The Chinese stock market may fall by another 14%, the analysts say

Almaty. January 19. Silkroadnews – The Chinese stock market may fall by another 14%, “Vedomosti” informs with reference to the global analysts.
“Analysts from Bocom International Holdings Co. and Wells Fargo Funds Management say the Shanghai Composite Index may drop 14% to 2,500, Zhongtai Securities expects a 10% fall”, the publication notes.
The key reason as noted is that the Chinese stocks are still overvalued. Though capitalization of companies included in the Shanghai Composite, decreased by 18% to $3.7 trillion in January, the stocks are being traded with a multiplier of 24, the stocks of the Shenzhen Composite ($2,8 trillion) – with a multiplier of 33 (estimates by the Bank of Communications). To compare, the median stock in the S&P 500 index of U.S. shares trades at 16 times expected earnings and in the Stoxx Europe 600 index at 15 times.
“China is one of the most expensive major stock markets across the board,” says Hao Hong, managing director at Bank of Communications Co. “It’s almost like buying a lottery, that’s how bad it is.”
Valuations have reached dizzying heights. At the extreme, apparel group Shanghai Metersbonwe Fashion & Accessories Co.trades at 1,104 times forecast current-year earnings, while Internet operator Shanghai Ganglian E-Commerce Holdings trades at 2,440 times, according to China-focused database Wind Info.
Investors have been willing to pay up for shares even when the firms are losing money. Shanghai-listed electric power firm Guangdong Meiyan Hydropower Co. posted losses in the first three quarters of 2015 and in 2014 amid weak energy demand in China. But after a volatile ride, the company’s shares are up 53% since August, when it said China Securities Finance Corp. became its leading shareholder, WSJ writes.
“At the beginning of the year the market has got into the disaster mode and still operates in this mode. There is absolutely no trust at the market, and the major reason is the high cost of the shares”, manager of JK Life Insurance said to Bloomberg.
Investors continue to complain about the bad feedback from Chinese regulators.
“The Chinese government is really failing at communicating that they have a strategy,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds.
“The government is just learning to communicate with investors and manage the market. The reformer Deng Xiaoping compared that with crossing the river by feeling out the stones with one’s feet– you fall, then rise and then go further”, Managing Director for QS Investors said the WSJ and Bloomberg.
“In 2016 we will see the system risk at the credit market of China as well. It might be a chain reaction, as due to the slowdown in the economy there will be more bankruptcies, which, in their turn, will also drag with themselves the companies associated with the bankruptcy”, the China Securities analyst said.
According to Bloomberg, the number of companies in China, which debts are twice higher versus their capital, is 339 compared to 185 in 2007.