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China Market Strategy - UBS Investment Research - Part. 1

The purpose of the three reports in this series is to examine the current rally in A-shares, and its effect on H-shares. In this first report, we argue that a bubble is in the making and that A-shares are heading towards higher levels of overpricing.

Where China shares are going ? #1--A shares liquidity
  • Signs of bubble surfacing
There are many signs that A-shares are going into a bubble. However, history suggests that A-shares can stay overpriced for a sustainable period of time.

  • Liquidity to the stock market
We believe looking only at the monetary aggregates is insufficient. The 2005 stock market reform is a significant event. It changed perception on stock investment radically and brought investors' confidence back. We think a better indicator of liquidity going into equity market is the ratio of stock market turnover to money supply.

  • More liquidity into stocks
We have decomposed the turnover-to-M2 ratio by including market cap and GDP. We then compare this ratio to past bubble peaks in Japan, Korea, Taiwan and HK. We find further upside in China's turnover-to-M2 ratio before hitting a peak.

Suite dans le document PDF ci-dessous

Mardi 22 Mai 2007

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