Is the Chinese stock market selling at too much of a discount to its true economic potential?

09-Sep-2010

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







Is the Chinese stock market selling at too much of a discount to its true economic potential?

The following chart lists the top 10 countries in terms of market value of publicly traded shares using data from 12/31/08.  China is listed as #4 and appears it has a lot of room to run to catch up to the USA in terms of market cap.    If we look at the next chart that list countries by GDP (purchasing power parity) using data from 2009 it gets even more interesting.  The USA stock market is valued at 83% of its GDP(purchasing power parity), while the Chinese stock market is valued at only 32% of its GDP(purchasing power parity).  Why is there such an extreme disconnect between market valuation and economic performance?  There are many potential reasons including a country discount to reflect additional risks (political, corporate governance, regulatory issues) or other market inefficiencies.  But it still appears in my humble opinion that investors may be undervaluing China’s true economic potential.  I would expect over the long run as the Chinese economy continue to grow that its stock market valuation will eventually rise to closer reflect its true economic performance.  In the meantime, I will be taking full advantage of  this extreme discount and hunt for potential oxstones in the Chinese stock market.

For more research and statistical information on country comparisons please check out our ‘STATISTICS’ category.

Cheers,

Liu-Yue (Louie) Lam

Co-founder and CEO

Oxstone Capital Management

Rank country Market value of publicly traded shares Date
1 United States $ 11,740,000,000,000 ’08
2 European Union $ 7,564,000,000,000 ’08
3 Japan $ 3,220,000,000,000 ’08
4 China $ 2,794,000,000,000 ’08
5 United Kingdom $ 1,852,000,000,000 ’08
6 France $ 1,492,000,000,000 ’08
7 Russia $ 1,322,000,000,000 ’08
8 Hong Kong $ 1,320,000,000,000 ’08
9 Germany $ 1,108,000,000,000 ’08
10 Canada $ 1,002,000,000,000 ’08
Rank country GDP (purchasing power parity) Date
2 European Union $ 14,430,000,000,000 ‘09 est.
2 United States $ 14,140,000,000,000 ‘09 est.
3 China $ 8,748,000,000,000 ‘09 est.
4 Japan $ 4,150,000,000,000 ‘09 est.
5 India $ 3,570,000,000,000 ‘09 est.
6 Germany $ 2,810,000,000,000 ‘09 est.
7 United Kingdom $ 2,128,000,000,000 ‘09 est.
8 Russia $ 2,110,000,000,000 ‘09 est.
9 France $ 2,097,000,000,000 ‘09 est.
10 Brazil $ 2,013,000,000,000 ‘09 est.

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