US and China are on different planets, according to pricing
Chinese stock prices are pricing stocks as if both depression and war are on the horizon or currently happening. US stocks are pricing multi year growth and safety with low volatility.
How can this be?
China was only recently the manufacturing growth engine of the world, hand in hand with the financial and consumer support of Americans. Is this no longer the case? And how do both countries untangle and move forward with different consequences post break up?
SPX sp500 stocks lead by the magnificent 7 are showing relative low earning yields when compared to treasuries. Stocks should generally be yielding more earnings than treasuries unless investors foresee high growth and higher earnings yields in the future, justifying overpaying today in order to receive a reward in the future. This works until there is a dip in the economic business cycle and earnings slow. When earnings growth slow, the premium usually gets smacked off of pricing and we see a short term fall in stock prices until growth resumes. So thats the reward to risk we face now in US stock indices. There are values to be found, but generally pricing is risky to the downside if weather goes south.
HSI Chinese stocks are stuck in a downward spiral and are priced with high risks in mind, and with good reason. The overbuilt real estate speculation bubbles has burst and deflation is the theme. In addition, global investors fear return of capital more than return on capital, due to geopolitical risks with investing in China. The accounting values on balance sheets in some chinese stocks seem very attractive on select names, but can investors even be sure they have rights to collect on those assets if international tensions continue to heat up?
As tempting as Chinese stocks are, and as good as it feels to follow the US heard, both markets have worthy risks to consider for those investors looking for reasonable opportunities. There is low fear and low VIX volatility priced in USA, Id like to see that increase and show the real potential risks. For China, It might be better to let stocks bottom and go sideways for a while and setup a accumulation base, if china is to bottom now. I cant see both usa and china rising from here without some sort of repricing of volatility and risk.
How can this be?
China was only recently the manufacturing growth engine of the world, hand in hand with the financial and consumer support of Americans. Is this no longer the case? And how do both countries untangle and move forward with different consequences post break up?
SPX sp500 stocks lead by the magnificent 7 are showing relative low earning yields when compared to treasuries. Stocks should generally be yielding more earnings than treasuries unless investors foresee high growth and higher earnings yields in the future, justifying overpaying today in order to receive a reward in the future. This works until there is a dip in the economic business cycle and earnings slow. When earnings growth slow, the premium usually gets smacked off of pricing and we see a short term fall in stock prices until growth resumes. So thats the reward to risk we face now in US stock indices. There are values to be found, but generally pricing is risky to the downside if weather goes south.
HSI Chinese stocks are stuck in a downward spiral and are priced with high risks in mind, and with good reason. The overbuilt real estate speculation bubbles has burst and deflation is the theme. In addition, global investors fear return of capital more than return on capital, due to geopolitical risks with investing in China. The accounting values on balance sheets in some chinese stocks seem very attractive on select names, but can investors even be sure they have rights to collect on those assets if international tensions continue to heat up?
As tempting as Chinese stocks are, and as good as it feels to follow the US heard, both markets have worthy risks to consider for those investors looking for reasonable opportunities. There is low fear and low VIX volatility priced in USA, Id like to see that increase and show the real potential risks. For China, It might be better to let stocks bottom and go sideways for a while and setup a accumulation base, if china is to bottom now. I cant see both usa and china rising from here without some sort of repricing of volatility and risk.