Ranked Last

China has always been ranked No1 in many ways, may it be its population, foreign exchange reserves, exports numbers, growth numbers, carbon emission etc. So it was a surprise to find China in one particularly odd occasion where it is ranked last. Yes, the Shanghai Stock Exchange CI was ranked last in the latest year to date world's stock market performance. It has only yesterday overtaken Vietnam's HCM stock market as the worst performer according to Bloomberg's data. Year to date, the market has dropped slightly more than 50% due to slow down of the economy, rising cost and its impact on corporate profits. Its PE which once peaked in October 2007 of almost 50x or 6,000 points has now gone down to less than 21x or 2,800 plus; which is well below its average PE of 36x.(Please refer to chart provided by "seekingalpha" below for further details).

So is it a good time now to enter China? The Chinese Government has been of late sending signals to the market that it may ease its monetary policy after its inflation declined and growth stalled. The latest June's CPI was 7.1% which was far better than the February's data of 8.7%. The growth for the 2Q was slower at 10.1% as compared to last full year of 11.9%. So by easing monetary policy, the corresponding effect besides encouraging growth and increasing corporate profits would be a shot in the arm for stock market. However, we have to be careful here as China's interpretation of monetary easing may have different meaning other than reducing interest rate.(currently at 7.47% which was unchanged since half a year ago) It may also means lowering the minimum reserve requirement ratios, slower currency appreciation by physical intervention and easing existing credit curbs for properties and business. I believe China will take this window of opportunity to reassess and fine tune its monetary policy while monitoring the on going world economic slowdown, spiralling inflation, weakening stock and property markets and probably the second wave of credit crisis from the US. I believe even if Shanghai were to go up from here (as they hate to be ranked LAST), the upside will probably be capped as the easing of monetary policy alone will not spark a major catalyst for the stock market. It may need further Government actions to spur the market on. The fact that there are many investors who are still caught with shares at the high and awaiting for a chance to dispose them higher may limit the upside of the market.

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