While the U.S. stock market has enjoyed a smooth ride since the summer and attempted to make new highs, the stock market of China has been in constant decline. Chinese SSE Composite Index is now traded at about one-third of what it was five years ago. Although it is about 20% higher than its bottom in October 2008, the valuation of the Chinese stock market is at the lowest level since 2000, the earliest time that data is available for GuruFocus.
You can view the daily updated Chinese stock market valuation here.
Historical Low Valuation
Just like we evaluated the U.S. market, we measure the Chinese stock market with the ratio of its total market cap over GDP. While the growth of Chinese economy may have slowed down, it has enjoyed double-digits growths for decades. Compared with five years ago, when the Chinese market was at its peak, the Chinese GDP has roughly doubled. With the SSE Composite Index at one-third of its peak five years ago, the Chinese market is at the valuation of one-sixth of what it was five years ago. At the peak of 2007, the ratio of total market cap over its GDP was about 322%. Today it is 52%. As a comparison, this ratio is close to 100% for the U.S. market.
This is the historical valuation of the Chinese market as measured by the ratio of total market cap over GDP:
With its historical low valuation, the Chinese market valuation is among the lowest as measured by the ratio of total market cap over GDP:
Among the markets we track, only Italy, Mexico and Germany have lower valuations. Even the Spanish market has a higher valuation than the Chinese market, although both of them are at their own historical lows.
With the Chinese market at its historical low valuation, it is worthwhile to look into high-quality Chinese companies that are traded at low valuations. One way to play it is to invest in Chinese ETFs iShares FTSE China 25 Index Fund (FXI) and iShares MSCI China Index (MCHI). Both of them have China Mobile (NYSE:CHL) as the largest component. China Mobile is traded at a P/E of 10.8 and yields 3.5% in dividends. It is in the portfolio of John Hussman and David Dreman.
A number of Chinese companies that are traded in the U.S. in ADRs that have at least $1 billion in market cap and dividend yield of more than 4% can be found with the All-in-One Screener:
|SNP||China Petroleum & Chemical Corp. (ADR)||$94.64||$88,459||4.5%|
|YZC||Yanzhou Coal Mining Co. (ADR)||$14.28||$7,258||5.5%|
|ZNH||China Southern Airlines Limited (ADR)||$21.34||$4,512||6.2%|
|SFUN||SouFun Holdings Limited (ADR)||$13.96||$1,083||7.1%|
|GA||Giant Interactive Group Inc (ADR)||$4.76||$1,167||5.9%|
Try the All-in-One Screener to find the companies that may meet your criteria. Define your customized screen and bring it up with just one click next time. This is the link.