Morgan Stanley’s desperate attempt to be bullish on China’s equities16 May, 2012, 16:19. Posted by Zarathustra
Even though Chinese data has proven to be a disaster, there are bound to be delusional China bulls along the way who are willing to say that the worst is over, while the worst is clearly not over. Far from it.
The latest attempt to declare that the worst is over is made by Morgan Stanley, who came up with a presentation which titled “China equities – a new bull market begins amid macro-uncertainty”.
The reason being that Chinese stocks are very cheap, bloody cheap, and absurdly cheap (among some other things).
“HSCEI is trading on 7.5x trailing P/E (98th percentile) and 1.41x trailing P/B (91st percentile)” according to Morgan Stanley.
Policy is easing, according to Morgan Stanley.
Real Estate sector is stabilising, according to Morgan Stanley.
Earnings revisions breadth has stabilised, according to Morgan Stanley.
Just how desperate it is too make such bullish claim?
First, they are saying that the official PMI is looking really great:
Curious that they even brought up this chart, because the official PMI and the actually industrial production numbers are having a remarkable divergence.
And curious that they even think loan growth is starting to pick up…
… while in this morning, we learned that the biggest 4 Chinese banks aren’t really making any new loans overall.
the big 4 banks’ (ICBC, China Construction Bank, Agricultural Bank of China, Bank of China) new loan for May is almost zero for the first two weeks. According to their sources, two of the big 4 banks have had new loans of RMB10 billion and a few billion, while another banks have net new loans in negative territory, brining the overall net new loans for big 4 banks more or less at zero. This suggests that demand for credit is extremely weak, perhaps much weaker than anyone could have thought.
They think earnings revisions breadth has stabilised, and the top-down EPS growth of HSCEI is 10.9% for 2012, while bottom-up HSCEI EPS growth is 9.1%…
But just yesterday, there was a report saying that almost half of Chinese companies are expecting weaker earnings:
Nearly half of China’s listed companies that have so far issued forecasts for the first half expect weaker earnings or losses for the period, according to a Tuesday report in China Daily, which cited financial data provider Wind Information Co. About 45% of reporting companies listed on the Shanghai and Shenzhen stock exchanges expect weaker results, according to the report.
Are the remaining half of the companies doing so well, or are they all cooking their books, or what?
(Okay, the consensus is even more optimistic…)
Anyway, the Chinese stocks bubble ended in 2007, and this is just how it looks right now compared to other bubbles (i.e. HSCEI 2007 peak and Shanghai 2007 peak versus Nasdaq IT bubble peak, Nikkei 1989 peak and DJI Great Depression peak):
Are stocks cheap now then? Well, what if they get even cheaper, just like what other markets did after the bubbles?