Overpriced IPOs spell longer-term misery for A share investors

For 10 years a yawning chasm has existed between the performance China’s stock market and its economy, according to a veteran China expert, who likens the market to a casino – with all the risk that that entails for foreign investors.

Jonathan Anderson, a former resident representative at the International Monetary Fund for China and Russia and now an independent analyst, said the main reason for investors’ dissatisfaction with China’s stock market was the high valuation of Chinese equities when they listed.

“The (Shanghai A-share) index started at P/E ratio with something like 50 times earnings in 2000,” said Anderson. “Thirteen years on... you have, in fact, almost zero returns.”

Anderson, who also worked for UBS and Goldman Sachs as their lead analyst on China, told the CFA Institute annual conference in Singapore on Monday that some investors bought stocks for the wrong reasons - then complained about the A-share market’s failure to match the broader economy’s stellar growth.

Commenting on the contrast between the performance of China’s economy and its stock market, Anderson said there were “usually two possible explanations”.

“There is something wrong with the corporate sector or there is something wrong with the investors. Of course investors will never admit there’s something wrong with them. So the assumption is there must be something wrong with the corporate sector,” Anderson said.

“But today the problem in China is not the corporate sector. Actually the A-share market is like a casino,” said Anderson, who is regarded as one of the most experienced western economists focusing on China.