The Hong Kong Rally in Perspective
A metastasizing bubble or a catch-up rally? Asia Unhedged remains enthusiastic about China’s economy and stock market, and persuaded that Hong Kong has a good way to go to catch up to the SHCOMP recovery last year. Diluted earnings from continuing operations have tripled since 2004, when the HSCEI index stood at 4,700 and traded at 13 times earnings. At 13,750 the HSCEI hasn’t even caught up to 2004 valuations.
Some perspective on HSCEI’s price-earnings ratio is in order.
The average price-earnings ratio for HSCEI since inception in 2001 is 12.3. Today’s 9.5 multiple is nearly a standard deviation below the mean. This doesn’t look expensive to Asia Unhedged.