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Jake Van Der Kamp

Jake's View | China stock rally lacks sound foundation of real business growth

Beijing’s monkeying with rates and domestic liquidity is intended to stimulate the economy but the side effect is stock market speculation

Reading Time:2 minutes
Why you can trust SCMP
The Shanghai market looks like a classic monetary blow-out with share prices that can come howling back down as fast as they did in the false rally in 2007. Photo: Xinhua

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Out of sympathy I shall not name the analyst. I have too often said things just like it in my own investment career when left with only weak arguments for recommending a stock or a market.

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The term "reasonable valuation" is a good refuge because it can be made to mean many things, most commonly a low price-earnings ratio, but also a low price-book value, the prospect of high earnings growth or a strong underlying economy.

In a bull market, these can seem wonderful supports for a share price. When things turn around, however, they can mean nothing at all. The low PE ratio becomes a high one as the earnings collapse, the book value crumbles as the markets set lower prices on the assets and the strong economy just turns out to be puff and wheeze. It can happen overnight when a bull market hits its peak.

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