China Limbo, how much further down can we go?
Does anyone remember the articles describing how China will overtake the USA?
You rarely hear this narrative these days.
In recent years, to the chagrin of all $XMME (+0,74%)-investors, Chinese shares have come under heavy pressure. In recent weeks, we have seen an accelerated sell-off.
This naturally raises the question for the value investor chad: when is cheap TOO cheap?
Coming from an 18.2 P/E ratio at the beginning of 2021, the market has come back to 7.88 (19 January 2024). This brings us to the same level as insignificant emerging markets without a significant technology sector such as Chile or Austria. 😜
If China were to fall by another 50%, the Chinese market would be between Pakistan and Colombia in terms of its P/E ratio. So there is not much room for downward movement.
Unless some kind of fat tail risk materializes:
Capital market controls by Western countries (as with Russia), expropriation by the CCP or similar.
Such things are currently being priced in, and if they do NOT materialize, we have a lot of upside surprise potential.
What do I do with this information now?
I am currently waiting for a good entry into the $ICHN (-1,75%) I would prefer a really nice "vomit", a weekly or monthly candle that goes below the lows of October 2022.
Then we wait for a rebound.
What if the rebound doesn't come?
As the position will make up a maximum of 5% of my portfolio, I have no problem holding it for longer. As this is a loading bet, there is also no insolvency risk.
Is this safe money? No!
Does the market have to recover at some point? NO!
But the risk/reward ratio looks really good to me right now.
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All hail Winnie the Pooh!
And to fulfill my cultural educational mission, here is some constructive criticism of China from the post-reunification era:
Viki Vomit - Prima in China (1995)
https://youtu.be/ljj8OSodhc0?si=NOyOabP4rjWpyRgR
