I hate to be a party pooper, but the Shanghai Stock Exchange, along with all the China stocks, and Chinese IPO’s remind me of the Nasdaq exhuberance of 2000. Granted China is growing at 10%, but does that justify a multiple of 80 that is currently sported by the Shanghai stock exchange compared to the meagre 16 multiple of the S&P?

It seems like everyday, all day, I see these tickers scroll across on my TV screen with new companies I have never heard of. China Digital, China Natural, China Finance, China Development … the list goes on. Most of these guys have no history of earnings and don’t even pull up on Yahoo Finance!

The Chinese market is up 110% this year so far, and ocver 200% since Jan 2006. Even stocks like China Mobile, China Telecom, China Life and Bidu, stocks that actually have an earnings history and have some claim to investor confidence are up like the Cisco’s and Ariba’s of the tech bubble. I don’t know when the party will end, but it will definitely end unless we see a near term decent-sized correction, and when it ends, I would hate to be holding anything that starts with the word China.

My recommendation – If you are a gambling person, keep betting on China until one day you lose a lot of money. Otherwise, reduce your exposure to China (note I say reduce because I don’t know when a top will come – nobody does). Go long Russia (RSX), India (IFN), South Africa (EZA), France, and even Indonesia. Alternatively, you can pic up selected names in Latin America, Europe, Turkey and Brazil. Plenty of ways to make 30-40% returns a year without the risk of losing your shirt.

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