Stocks News
- Valuations show A shares stablizing
Date: 27-Nov-2007 Sources: (Shenzhen Daily)
A NEAR 20-percent correction has wiped 5 trillion yuan (US$700 billion) off China's booming stock market in less than six weeks, and some global investment banks now hear the sound of a bubble bursting.
But the fall has brought valuations to a more reasonable level based on China's economic fundamentals, particularly corporate earnings prospects, and should give the main index strong support around the psychological 5,000-point level, local fund managers and analysts said.
The benchmark Shanghai Composite Index bounced above 5,000 points late Friday, after breaching that mark for the first time in three months the previous session, when it tumbled more than 4 percent.
The market is down 18 percent from a record intraday high of 6,124 points Oct. 16, but still up 88 percent as of Friday this year.
'The fall is about over,'said Yan Zhenghua, chief strategist at China Asset Management Co. 'Unless a major slowdown in China's economy suddenly appears, we don't see the logic for the market to fall further.'
The plunge has been partly propelled by international brokerages' repeated warnings of a bubble.
Morgan Stanley said last week that China's A-share market, accessible almost only by local investors, was struggling to stay at its current high valuations. It said any further negative news could speed up a correction to levels that might resemble what happened in Japan in the late 1980s, where markets nearly halved inside a year.
'The A-share market hosts not only the biggest valuation bubble among world equities, but also one of the largest earnings bubbles,'Morgan Stanley said in a research report.
But local fund managers and analysts said the latest fall had lowered the average price-to-earnings (PE) ratio of 300 large-cap companies listed in Shanghai and Shenzhen to 33 times 2007 forecast earnings and 28 times 2008 earnings.
While other major international markets trade on PEs of 12-18 times, China's powerful growth justifies a premium, they argue.
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