China is experiencing a bull market unlike anything seen since the dot-com glory days of the late 1990’s in the U.S. But there could be a big "uh-oh" moment coming.
Analysts, journalists, regulators, even the ruling Communist party, are beginning to take notice that the recent run-up in the Chinese stock market has a lot of the markings of a bubble that’s about to burst. Regulators within the country are worried that the buying frenzy could end badly, although some say it’s just a sign that the Chinese are finally embracing capitalism.
Some background for the skeptics: The Shanghai Composite went up over 130% last year and is already up 9.5% YTD. In addition, Chinese stocks are, on average, trading at over 30 times their price-to-earnings ratio, according to The Wall Street Journal.
What’s happening, says the Journal, is that Chinese day traders are using home equity and even credit cards to invest in stocks that are going straight up. The New York Times also notes this week, in a feature on the Chinese stock market, that young investors without much experience are fueling the rally - and that could be cause for concern that the it can’t last.