Normall I don’t comment on the general market trend (I took cue from the Oracle of Omaha because he does not predict this). But China domestic market is just too crazy in my mind. New record for the index everyday. New record for the new accounts being opened everyday. People talk about stocks everywhere. One day I heard a friend recommend a stock, the second day it jumped almost 10%. No, I hadn’t bought that particular stock because I felt I want to follow Buffett rule: buy the stuff I can understand.
Today from the China-CBN (No 1. Cai Jing), China National Power is buying the ownerships of serveral power plants. The next presumed step is the IPO of the National Power Group. The PE ratio of China power/utilities companies is about 30, which is unheard of in the developed market. The average PE of the market is about 35, which is much higher than the US and Hongkong market. The other day I mentioned ICBC, the world second largest bank, has a PE of 30. So can we expect those huge companies grow like a growth company such as Starbucks? (by the way, Starbucks made some smart moves in China lately, and they are doing extremely well here).
It seems to me the PE is unrelevant here. The only question is, who will be the last guy to hold the bag? Or put it in another way, when music stops, who will be left with chairs?