China is now the home of eight of the world's 20 most valuable companies based on market cap. The U.S. is down to seven. The list is made up of all companies with market values in excess of $200 billion.
As The New York Times points out, "The list of the world's most valuable companies in 1989 was dominated by the Japanese banks, whose profits were enhanced by their stakes in many other Japanese companies whose shares were also soaring. After Japan's bubble burst, those banks were brought down by bad loans, leading to mergers and bailouts."
Is the Chinese market going to go the way of Japan's? The answer is probably yes.
The value of some of the current Chinese companies is simply too rich, even if the country's economy is growing at 10% a year. If there is a global recession, the demand for Chinese exports is likely to move down, which could throw the country's entire economy into chaos.
PetroChina Co. (NYSE: PTR), now has a market cap of $429 billion to Exxon Mobil Corp.'s (NYSE: XOM) of $525 billion. Last year, Exxon's revenue was $377 billion. PTR's was $88 billion. Insane? Yes.
Is China Mobile Ltd. (NYSE: CHL) worth 40% more than AT&T Inc. (NYSE: T)? Its $370 billion market cap says so. China Mobile does have more wireless subscribers than AT&T, but it does not have the huge landline and broadband franchises that the U.S. company does.
Japan dominated the list of market cap companies in 1989. Tech dominated the list in 1999. Cisco Systems (NASDAQ: CSCO), Intel Corp. (NASDAQ: INTC), Oracle Corp. (NASDAQ: ORCL), and Lucent were high on the list. The 2000 collapse of the Nasdaq took care of that.
China is next. The valuations are too out of whack.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-21-2007 @ 9:20PM
edgar vick said...
China will not bubble burst and in two years todays prices will look like bargains. the chinese can with stand the discomfort of setbacks & hardship and thier pride will not allow their bubble to burst
10-22-2007 @ 11:03AM
john said...
to the previous comment. Bahahahaha! Trees don't grow to the sky, remember the rulip bulbs, the railroads, transistors, semiconductors, and most recently the realestate that never goes down!
As bubbles develop we should rebalance ourselves away from them. It is ok to have 3-5% of your money in China, but don't be an absolute blind fool.
11-05-2007 @ 3:45AM
Peter said...
China has 10 times the population of Japan and the companies are way larger than Japan's. China is still developing and the company earnings will continue to grow. Even if the bubble burst now, they will go back up in the future.