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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, January 22, 2016

China -- Stock Market Update

I have done well trading the China market. By the same token, it is very difficult for me to write
intelligently about the place . Not only am I a world away from it, but by Their own admission,
China's economic data leaves a lot to be desired. The latter has led to the creation of a small
universe of economic / financial professionals who make up their own data bases and create
forecasts from said data. Thus, depending on who you follow, China real GDP is growing
somewhere between 2 - 7%! My preference is to take the numbers as China reports them and
to commit the additional sin of viewing the data through western eyes. So, be warned.

In the blog archive is a post dated 6/24/15 in which I first congratulate myself for turning bullish
on the China stock market at Shanghai 2000 in mid - 2014 and then discussing how at Shanghai
4700 in late Jun., I concluded the market was rather overdone, with extraordinarily high RSI
readings. Shanghai Weekly

China shares are now in a nasty bear market as all know. Official data indicate China GDP and
production have stabilized at nearly 7% over the past year. The argument here has been that
even if China was growing as fast as officially indicated, the Shanghai would be reasonably valued
in a range of 2700 - 2800 as marked on the chart. With the market now at a little above 2900,
most of the excess valuation has been wiped out. Moreover, the market is approaching an inter-
mediate term oversold. Because of the occasional 'all or nothing' movement of this index one
would be foolhardy to say a bottom was near at hand. Still, I plan to keep an eye on it.

The bottom panel has the S&P broad cap weighted index of China shares (GXC). At a value of
64, this less volatile index is trading 10 x net per share. This does not appear to be an excessive
valuation by any measure, even if China is growing somewhat less than 7%. I view the Shanghai
as still a little overpriced relative to the much less famous GXC.

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