Last updated: 13:11 / Wednesday, 7 October 2015
Thomson Reuters research

Market Volatility Shifts China Markets From Overvalued to Possibly Undervalued

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Market Volatility Shifts China Markets From Overvalued to Possibly Undervalued
  • Following the Chinese stock market crash, the 360 day growth rate is now a more reasonable 37% compared to a lofty 150% from just a month ago, and the difference between the five year growth rates has swung into positive territory
  • “A month ago, our StarMine data warned that the Chinese markets seemed overvalued at the time,” said Sridharan Raman, senior research analyst at Thomson Reuters
  • Countries with the smallest differential between StarMine’s Market Implied Growth Rate and the Compound Annual Growth Rate show where market expectations for growth are above, or match, analyst expectations for the next five years

Amidst recent market volatility, the change in China’s stock market has been quite dramatic, shifting from overvalued to possibly undervalued according to data from Thomson Reuters Fundamental Research. Following the Chinese stock market crash, the 360 day growth rate is now a more reasonable 37% compared to a lofty 150% from just a month ago, and the difference between the five year growth rates has swung into positive territory. More details follow:  

“A month ago, our StarMine data warned that the Chinese markets seemed overvalued at the time,” said Sridharan Raman, senior research analyst at Thomson Reuters. “With the crash in markets over the past few weeks, the market may be discounting stocks more than necessary, out of fear or panic. Our models now show that the markets may actually be undervalued now in China.”

Countries with the smallest differential between StarMine’s Market Implied Growth Rate and the Compound Annual Growth Rate show where market expectations for growth are above, or match, analyst expectations for the next five years, representing possibly over- or fair- valued markets.  After the recent stock market collapse, the difference between market expectations for growth and analysts’ expectations in China has moved from -0.2% in early June to 7.7%; more in line with possible undervalued markets.

Analysis was conducted on all markets (countries) with more than fifty mid and large cap companies. A total of 26 countries were included.

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