China Limbo, how much further down can we go?
Does anyone remember the articles describing how China will overtake the USA?
https://www.cnbc.com/2021/02/01/new-chart-shows-china-gdp-could-overtake-us-sooner-as-covid-took-its-toll.html
You rarely hear this narrative these days.
In recent years, to the chagrin of all $XMME (-0,25%)-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 (+0,19%) 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
#china