The Phaserl


Big Bubble in Little China!

by David Chapman, Gold Seek:

Ok pardon the play on a 1986 Kurt Russell action adventure flick entitled “Big Trouble in Little China”. China isn’t little but the bubble is potentially big. Apparently, the Chinese stock market has boomed to a value of $6.5 trillion in the past year. That still leaves the Chinese stock market well short of the NYSE whose value in February 2015 was $16.6 trillion. The Shanghai Stock Exchange (SSEC) is up 58% thus far in 2015 and a 152% since the low of 2014. To put that in some perspective the SSEC was up in 2007 129% to the top in October and had run 293% from the low of 2006. The current market is still about 20% below the highs of 2007.

But there are differences in the 2015 bull market and the 2007 bull market. In 2007, the Chinese economy was still growing at well over 10% annually. Today GDP growth has fallen under 7% and could go lower. P/E valuations of small cap stocks have moved into NASDAQ late 1990’s levels; leverage has soared with loans to stock investors at record levels; and, finally the current stock market is being fueled by smaller traders seeking quick profits. One study suggested that two-thirds of new stock market investors hadn’t completed high school. If there is a silver lining, it is that the SSEC is still trading at P/E valuations somewhat in line with its longer-term average.

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