FSO, Market Commentator, Mr. Rob Kirby, posted an interesting commentary, Anecdotal Asides and Questions Begging Answers.
In the commentary Mr. Kirby compares the stock market capital capitalization of China and US and compared them both to their respective GDP.
For China, Rob Kirby made the following remarks.
- While the notional value [U.S. 500 billion] is very dated – it’s the percentage of GDP that I would like to draw everyone’s attention to – namely and explicitly, the market capitalization of the Chinese Stock Market as a percentage of GDP – 30%.
Now, let’s consider that Chinese GDP data are “suspect” – owing to their arbitrarily and, as some would argue, artificially [manipulated] low currency “peg” to the U.S. Dollar – and as a result – Chinese GDP data are, in fact, under-reported.
And for the US, Mr. Kirby made the following comments.
- With U.S. GDP running around 13 Trillion, we can CLEARLY see that stock market valuations [combined NYSE and NASDAQ] are running at 26 Trillion – or 200% of U.S. GDP!
So he asks, "So whose stock market is over-valued now?"
What say you?
Posts
3 comments:
Using the ratio of GDP-to-market capitalization as indicator of valuation of markets are quite flawed and misleading. Offhand I can think of at least 2 points to refute it:
1) Much of the China economic activities and value are still contained in those private/unlisted companies, whereas, I assume, most notable US companies are already listed. I argue that while those unlisted Chinese companies are valuable, those listed companies are overvalued (PE of Shanghai A-shares are about 40x).
2) China stock market is pretty much limited to their own people, foreign investors, even via indirect avenues, do not constitute a significant portion of input to her market. OTOH, US market capitalization is substantially contributed by foreign investors, e.g, Arab tycoons
My Dearest KK,
Yes, I do believe that you have made one strong point.
GDP versus market capitization is simply a funky way to use as a gauge.
And more so if you consider the many ways a GDP can be represented....
rgds
While GDP-to-market capitalization is not an indicator of valuation of stock market, it is, however, a good guide as to the wealth effect of stock market performance.
In those countries where their people put in substantial proportion (18-30%) of their money in stock markets, "Wall Street" crash certainly affects "Main Street" (small business and general economic activities) and consumer spending. I read that in Asia, only Taiwan, Hong Kong, Korea and Singapore demontrate this effect.
That is why, though I think China stock market is overvalued, I don't quite buy the claim that China stock market crash (even if severe) per se will greatly affect China economy or global economy. China stock market capitalization is less than 5-7% of its people's savings. The wealth effect of stock market is not significant there, yet.
(Japenese great bubble burst in late 1980s is much more severe because it was a combination of stock market crash from P/E of 100x, property market crash, over-expansion of business, and rapid rise in Yen valuation. In contrast, China market has P/E of 40x; the hot property markets are limited to majot cities; their business expansion are in early stage of growth, and Chinese government knows very well not to let Yuan apprecaite rapidly.)
Post a Comment