I came across an interesting piece on Bloomberg’s market live blog yesterday making a case for Chinese shares offering better value compared to US stocks This was based on the valuations based on a price to earnings ratio. The price to earnings ratio is a widely used metric for investors to decide on a stock prices valuation. It is calculated by measuring it share price vs its earnings per share. A high p/e ration can mean that a companies stock is over valued.
Now the reason for the Nasdaq’s high p/e ratio is that technological stocks have raced higher on the hopes of increased tech spending, Working from home, spending on software and hardware, and increased moves towards digitalisation are all expected to boost profit hopes of the Nasdaq.
The question going forward as we come into earnings season is whether or not the Nasdaq’s increased stock valuation can withstand an overall shrinkage in the US stock market as a whole. On a bargain p/e basis this means Chinese shares may offer a more stable path to ongoing gains given their low valuations.