Valuations of stocks in China are now exceeding earnings prospects and the market there is heading for a correction, Bloomberg reports, citing a report from Goldman Sachs. In fact, among the world’s major markets, China’s stocks are the most expensive.
According to Bloomberg data, the CSI 300 Index is up 82% this year, leading the performance of the 90 stock benchmarks it tracks. And in 2005, it more than doubled.
“Current valuations are demanding and seem to have outpaced the improvement in market fundamentals,” according to a report from Goldman analysts. “[The] risk of market euphoria is building” and China’s stock market “could develop into a bubble if speculative activity continues to spread among retail investors.”
Last week, central bank governor Zhou Xiachuan expressed concern about the market.
“There’s a huge amount of wealth looking for a home in China, and they’re not happy with putting it in the bank,” said Robert Lutts, president of Cabot Money Management.