Monday, July 19, 2010

Commentary on CIMBX25 purchase

Yes, you know already that I am maximum bullish China. Many worried about China property market will spill over to equity market. Why am I going against the tide? First I think the Chinese government has taken enough measures to cool the property market. More importantly, for lightning to strike twice back-to-back is a low probability event. The wounded memory of how property market brought down American to its knees will motivate the Chinese government to avoid bubble at all cost.

China Shanghai A share has corrected enough and many pointed out that it's already in a bear market. That is precisely right, buy during bear market and sell when bull is almost exhausted itself. Will it become cheaper, I'm glad to be wrong, this represents only 1/3 of my target $ 6,000 exposure for this index. I can average down in case I'm wrong on the timing.

I do not want to confuse you with A share because CIMBX25 is tracking 25 most liquid H Share - large Chinese capitalized stock listed in Hong Kong stock exchange. The reason I'm mentioning A share is that if we think they are reasonably valued, then H share by comparison is even cheaper.

A quick calculation at the back of envelope of their top 10 holdings, it's is selling roughly around 10 times of 2010 earnings. This is very cheap historically. If you believe the earning can grow by just 8% in-line with China GDP, the stock is selling for a single digit based on 2011 forward earning.

KLCI: 1333

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