Kass: Bear With China
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This column originally appeared on Real Money Pro on Sept. 5.
As China Goes, so Goes the U.S.?While China remains the growth driver of the world's economy, that region's economic engine is starting to falter. The Chinese stock market has already entered into a bear mode. Surprisingly, few have discussed how Chinese stocks are currently valued as an outgrowth of this Chinese bear market. Let's enter this discussion now, for it provides a possible guidepost of the potential risks to U.S. stocks. Though this observation is admittedly too simplistic -- I fully understand and have written why one should buy American over other areas of the world -- the current valuation metrics for Chinese companies are quite cheap, with forward P/E multiples of only 7.8, an average dividend yield 3.9% and with a lowly price-to-book of 1.3x. By contrast, the S&P 500 trades at 14x earnings, has an average dividend yield of 1.9% and it's price-to-book value is 2.1x. There is a lot of distance/daylight between the valuation of Chinese stocks and U.S. stocks. My question is this: If China is indeed the growth driver of the world's economic community, doesn't this highlight how cheap stocks can get when growth is in question?
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