Chinese Stocks Trade at Cheapest Value in 22 Years

The recent data from Bloomberg indicates Chinese stocks are trading at their cheapest ever since 2001. The widely shared graph of “MSCI China index / S&P 500 Index” shows the lowest level at almost 0.01 compared to its peak over 0.06 in 2009. Meanwhile, the “Hang Seng Index – Price to Book Ratio” shows the lowest level at 0.6, pointing to the cheapest level ever since 2001, compared to the 5.0 peak in 2007. The lower than 1.0 on P/B ratio interpreted as the Price is cheaper than the company founding Booked price.

The daily P/E data from CEIC also shows Shanghai Stock Exchange at the low level of almost 10x compared to its peak over 50x in 2008, which could imply that investors are less interested in the market when it only takes 10 years of Earning to return the original Price principle. The usual stocks in S&P 500 trade between the range of 20 to 30, the lower the cheaper and the higher the more expensive. Some wild US stocks like TESLA or NVDA have over 200 P/E ratio at one point, which reflects the reality of investors that they want to own these high pricing stocks even if it takes 200+ annual circles to return the original investment.

The historical data shows Chinese indices have a lower long-term growth than US indices. Shanghai Stock Exchange (SSEC) was at around 2,000 index points in 2000, and spiked to its peak at 5,000 in 2015. The main index is currently trading at around above 3,200 or approximately 60% gain over 23 years. While Hong Kong’s Hang Seng Index (HSI) was at around 15,000 back in 2000 with a few peaks at around 30,000 in 2007, 2018, 2021 but recently dropped to around 20,000 or approximately 33% gain over 23 years.

Meanwhile, US S&P 500 was around 1,500 at the year of 2000, and is around 4,400 recently or approximately almost 200% gain or triple the portfolio value if held over 23 years. The Chinese indices have to triple their gain to keep up with this rate. Still many Chinese tech stocks that also quote in NASDAQ dropped to the low level recently, some had halved its peak price such as Tencent holding (TECHY) at $41, while some had dropped to one-third like Alibaba (BABA) at $92. The worst one lost 90% of its peak value, which is Weibo (WB) at $13.4.

The recent development around China has contributed to such drops. After the pandemics, China faced a slower than expected recovery while having a real estate crisis and political issue with the US causing the de-risking or the mass migration of foreign investment in manufacturing and business away from China to nearby countries. In short, moving money out of China hence the drops.

The Chinese yuan is also weaker compared to the US dollar as the US central bank keeps hiking rates, attracting more bond investors to flow into the US market. The US central bank has strengthened the dollar value to the point that it needs 7.3 yuan to trade for 1 US dollar now, compared to around 6 yuan in 10 years ago.