China’s Stock Market Outlook

Did Alan Greenspan slap his forehead and say, “Conerly’s right this time!” ?

He’s been quoted as saying about the Chinese stock market,  "It is clearly unsustainable.  There is going to be a dramatic contraction at some point."

He probably did not slap his head, but he did echo an earlier post of mine suggesting that China’s stock market is overvalued.

First, let’s offer a few points of perspective:

  • China’s high PE, like that of any market, can be resolved to a more normal level through two possible changes: a falling P, or a rising E.  Don’t ignore that second possibility.
  • A well diversified portfolio has some exposure to China, as well as to other investable sectors that seem stupidly overvalued.  (If you ignore some sectors, and they boom, will you have the emotional stability to not jump in at the peak?)
  • Finally, a well diversified Chinese stock market investment portfolio will almost certainly show a gain over the coming 10 years.

That said, I’m definitely nervous about Chinese stocks.  I think an ideal plan takes some profits now, maybe even a lot of profits now, but leaves the portfolio with some holdings of Chinese stocks.