Wednesday, January 29, 2014

Chinese Stocks Are Outperforming

Yes, you heard it here first.  Okay, not actually outperforming but over the last year, the Shenzhen Composite, which is primarily private, non-SOE, smid-capish, has matched the total return of the S&P 500:

The yellow line is the S&P, tanking in recent days, Shenzhen in blue performing quite nicely thank you very much, while "China" (what everyone thinks of as China at any rate), the Shanghai Composite is in red.  I don't know about my readers but when I invest in China, step one is ALWAYS to draw a big black mark over all the big cap SOEs.  Yes there are one or two (and I mean that literally) who are not of atrocious quality, governance, and competitiveness, and there are hundreds (thousands?) of small private companies which are untouchable, nonetheless it's obvious that investors are increasingly distinguishing between Bad China and Good China. Bad China isn't a buy even at mid-single digit PEs while Good China is interesting north of 20x PEs. 

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