Medium-term (technical) outlook on China

China has reached our target area at 2000 (even down to 1800) last week and is building a substantial bottom right now, which might take another attempt below 2000 to finish it. This market has basically crashed since it had unhealthy to insane valuations but, nevertheless, it’s still the factory of the world for cheap goods and with a global economic contraction the demand will not disappear. The domestic construction boom due to the Olympics was a onetime event and has to de deducted from the growth. The PE’s around 15 in Shanghai for growth rates above 6% are fair valued and H-shares in Hong Kong trade even at 12 times, which is definetely not a bubble valuation. The $1 tril. sovereign funds might concentrate on domestic investments as well.

We can expect a severe upside correction going forward. After having retested the lows (and marking weekly 13s), we should see at least a 1000 points bounce over the next months. A 38% retracement equals 1600 points, which should cap the upside potential but is as much as a percentage potential from a 1800 level it counts for 87% rise but less likely with a contraction of gloabal markets til Q1 2009. Q2 and Q3 2009 will have a global upside correction. In stock markets of some magnitude and in such a context, we might also see China rising to high valuations again.

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~ by behindthematrix on September 26, 2008.

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