GAFM Expert Opinion

Global Stocks Fully Priced, China in a 'Bubble'?

By Michael Preiss

Wednesday, August 5, 2009 23:01:17 PM

For information only:
 
Please find enclosed one view on the market:
 
·         Global stocks are fully priced following a rally this year, with Chinese shares having entered a “bubble,”
·         In China, recent initial share offerings signal a “classic market top,” 
     “It’s a sharp liquidity-fueled rally”   “The easy money is over. Investors should be darned cautious of what is going on because it is out
of sync with the underlying reality and more a reflection of government stimulation.”
 -          Aberdeen Asset Management Plc’s Hugh Young
 
 Could this gentleman be right and perhaps more telling, would he be SHORT with his own money ?

Global Stocks Fully Priced, China in a ‘Bubble,’ Aberdeen Says
2009-08-06 05:22:37.296 GMT
 
By Shiyin Chen

Aug. 6 (Bloomberg) -- Global stocks are fully priced following a rally this year, with Chinese shares having entered a “bubble,” Aberdeen Asset Management Plc’s Hugh Young said.
Gains in equities from this year’s lows don’t reflect the outlook for a slow recovery from the global recession, said Young, who helps oversee the equivalent of $220 billion as Aberdeen’s Asian managing director. In China, recent initial share offerings signal a “classic market top,” he added.

“It’s a sharp liquidity-fueled rally,” Young said in an interview in Singapore. “The easy money is over. Investors should be darned cautious of what is going on because it is out of sync with the underlying reality and more a reflection of
government stimulation.”

The MSCI World Index has climbed 55 percent from its low reached on March 9. The measure has gained 16 percent this year, compared with an 84 percent rally in China’s Shanghai Composite Index, the world’s second-best performer. Signs that central banks will stop easing monetary policy may prompt a slump in share prices, Young said. The Federal
Reserve is set to halt its purchases of up to $300 billion in U.S. Treasuries in mid-September, two former central bank
governors said, while the Bank of England may end a five-month program of bond purchases as Europe’s second-largest economy shows signs of emerging from a recession, dealers said.

‘Fragile Underneath’
 “If I had to bet, I would say that markets are still quite fragile underneath because plenty of people are aware that reality is out of sync with financial markets,” Young said.

“So maybe a strong steer from central banks would cause markets to pull back.”
In China, the Shanghai gauge fell as much as 3.5 percent today after the People’s Bank of China said it will fine-tune
monetary policy where necessary and guide “appropriate” lending growth. The measure is valued at 36 times reported
earnings, near an 18-month high and twice the average for emerging markets.

Everbright Securities Co. said today it raised 11 billion yuan ($1.6 billion) in an initial public offering. The five
companies that have gone public in China in the past two months, following a moratorium on initial stock sales in September, jumped an average 112 percent on their first trading day on the stock exchange. All sold shares at the top end of their price ranges to investors.

“There are some that you might risk losing quite a lot of money, and again principally those are the slightly lower-
quality Chinese IPOs that have come, that nobody knows really that much about except that they’re hot and they’re on 50 times earnings,” Young said. These signal a “classic market top,” he added.