Playing China's Bubble

Editor's note: This the first part of a two-part series.

David Semple, who runs one of the best-performing emerging-markets funds in America, was in Beijing recently for an investment conference. Like most such conferences in China these days, it was mobbed with professional investors looking for the next hot stock.

Semple crowded into a side room with 35 other managers to hear the pitch from one local company trying to raise its investment profile.

As the managers went through their PowerPoint presentation and described their business model, customer base, sales and earnings projections, Semple looked around the room at the other professional investors and made a startling realization.

"None of them was listening to the company," he told me last week. "They all had their laptops open. They were all too busy trading stocks ... for themselves, probably, as well as their clients."

Hmm ... Doesn't this sound a little like Silicon Valley, circa January 2000?

"There has to be a lot of opportunity," Semple says, hopefully, "because I'm competing against people who aren't paying attention to the fundamentals ."

Ouch.

How do you say "bubble" in Mandarin?

You don't need Alan Greenspan to tell you things are out of control on the Chinese stock market. Just look at it. The Shanghai Composite index has trebled in 14 months. And it has skyrocketed 65% already this year -- even after falling out of bed twice.