China's Stock Markets May Not Be Overvalued

As you know when I make outlandish stock recommendations they tend to be disproportionately in China. And the reason is simple;

China produces wealth.

Come up with as many reasons and rhymes as you want for what a stock should go up, but it ultimately boils down to wealth (in the form of profit) that will drive prices up. Not how to make new B2B platforms work. Or how a search engine is going to revolutionize mapping with effectively what is only a toy. Or that you can flip it and sell it for more later.

The production of wealth ultimately drives up asset prices.

Now an investment banking colleague of mine and I were discussing it and he suggested that China was in the middle of a bubble. That millions of Chinese were borrowing to invest in the stock market and that stock market had increased in price at an unsustainable level. But allow me to share one dandy chart suggesting China may not be as overvalued as you think;



China's market capitalization as a percent of GDP is a mere 25% while Britain and the US are over 150%. It's a testament to just how much wealth is being produced in China. Additionally this does not consider the fact that China is certain to grow at rates triple that of Western economies which makes it seem even more undervalued. Add to this the fact their middle class is growing and these people will want to invest in the stock market as well, this new infusion of money will also provide upward support on prices.

So go ahead and invest in American companies, there are some good ones out there. Go ahead and invest in Apple because of the i-Phone. Just look on the back of the i-Phone and see where it was made.