When Will the Investors Realise how Cheap the Chinese Market is?

BUDAPEST, Hungary, December 1, 2014 /PRNewswire/ --

While the European economy is trying to recover, we should also bring our attention to the Eastern part of the world. The Chinese stock market (Shanghai Composite Index) hit this year's new record, still far from the US indices, though. Why does the Chinese market not attract the investors? 

First of all, economists are worried about the Chinese economy. Since the crisis, the credit and shadow banking system in China has increased, but there are useless investments and also some signs of real estate bubbles. That cannot be ignored, pointed out Karád Kovács, Senior Analyst at Innovative Securities.

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Second of all, we should also emphasise that the US economy is the healthiest in the world and the USD is getting stronger. However, this puts China in a favourable position due to their important exports to the US: growing demand in China results in higher earnings. According to Kovács, as the country gets richer the population and salaries are growing too, therefore the domestic consumption is increasing as well.

Let's now take a look at the figures. China's stock market is currently very cheap. While the emerging markets have 15-20 P/E ratio (such as South Africa, India and Mexico), China has 8-9 P/E ratio. The only cheaper market is the Russian. Nevertheless, China's economic growth is forecasted at a level of around 7.4% and a 7% growth is expected for next year that is still outstanding. The 4% unemployment rate and 2% inflation rate imply that China should be more trusted, said the analyst.

Whether the Chinese leaders' new discipline will last is an open question. We do know, however, that they are aware of the problem and trying to create a "soft landing" i.e. by slowing the economy but avoiding recession. Thus, a yearly 4-5% of growth can be maintained in the long term, said Kovács.

While in the past decades the US and Japan represented the global investment drive, China has taken over this role by now.

There is no doubt that the Chinese capital will flood the world including the European, Russian, Indian and African markets.

According to the analyst, China's stock market can be a real pearl in the next years. For decades, everyone was talking about the "Chinese miracle", then turned their back on its market. Let's not forget about China now.  

Further information:
Karád Kovács
karad.kovacs@innovativesecurities.com
+442032879741

Barnabás Horváth
+(36)-30-494-6863