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Shanghai Composite

Turning point or new beginning: valuation

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Zhu Ping (朱平) is the chief investment officer (投资总监) of Guang Fa fund(广发基金), I have a lot of respect for him not because he went to the same graduate school I went (Shanghai Univ. of Finance and Economics); but rather he is an independent thinker, has a good track record managing the funds, has a good sense of value investing. For me the most important of all, I can learn things from him 🙂

The China stock market expericed a major correction lately, after huge run in last two years. There are many dis-heartening stuffs, such as the selling from major institutions, and the proposed huge secondary offerings from Ping’an insurance, and Pu Fa (Pudong dev bank). Recently Zhu Ping wrote about his view on the China market, economy and investing, the title is “拐点还是新起点“(turning point or new beginning). I read it and decided to translate portions into English (in series). He talked about the things in general in bullet one. I will start from bullet 2, “valuation”.

二、估值之伤
” 两年牛市,给中国留下了估值几乎全球最贵的股市,年初存在欧美派和日台派的分歧。前者认为至少高估30%,已以透支了一到两年的回报。目前市场基本接受欧美派。
” PE15倍为悲观﹑ 20倍中性,25倍到30倍是乐观,相应的PB2倍到5倍更合理。50倍以上是高风险区
” 高估值的风险:下跌空间大,资源配置可能不合理,减持
” 高估值的回归不可避免,只是时间不确定。

2. Valuation
* The bull market in last 2 years bring the most expensive market in the world to China. In the beginning of 2008 there are two main views: the Euro-America and the Japan-Taiwan. The former view thinks the market is over-priced 30%, and it has been ahead of the real economy by a year or two. The market agrees with that view now.
* PE: pessemistic under 15, neutral 20, opptimistic 25 to 30, above 50 means high risk. PB 2 to 5 is reasonable.
* The risk of high valuation: the tendency to go down, the waste of capital distribution, (the pressure) for institutions to sell.
* It’s not a question whether the valuation will return to normal, it’s a question of when it does.

年初的时候,我们当时的市场没有象现在一边倒,但是市场是存在分歧,一派是欧美派认为估值贵了;应该贵了30%,透支一两年的回报,如果我们在一个正常收益水平的股市,可能也就是10%到20%的水平。还有一派日台派就是说,象以前日本和台湾曾经经历过的泡沫,中国泡沫还没完成。中国肯定要涨到一万点以后再谈估值下降的问题。现在来看,这个市场我始终对中国市场还是蛮有信心的,中国市场是非常大的,非常有深度的市场。所以它很难像日本、台湾这样的孤岛这样的市场容易封闭自己,走向极端。中国这个市场到6000点相对来说没有走极端,而是回归了。我更愿意认为,现在的调整是一种回归。估值降到20倍左右,对所有投资者都是一件好事。

More about the Euro-America and Japan-Taiwan views. The Euro-American view thinks the stocks are over-priced by 30% (as mentioned above). The Japan-Taiwan view thinks the bubble has not been popped yet. The Shanghai Composites index should exceed 10,000 before we talk about the bubble bust. Zhu Ping thinks China market won’t expericed a bubble-bust like the Japan and Taiwan did in late 80s early 90s. The recent pull back is a healthy one for the long term.

如果更谨慎,我们A股市场最便宜的时候将近15倍。对应的是3000点。20倍可能相对来说进可攻退可守的估值水平,如果25到30倍是偏乐观的,对应5000-5500点,PB2—5倍比较合理。PE50倍以上是高风险区,现在已经证明了。高估值的风险是非常大的。第一点下跌的空间非常大,我们回头看看,很多股票蓝筹股几乎都是拦腰一半。金融,甚至中石油都是拦腰一半。第二高估值风险是资源配置不合理,所以我们对增发市场应该是比较抵触的。这种增发,像平安或者是浦发,他们增发是有利于自身发展。但如果太多的话是让投资者担心的。比如说像中信收购贝尔斯通,平安收购富通,到底是时机选的是不是准,对企业的回报是不是非常好,都值得商榷。包括像中国投资黑石这样的公司,时间长了还会挣钱,但至少现在来说亏损还是很明显的。还有一些根本投错了。资源配置可能更不合理,当然减持也是一个风险。所以我们看到做PE投资的,去年已经到了20多倍,肯定要死一批人,那么贵的话肯定会减持。所以这样来看,对于我们来说,我们更愿意相信高估值的回归是不可避免的,只是时间不确定。包括我们说,中国到底是乐观的估值,还是中性一点的估值呢。我们只能事后知道,事先比较难判断的。但是我们可从策略上给一些准备,给风险一些折价(足够的安全边际)。但考虑到大小非的减持我再融资的需求,在中国高估值时代至少近两年应该是结束了,很难会再有了。

He talked about the secondary offering from Ping’an and Pu Fa over here, and selling from major institutions. The high-valuation days in last 2 years are over now due to those two factors…

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