Is cheap valuation a reason to buy ?Valuation can remain cheap for months and years without any decent increase in share price. So on its own , it is not a good barometer to purchase it. However, given the QE stimulus/rescue package that the Chinese Government has rolled out a week ago and creating more chaos and euphoria amongst the institution and retail investors worldwide, I would say this combo is definitely giving the stock market (HSI, CSI300) like morphine to a cancer patient.
Over 8% rally in a single day ! We are not referring to the individual stock but the index as a whole and this is BIG news, never happen since 2008.
Now we compare the two index against the others , we can clearly see how high India, Taiwan and US have gone up thus far. At 30x earnings, US is definitely overvalued. But, just because it is overvalued, it does mean the share price will keep tumbling down immediately. Not to forget, this is the election year and October is a boring/down month but towards Nov/Dec, whoever wins, we can expect another surge in the stock market in US. Next year, what is going to happen , your guess is as good as mine.
Returning to HK and China market, we can see they are cheap in terms of valuation , 4.5 years bear market and the consumer confidence is at all time low. Socially, this is not good for the government and the risk of a liquidity trap can be high. That is, government continue to pump money into the economy but consumers refuse to spend , taking only the vouchers to spend and that's it, causing no real growth to the market. The fear is employment market is bad, wages are not increasing, AI are replacing jobs (and creating ), only and main asset for wealth accumulation - property is at all time low.
So, form your own decision and allocate your capital to China .
