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Median P/E for Chinese stocks is ~58. This is ~3x higher than every other major exchange. This is just part of a much larger correction. http://assets.bwbx.io/

by c-slice 11y ago

Median P/E for Chinese stocks is ~58. This is ~3x higher than every other major exchange. This is just part of a much larger correction. http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg Source: Bloomberg

largote 11y ago
Wow, an honest, zero-based Y-axis for once!
- toomuchtodo 11y ago
  I've found Bloomberg reporting to be pretty top notch, comparatively speaking.
bostonpete 11y ago
Do you know where this graph appeared on Bloomberg? According to the Shanghai Stock Exchange website (http://english.sse.com.cn/ http://english.sse.com.cn/), they're Average P/E Ratio is currently 15.62... Edit: Found it myself: http://www.bloomberg.com/news/articles/2015-06-16/real-cost-of-china-stocks-dwarfs-2007-bubble-as-valuations-jump http://www.bloomberg.com/news/articles/2015-06-16/real-cost-...
- cryptoz 11y ago
  The Bloomberg graphs are Median P/E, you are reading on the SSE website about Average P/E. Perhaps that explains the discrepancy.
  - fallingfrog 11y ago
    Wait, the median P/E is three times higher than the average? That does not sound right. Because the P/E cannot go below zero, the ability of a small number of stocks to throw the average off is limited.. In fact I can't think of any way for the average to be more than twice the median, even if half the stocks (minus one) had a P/E of zero. How would that work, mathematically?
    - fancyketchup 11y ago
      Negative earnings, maybe? Usually P/E ratios for those companies are reported as N/A, though.
      - fallingfrog 11y ago
        Good point! But that makes me think that maybe taking the average of a bunch of P/E ratios is mathematically stupid to begin with. I mean, you could have one with earnings of .00000001 which would make the P/E ratio enormous, or with earnings of -.0000001 which would make the P/E ration enormously negative. Or you could have earnings of exactly zero which would give you a NaN. So maybe this is just is an indication that the median P/E is a much more meaningful quantity than the average. Maybe taking the average of a bunch of ratios is meaningless, in general. Or maybe they are adding up total price of all stocks on the exchange / total earnings of all stocks on the exchange. In that case, you could get the result that the "mean" was much lower than the average, if there were a small number of stocks that were losing bucketloads of money.
    - shoo 11y ago
      The Bloomberg chart states it is talking about projected earnings over the next 12 months. Would these projections be what the individual companies report, or would they be forecasts by Bloomberg analysts? The CSE page doesn't define how they compute average P/E, in principle they could be using some historical measure of earnings.
    - repsilat 11y ago
      Could that reported average be cap-weighted? It's possible that the very biggest companies have reasonable P/E ratios, but there are a large number of small stocks with crazy prices.
nikcub 11y ago
Those PE's made sense (to some/most) when the economy was growing 8-9% and revenue was following that growth, but now that it is down to ~3% with revenue following (or shrinking for a lot of the larger companies) those prices really need to come down and might even be discounted to reflect regulatory risk. The hedge funds who saw this coming are doing very well at the moment [0] [1] [0] http://www.barrons.com/articles/hedge-fund-posts-strong-gains-by-shorting-china-1440825847 http://www.barrons.com/articles/hedge-fund-posts-strong-gain... [1] http://www.bloomberg.com/news/articles/2015-11-17/hedge-fund-gaining-138-says-china-short-targets-easier-to-spot http://www.bloomberg.com/news/articles/2015-11-17/hedge-fund...
- dmix 11y ago
  Doesn't this projection depend on the assumption these companies operate entirely within China and not global markets?
  - nikcub 11y ago
    Chinese growth was becoming less dependent on exports as global demand flattened out: http://www.usfunds.com/media/images/frank-talk-images/2012-frank-talk-images/2012-ft-jan-jun/ChinaGDPgrowth-041212.gif http://www.usfunds.com/media/images/frank-talk-images/2012-f... The current growth slowdown is largely due to decreased domestic consumption growth: http://www.brookings.edu/~/media/Research/Files/Blogs/2014/04/22-china-growth-data/china-contributions-gdp-growth-dollar-2.jpg?la=en http://www.brookings.edu/~/media/Research/Files/Blogs/2014/0... Of the top listed companies in Shanghai, most are banks, petro, insurance, energy, etc. that are domestic driven (the SSE website is down at the moment but the list is here: http://english.sse.com.cn/listed/list/ http://english.sse.com.cn/listed/list/) I don't think there were many expecting that a public company investment in China would be supported by exports.

by c-slice 11y ago

largote 11y ago

Wow, an honest, zero-based Y-axis for once!

toomuchtodo 11y ago
I've found Bloomberg reporting to be pretty top notch, comparatively speaking.

bostonpete 11y ago

Do you know where this graph appeared on Bloomberg? According to the Shanghai Stock Exchange website (http://english.sse.com.cn/ http://english.sse.com.cn/), they're Average P/E Ratio is currently 15.62... Edit: Found it myself: http://www.bloomberg.com/news/articles/2015-06-16/real-cost-of-china-stocks-dwarfs-2007-bubble-as-valuations-jump http://www.bloomberg.com/news/articles/2015-06-16/real-cost-...

cryptoz 11y ago
The Bloomberg graphs are Median P/E, you are reading on the SSE website about Average P/E. Perhaps that explains the discrepancy.
- fallingfrog 11y ago
  Wait, the median P/E is three times higher than the average? That does not sound right. Because the P/E cannot go below zero, the ability of a small number of stocks to throw the average off is limited.. In fact I can't think of any way for the average to be more than twice the median, even if half the stocks (minus one) had a P/E of zero. How would that work, mathematically?
  - fancyketchup 11y ago
    Negative earnings, maybe? Usually P/E ratios for those companies are reported as N/A, though.
    - fallingfrog 11y ago
      Good point! But that makes me think that maybe taking the average of a bunch of P/E ratios is mathematically stupid to begin with. I mean, you could have one with earnings of .00000001 which would make the P/E ratio enormous, or with earnings of -.0000001 which would make the P/E ration enormously negative. Or you could have earnings of exactly zero which would give you a NaN. So maybe this is just is an indication that the median P/E is a much more meaningful quantity than the average. Maybe taking the average of a bunch of ratios is meaningless, in general. Or maybe they are adding up total price of all stocks on the exchange / total earnings of all stocks on the exchange. In that case, you could get the result that the "mean" was much lower than the average, if there were a small number of stocks that were losing bucketloads of money.
  - shoo 11y ago
    The Bloomberg chart states it is talking about projected earnings over the next 12 months. Would these projections be what the individual companies report, or would they be forecasts by Bloomberg analysts? The CSE page doesn't define how they compute average P/E, in principle they could be using some historical measure of earnings.
  - repsilat 11y ago
    Could that reported average be cap-weighted? It's possible that the very biggest companies have reasonable P/E ratios, but there are a large number of small stocks with crazy prices.

nikcub 11y ago

Those PE's made sense (to some/most) when the economy was growing 8-9% and revenue was following that growth, but now that it is down to ~3% with revenue following (or shrinking for a lot of the larger companies) those prices really need to come down and might even be discounted to reflect regulatory risk. The hedge funds who saw this coming are doing very well at the moment [0] [1] [0] http://www.barrons.com/articles/hedge-fund-posts-strong-gains-by-shorting-china-1440825847 http://www.barrons.com/articles/hedge-fund-posts-strong-gain... [1] http://www.bloomberg.com/news/articles/2015-11-17/hedge-fund-gaining-138-says-china-short-targets-easier-to-spot http://www.bloomberg.com/news/articles/2015-11-17/hedge-fund...

dmix 11y ago
Doesn't this projection depend on the assumption these companies operate entirely within China and not global markets?
- nikcub 11y ago
  Chinese growth was becoming less dependent on exports as global demand flattened out: http://www.usfunds.com/media/images/frank-talk-images/2012-frank-talk-images/2012-ft-jan-jun/ChinaGDPgrowth-041212.gif http://www.usfunds.com/media/images/frank-talk-images/2012-f... The current growth slowdown is largely due to decreased domestic consumption growth: http://www.brookings.edu/~/media/Research/Files/Blogs/2014/04/22-china-growth-data/china-contributions-gdp-growth-dollar-2.jpg?la=en http://www.brookings.edu/~/media/Research/Files/Blogs/2014/0... Of the top listed companies in Shanghai, most are banks, petro, insurance, energy, etc. that are domestic driven (the SSE website is down at the moment but the list is here: http://english.sse.com.cn/listed/list/ http://english.sse.com.cn/listed/list/) I don't think there were many expecting that a public company investment in China would be supported by exports.