The Shanghai composite is now down about 45% from its peak.

A quick bit of history on my position on China. I first got in in 2003 with PTR, swapped into SNP shortly thereafter, sold the last of SNP last June because I felt it had gone too far too fast and I was worried about a big drop.

I was four or five months and about 85% too early with the sale.

All along I have assumed I would get back in and although I am not getting back in today it makes sense to start thinking seriously about figuring a way back in. There is no realistic probability of a market going to zero so after cutting in half what is the risk?

If China is/was a bubble then should we compare it to the Nasdaq? I’m not sure that is right but if it is then the risk might be another 25% down from the peak or put another way maybe it could cut in half again to total 75% from the peak?

The reason I don’t think comparing to Nasdaq is right is that the Chinese economy is not rolling over, the companies that are part of the mania are the building blocks of the country (how many non tech stocks dropped by more than 50% from 2000-2002?), the various surpluses make the country very sound and there are others.

China does have all sorts of issues too. No one seems real comfortable with the numbers from the financial companies, pure capitalism is not their strong suit, if the oil subsidy every gets lifted it could be a game changer for the Chinese consumer, the pollution is awful, they’re not scoring points for their ideas on humanitarian issues and there are others.

Like every theme/investment destination there are pluses and minuses but now down 45% the minuses don’t seem to weigh as heavy. I am not saying it can’t cut in half from here (I’m not that pie in the sky) but I don’t think it is the most likely outcome. If I go back in it would be one company with only a 2-3% weight so if I am wrong and the market cuts in half I might have a source of lag not something ruinous.

The bigger macro for China since before I first bought in in that the country will become more important globally and that a lot of money would be spent to modernize the country as a middle class develops. This bigger macro is no different than it was five years ago, no different than it was at the peak last October and is the same today. Regardless of what direction the next 1000 points is for the Composite the story on the ground will be the same.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009