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China Market Strategy - UBS Investment Research - Part. 2

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 ? #2--A shares bubble

  • Danger of going into a bubble is high
Liquidity and sentiment seem irrationally high, but does not appear to abate. At
this stage, we believe the self-correcting mechanism of stock market is also not
able to reverse the overpricing.

  • Government action to broaden the market
We believe the measures of having more listings, QFII, QDII and financial futures
are all the right cures. However, they may lag behind the fast-moving liquidity
flow into the market.

  • What if the bubble continues ?
We believe conditions remain conducive to further run into a stock market bubble.
Using past peak valuation as a guide, the Shanghai A-Share Composite Index
could go higher before it reverts back to fundamental value.

  • Caution to investors
We believe we are entering a phase of low predictability and high risk. While the
index could still go higher, the eventual downturn could be damaging to
investment performance. We re-iterate our A-share strategist's long-term valuation
range of 2,200-2,900 on the Shanghai A-Share Composite index.

Suite dans le document PDF ci-dessous

Vendredi 25 Mai 2007

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