Are Chinese Stocks Cheap?
Trading & Investing
The Chinese stock market is cheap indeed, which is usually used for investors to enrich their portfolio and compensate for their loss elsewhere. The U.S. stock exchanges are larger than the Chinese exchanges; as of September 2022, the NYSE has a market cap of $28.8 trillion, while the Shanghai Stock Exchange has a market cap of $7.05 trillion which means China is still a comparably smaller and developing market.
Generally speaking, to analyze whether the stock market is cheap or not, people usually measure it through the indicator of price earnings ratio. Which we define as the share price divided by the earnings per share. Furthermore, the higher the price earnings ratio, the more expensive the market is, and vice versa. Although this is not necessarily precise when analyzing individual stocks, it approximately reflects the broader market in a macro view. Take the CSI index as an example, which could summarize the stock market in China in a typical way, which has an annual growth rate of -16.85%.
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Moreover, in ten years, it only has a growth rate of 1.07%. The data shows that the lowest price-earnings ratio of the CSI was 8 in May 2014; the highest was 47.83, which was in October 2007. And this price-earnings ratio was generated at the historical high of 5891.72 of the CSI 300 Index. However, if we look back in February 2021, the highest was 5808. And the price earnings ratio was only 18.7. The CSI index of the stock market only has a difference of approximately 80, but the price earnings ratio has a big gap. As a result, with the development of China’s economy, lastly, the quality of core listed companies is getting better and better, but the stock market is getting cheaper than before.
