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China Stocks

Valuation of China A shares: raw materials

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Chinese stocks are becoming more and more expensive. From different statistics, average PE of the market is in 40s. This is not cheap compared to around PE 18 of US S&P 500. There are many reasons for that, and I’m not jumping into it. But I want to share an interesting phenomena here: these days the fund managers, and individual investors are looking for valuation safe haven, or in Chinese terms, 价值洼地.

What does that mean? Lately because some of the blue chips are so hot, they got PE of more than 50. For instance, Vanke (000002), is traded at 32 Yuan, the est. year 2007 earning is 0.60 Yuan, so the PE for 2007 is about 53. Note this is No. 1 weighted stock in Shenzhen Index (about 16%), and its market cap (more than 200 b Yuan, or $30 b) is more than top 4 US home builders combined. (Vanke is No. 1 builder in China and it has about 1% market share). China Merchants Bank (600036) has similar problems. By the way, I believe those are two best managed companies in China.

China merchants bank pic