forward PERs of 60. 60! My mind can hardly cope. And yet rock solid American, British and European blue chip companies with pedigree histories can be bought on PERs ranging from 7 to 20 (i.e. 1/3 to 1/9 the price!). Another nugget: house prices have risen 13-fold in some areas in less than a decade. 13-fold. I think it’s a fairly safe bet that wages haven’t kept up.

I was going to write a blogpost about this, but I’ve been spared the need by some fellow market enthusiasts. Michael Turton has gathered up a couple of great sources of info on this topic, and you can read all about it here. It’s a good read, and he has provided links to Newsweek and David Webb’s sites. I strongly recommend you take a look if you’re in any way interested in the state of China’s economy.