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China's Tulipmania Full Frontal: Shenzhen's Parabolic Stocks Just Hit 67x P/E

Tyler Durden's picture




 

Forget Shanghai and its roaring stock market, there's a new centre for speculative excess in China. Nothing says sustainable capital formation like a stock index that trades at a valuation of 67.2 times earnings, is up 166% in the last year and whose components regularly see 500% rallies (and recently epic collapses). Welcome to Shenzhen.

 

 

With margin debt hitting new records and with over 20 million new retail trading accounts opened in the last 9 weeks alone, China has - without any doubt - gone full tulip-tard...

 

 

But, as Bloomberg reports, the greatest fools can be found not in Shanghai, but in Shenzhen, home of China’s hottest stock market, rallies of more than 500% aren’t unusual.

In Shenzhen, there are 103 stocks that rallied that much this year, compared with only four in the former British colony.

 

Among the 1,721 stocks on the Shenzhen Composite Index, four have declined this year.

The Shenzhen benchmark jumped 12 percent this week, the most since 2008, as turnover topped trading in both Shanghai and Hong Kong. Investors have piled into the non-state companies that dominate the Shenzhen bourse after the government pledged to support developing industries, including technology and health care, to shift the economy away from manufacturing and property development.

 

...
 

 

The 103 stocks in the Shenzhen 500 percent club trade at an average 375 times reported earnings, while their average market capitalization has risen to $3.5 billion, according to data compiled by Bloomberg. Many of them recently sold shares for the first time.

But it gets better... as the IPO bandwagon has created a monster bubble...

As we previously discussed, the best performer is Beijing Baofeng Technology Co., a developer of online movie players, which has jumped 3,822 percent since its initial public offering two months ago and made its chairman Feng Xin a billionaire.

 

 

Zhejiang Longsheng Auto Parts Co., which makes car-seat parts, has climbed about 1,600 percent in the past year to trade at almost 600 times profits.

 

Wanda Cinema Line Co.’s 1,047 percent rally since its January IPO turned it into a $22.1 billion company.

 

While moves in Hong Kong stocks aren’t limited by trading caps, companies on mainland bourses are only allowed to gain or fall by a maximum of 10 percent on a daily basis -- except on the first day of trading, when the shares can rise as much as 44 percent.

But - as many have discovered in recent days - it's not all ponies and unicorns,

What goes up... crashes to floor in a wealth-destroying frenzy...

 

 

It was all going so well, and then...

 

“Hanergy and Goldin are a good reminder for investors in China,” Ronald
Wan, chief executive at Partners Capital International Ltd. said in Hong
Kong.

 

“They have a close similarity with many stocks in Shenzhen which have rallied based on speculation rather than fundamentals.”

*  *  *

In conclusion:

“Valuations are ridiculously high,” Castor Pang, the head of research at Core Pacific-Yamaichi in Hong Kong, said by phone.

 

“The stocks surged too much and no one knows why.”

*  *  *

But - who could have seen this coming - especially with these avid traders watching over these markets...

 

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Fri, 05/22/2015 - 14:18 | 6122298 AIIB
AIIB's picture

TuRips bitchez!

Fri, 05/22/2015 - 15:07 | 6122478 TheLooza
TheLooza's picture

where can i buy the Putz?  

Fri, 05/22/2015 - 14:20 | 6122305 ted41776
ted41776's picture

gone full retard

Fri, 05/22/2015 - 14:59 | 6122446 Harbanger
Harbanger's picture

You think it could be a bubble? I need to figure out how to short this bitch.

Fri, 05/22/2015 - 15:05 | 6122467 buzzsaw99
buzzsaw99's picture

I need to figure out how to short this bitch.

their currency, or their stock market?

you better think about it. you better think about the consequences of your actions. [/aretha franklin, the blues brothers]

Fri, 05/22/2015 - 15:14 | 6122511 Harbanger
Harbanger's picture

I shorting both.  After the correction, I'm long on both.

Fri, 05/22/2015 - 15:14 | 6122512 sun tzu
sun tzu's picture

Short ASHR for the Shanghai/Shenzhen markets. Be careful because it's a steamroller right now. I was thinking of shorting when it went from $22 to $35 in a couple of months. Now it's nearing $50. Glad I stayed out of the way.

Fri, 05/22/2015 - 14:24 | 6122317 Dubaibanker
Dubaibanker's picture

There are mishaps in every stock market in every country. Dont forget Lehman or Enron or Madoff in the US.

However, the full market as in broad based indices, top companies and ETF's and diversified funds will do well over the coming years. http://video.cnbc.com/gallery/?video=3000381058

Another step towards opening of capital controls in China.....several billion to move into cross border mutual funds. mutual fund china to be introduced

Once China announces gold holdings as well as gets included in USD 1 trillion amount just by Chinese Renminbi in the IMF SDR before end of 2015....the world will become a different place.

Wed, 05/27/2015 - 15:00 | 6137175 Max Steel
Max Steel's picture

THEY DON'T HAVE MUTUAL FUNDS IN CHNA YET ? INDIA HAS MUTUAL FUNDS SCHEME .

Fri, 05/22/2015 - 14:25 | 6122324 reader2010
reader2010's picture

How about Nasdaq high flying stocks with PE of negative infinity?

Fri, 05/22/2015 - 14:25 | 6122325 Freddie
Freddie's picture

P/E of 67?  This should attract many value investors in China.

A 67 P/E is pretty cheap compared to TSLA, Tweeter, FB and that new hamburger place.

Fri, 05/22/2015 - 14:38 | 6122369 Dubaibanker
Dubaibanker's picture

We have not even started talking of loss leaders like Linkedin, Amazon etc.

Not to mention the bailed out ones like Citi (whose stock is still at the same level it was about 7 years ago......) or AIG or the penny stock called Fannie Mae...:)

Let us not throw stones at profitable companies!

They are doing something US companies ain't - making money for their shareholders.... not siphoning off IPO money from US investors (if any are left) backed up by the full credit and faith of the US Govt!

US should be ashamed of its stock markets. China is doing about 50 IPO's a month while US has done about 4 IPO's since Jan 2015 against China's 200 plus!

Fri, 05/22/2015 - 14:50 | 6122390 Harbanger
Harbanger's picture

To give a little perspective here, Apple which many think is overpriced has a P/E ratio of only around 16-17.

Fri, 05/22/2015 - 15:06 | 6122474 Dubaibanker
Dubaibanker's picture

Apple is one of the most iconic contemporary companies currently. Blackberry held that mantle 5 years ago. Sony had it about 10 years ago. Ericsson and Motorola had  the same 15 years ago. About 20 years ago was Sanyo and Panasonic. No one even remembers Worldcom or Nortel anymore! Or for that matter Bear Stearns and Merrill!

The shelf life of firms overall is declining unlike in the past when behemoths like GE lasted about 100 years and Microsoft is ok after 40 years or Coke is doing fine after several decades.

In the IT space, the shelf life is even more limited as mentioned above.

This is why there are many sellers of Apple and many hedge funds as well as mutual funds and large investors keep holding the Apple shares and do not sell due to their belief that Apple will keep growing causing lower liquidity in one sense. The day, Apple turns south, it will be a heavy downpour of grief all across by these very sellers with no buyers. This keeps pressure on the price as well as the PE.

One cannot place so much faith in just one company when many others have shown over long periods of time that how hard the road of tech is and how short their shelf life is!

Low PE of Apple indicates, IMHO, that many investors do not put too much faith in the endless rapid growth of this company when too many tech companies are actual loss leaders putting more pressure on PE's. 

To the contrary, China is just opening up where backlash can be swift as well as brutal as we have seen in coal companies or forestry or solar companies who can go bankrupt if any fake reporting or weakness is found.

Unfortunately, bankruptcy of loss leaders or fake companies has been removed from the lexicon of US corporations!

Fri, 05/22/2015 - 15:25 | 6122563 new game
new game's picture

no mention of microsoft, hmmm.

Fri, 05/22/2015 - 15:51 | 6122645 Dubaibanker
Dubaibanker's picture

Hey new game in town...if you read carefully...para 2...line 2...has a word called 'Microsoft'...;)

Fri, 05/22/2015 - 15:35 | 6122583 Harbanger
Harbanger's picture

I couldn't care less about Apple.  The point is that Chinas' stock market is way overpriced.  I'm just looking for the right trade at this time.  You're giving me your long term opinion, which you may or may not be right about.  I've been reading ZH long enough to never take investment advice from the comments here as people are too emotionally attached to the outcomes to make a valid call.

Sat, 05/23/2015 - 00:40 | 6122641 Dubaibanker
Dubaibanker's picture

Of course, Harbanger. On the internet nothing is what it seems.

However, I did not suggest any stocks. Just that, China will do better than most other nations overall due to their large affluent and urban population, profitable and growing companies. Yes, some stocks will go up and some will go down. That is my tip for the day! ;)

Individual stocks are hard to predict over any time line.

Which is why I prefer the following (mostly ETF's to avoid downside risk looking 6 months down the road):

ASHS

CN

ASHR

Large giants like Alibaba, Baidu, Tencent, JD.com, PAX Global Tech, JD.com, even large China banks give 5% pa yield. 2823.HK and 2828.HK are ok.

I do not recommend anything unless you do your own research and decision making into the above.

Fri, 05/22/2015 - 14:41 | 6122380 John Law Lives
John Law Lives's picture

"Shenzhen's Parabolic Stocks Just Hit 67x P/E"

Come on, grannies.  You can pump this up to 100.  After all, it's just numbers on a screen...

MiddleKingdomFUBAR.

Fri, 05/22/2015 - 14:43 | 6122385 Chuck DeBongo
Chuck DeBongo's picture

Although, those are some absolutely mental numbers, let's keep things in perspective. Nothing much is going to happen in the next year, I'd say.

We've been here before.

"Greece is going to default! Greece is going to default! Greece is going to default! Huh? Is that the sound of foot on aluminium?"

"Japan is going to hyperinflate! Japan is going to hyperinflate! Japan is going to hyperinflate! Huh? They're on the verge of deflation?"

"Australia is going to burst! Australia is going to burst! Australia is going to burst! Huh? They're still going?"

"The United States is going to go bankrupt! The United States is going to go bankrupt! The United States is going to go bankrupt! Huh? The U.S. dollar is still being sought after?"

I've changed my position and I think there's still some mileage left before it goes to hell. I think the banksters still need more time to get the frig out of town. The best we can do is use that time to our advantage. Stock up on food and supplies, hoard gold & silver, take your cash out of the bank and pay off any debts.

I still think we're living in financially unsustainable times, I just think we called it too early. One of the problems of reading too much "doom porn".....

Fri, 05/22/2015 - 14:49 | 6122410 FPearl602
FPearl602's picture

Never underestimate the replacement value of equities within an inflationary spiral! 

Print moar!

Fri, 05/22/2015 - 14:51 | 6122420 Mike Honcho
Mike Honcho's picture

Buy high, sell low.  No wait, buy low, sell high.  Look at me, I'm a trader!

Fri, 05/22/2015 - 14:57 | 6122435 richsob
richsob's picture

I have friends and family in China so it is easy for me to understand what is happening.  The Chinese LOVE gambling.  I mean they LOVE it.  So trading stocks and seeing them go up, up, up is just as thrilling as letting it all ride on Double Zero.  In the end it will all end up with everybody losing their "profits/winnings" but there is no getting them to understand the truth until that finally happens.  In the meantime "Good ruck"!

Fri, 05/22/2015 - 16:51 | 6122838 TheLooza
TheLooza's picture

That's right.  And belive me, they particularly like big meaty wagers.  I have been to Macau 5 times.  It's nuts.

Fri, 05/22/2015 - 14:56 | 6122437 fremannx
fremannx's picture

Parabolas and the stock market just don't go together. Bubbles always burst as this analysis proves quite easily...

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...

Fri, 05/22/2015 - 15:17 | 6122525 Soul Glow
Soul Glow's picture

China is out fedding the Fed.

Fri, 05/22/2015 - 15:39 | 6122599 Bear
Bear's picture

When all this crashes ... The US will be blamed and when Wall Street crashes China gets the blame

Fri, 05/22/2015 - 16:05 | 6122695 adr
adr's picture

Sree when stock go up you buy. When stock go up, you buy more. When stock go up more, you buy Ferrari and new big condo in town without pollution.

Fri, 05/22/2015 - 16:28 | 6122782 Crocodile
Crocodile's picture

Looks like the US is way undervalued.

Fri, 05/22/2015 - 20:34 | 6123338 GoldSilverBitcoinBug
GoldSilverBitcoinBug's picture

Bitcoin markets appear to be boring comparing to that...

Fri, 05/22/2015 - 21:22 | 6123445 TheGreatRecovery
TheGreatRecovery's picture

5 stars for the photo of those ladies watching the market while they knit sweaters!  :-)  :^)  :0)  :^)  :$)

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