A Chinese website recently reported that 10% of maids in Shanghai had left their jobs to trade shares. They may now be having second thoughts, as air has been hissing out of the Chinese market bubble. The CSI 300 index of shares in Shanghai and Shenzhen has tumbled by over 16% since last week, when the government tripled the tax on share trades. But overseas markets have shrugged off the slide.
That makes sense: this is largely a domestic affair, as local stocks are off-limits to foreigners. The Chinese market capitalisation is just 7% of the global total, according to Ian Scott of Lehman Brothers. The value of tradeable shares is only 25% of GDP (it’s 100% in India) and equities comprise under 15% of Chinese households’ financial assets, as opposed to 50% in the US. In addition, consumers have $2trn in cash to fall back on. Given this underdeveloped stockmarket, a crash would have little economic impact.
A further slide in the domestic market may allow investors seeking to cash in on China long-term to pick up UK-listed Chinese stocks for less, say David Budworth and Kathryn Cooper in The Sunday Times. Patrick Evershed of New Star says Aim-listed Chinese stocks will fall in sympathy with the Chinese market if it keeps sliding, but their reasonable valuations and strong growth should limit the damage.
One stock highlighted by New Star’s Patrick Evershed is fast-growing China Shoto (CHNS, 174p), which sells batteries for mobile phones and bicycles; it is on a p/e of under ten. Haike (HAIK, 200p), a booming crude oil refiner, is also worth a look, as is blue-chip Standard Chartered, which may succumb to a takeover bid, and 66% with 66% of profits stemming from the region. A pricier Aim stock is solar-panel maker Renesola (SOLA, 544p), which Merrill Lynch thinks could rise by another 46%.