The WeekendInvesting Newsletter - 7 Feb 2024

Investing in the stock market can be a challenging task, especially when trying to identify high-growth markets and stocks with promising performance.

In this article, we discuss the stark contrast between the Chinese and American stock markets over the past 15 years. Although China has experienced significant economic growth during this period, its stock market failed to generate any substantial returns. On the other hand, the S&P 500 in the United States witnessed an impressive 640% growth.

This stark difference raises a crucial question: Why do stock market prices sometimes diverge from underlying growth narratives? . . . .

Reading Time : 6 Minutes

One commonly used financial metric is the price-earnings ratio (P/E ratio), which compares a company’s stock price to its earnings per share. In this blog post, we will explore a valuation chart of Chinese stocks by Bloomberg and discuss the problems around the P/E ratio narrative in the Chinese market.

The MSCI China index’s forward P/E ratio currently stands at eight. This means that the average Chinese stock is being valued at eight times its projected earnings. This may come as a surprise considering China’s growth rate and its position as one of the top growing economies globally.

To put things into perspective, it is important to compare this valuation with other markets. For instance, India’s P/E ratio is at 25, significantly higher than China’s eight. Despite the differences, both valuations are considered justified by the market.

However, the question arises: How can the market repeatedly justify a wide range of P/E ratios? . . . .

Reading Time : 3 Minutes

WeekendInvesting Daily Bytes

The overall market has been incredibly strong, with Nifty showing signs of resilience. Although it closed flat, it started the day on a much higher note and remains comfortably above the congestion zone that was previously identified.Despite some pullbacks in particular stocks and sectors, the market at large remains in good shape. 

Case Study for the Day : State Bank of India

Reading Time : 4 Minutes