Shanghai Drops To Two Month Low, As Chinese Stocks Are S&P Performance Mirror Image YTD
Even though news of the Chinese rate hike have so far spared the US stock markets, the Shanghai Composite, the SHCOMP, is now down 5 days in a row, and is back to a level last seen in October 2010, at 2,733, following a 1.7% overnight decline. What is more peculiar is that the main Chinese index is now down almost 15% from the highs reached in the recent upswing, specifically the 3,160 close from November 8. Yet during this entire time, the US stock market continues to melt up on ever lower volumes, and if futures are any indication, last night's latest drop in Chinese stocks will be ignored yet again, as the reverse decoupling thesis is now the prevalent paradigm, 4 short months after it was China's turn to "grow" the world out of the re-recession.
The charts below show the relative performance of the S&P and the SHCOMP on a one month and YTD basis. What is interesting is that the two are mirror images on a YTD basis, with the S&P up 12%, while Shanghai is underperforming by the same amount.
Yet the same question from a valuation standpoint shows that Chinese stocks, on virtually every multiple (EV/EBITDA, EV/Revenue and P/E), are still materially overvalued compared to the US.
Basically, China continues to be dramatically overvalued on a fundamental basis, while the US is the same on technicals. Since the two net out in this bizarro world, where according to "experts" massive snow fall is good for retail sales, we see no reason why the status quo can't continue to infinity and beyond.
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