From a soaring Bull to a biting Bear in 30 days

Sometimes markets act swiftly. In America we have seen that since Monday, with the Dow Jones hitting correction territory and just 2 days later now resting up at 13,289. That’s a huge point swing, but when you consider China, it’s not that big a move.

Those that like distressed stocks, and have a feel for international markets may want to take a look. Of course the words of the reputable Warren Buffett should be heeded when he stated investors should be “cautious”. Why is the Chinese stock market in distress and Mr. Buffet advising caution? Because China is going through its own market bubble right now.

While you may not have heard this in the news, China had prices increase 4x in the past year. Beyond impressive growth without question. But the bubble is bursting now with massive recalls and particularly high valuations.

“Shares in the index trade at an average 44 times earnings, according to data compiled by Bloomberg. The MSCI Asia Pacific Index and the Standard & Poor's 500 Index are valued at 17 times profit.”

Because of these pressures China has now officially gone into a bear market having dropped 21% in a single month. And some feel this is not the bottom.

“Yan Ji, an investment manager in Shanghai for HSBC Jintrust Fund Management Co., which oversees the equivalent of about $517 million. ``What we have seen now is only the start.”

So the question is, is this the feeding ground for international bears feasting on shorts as the pressure mounts, or is it an opportunity for savvy bulls picking and choosing their targets? As with any market in turmoil, there is no easy answer.

China is seeking to slow the 11% growth of that nation; Chinese brokerages are being encouraged to invest overseas to the tune of $34 billion. The last bear market lasted 4 years and caused the Chinese market to drop 50%, before rising 5x in its wake.

And some are optimistic, like

“It's far too early to talk about a prolonged bear market as domestic demand is still strong,'' said Leo Gao, who helps manage the equivalent of $2.3 billion at APS Asset Management Ltd. in Shanghai.”

Well overall one thing can truly be said, without risk there is no reward. But to know whether you are leaping without looking is important as well. There is no question that there is money to be made with China stocks. Just make sure you know where you have placed your footing.

**This can be seen at China Stocks Blog where I am a contributing author.**