The Great Chinese Rally: A Buying Opportunity or Time to Exit?

What a remarkable week it has been. After my previous post(here) on taking a look at the Chinese stocks again, it rallied with great momentum for more than a week. I dont know it will rallied with such a momentum, if I knew, I would have thrown in the kitchen sink as well. 

As I mentioned earlier, these patterns tend to repeat: once the value becomes apparent, investors begin to take notice. Now, with the recent rally, many are questioning whether they should sell their positions—many of which have finally turned positive—or whether it’s a good time to enter the market for those looking to buy.

I am also holding onto a number of the good businesses before the great crash resulted from the crackdown policy by the Chinese government. Before deciding what to do, let's look at where the Chinese stocks are now. Most of us would have invested in the Chinese stocks through the HKSE. Let's look at the CAPE ratio of Hang Seng index. 

Historically, Shiller PE Ratio for the Hang Seng Index reached a record high of 40.2 and a record low of 8.1, The latest information that I can find is dated 30 June 2024. After the rallied, do note that it will be higher now.

                                                source: https://siblisresearch.com/data/cape-ratios-by-country/

Do also note that in 2019 and 2023, when the CAPE ration is around 12, the rally wasn't sustainable and it corrected to all time low.

                                source: https://www.gurufocus.com/economic_indicators/5731/shiller-pe-ratio-for-the-hang-seng-index

What will I be doing

As mentioned, I do have a few counters which most have turned positive after the recent rally. For the 3110 hk ETF, I will not be doing anything at all as it is my cash inflow given the attractive yield of 7%.

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For the stocks, I will not be selling them now. As I have waited for a few years, and the stocks rally have just started, let's ride the wave for now. 

There’s a common saying that two key factors drive the stock market: liquidity and confidence. While the Chinese government has injected liquidity through recent policy changes, we have yet to see a corresponding surge in investor confidence in the Chinese market.