Couple days ago I suggested the China stock market could have a relief rally after Olympics, when the party is over without major glitches. I still belive Beijing Olympics will turn out to be ok, amid so much worries from human rights protests to security threats. I also believe Chinese economy will not stand still after the Olympics.

But I change my view on Chinese stocks today, after the Chinese ADRs dropped big in the US: from FXI (NYSE: FXI), to CHL (NYSE: CHL), to Sohu (Nasdaq: SOHU), all dropped around 5% or more today, less than 14 hours before the opening ceremony (which will begin Beijing time 8:08 PM, Aug.8 ). The problem is not only the expected slow down of Chinese economy, but also due to most Chinese stocks (from Shanghai, to Honghong, to NewYork) are over valued. Now they will get a reality check. Give an example, ICBC (1398.HK, 601398.SS), traded at 3 times book value, according to JRJ. That’s much higher than the US counter part such as BoA (NYSE: BAC), Wells Fargo (NYSE: WFC). Algthough we know US banks are in trouble lately because of subprime/credit crisis, ICBC can not justify its 3 times PB ratio if its growth slows down (which is possible).

So hold some cash, hold your breath, and I expect we are having a rough ride in the near future