L ast month the Economist Magazine held a Christmas cocktail event in Shanghai for members of their corporate network, and other senior members of the business community. As part of the event, they asked all participants to make a prediction for 2015, and the Economist team then chose an overall winner.
So, what was the overall winning prediction? It was that the Shanghai Stock market would rise by 200% in 2015, and that this would be called the biggest bubble in financial market history. This prediction was made by Paul Karvandi, the Managing Director of Aquaspace Group based in Shanghai.
We asked Paul to explain more about the thinking behind this brave prediction:
“Well, first of all, this is a light-hearted prediction, so don’t take it too seriously” said Paul, “however, could it really happen? Yes, I think so. Maybe there is 25% chance. First of all, even after the sharp rally during Q4 2014, the Shanghai SS50 is still fundamentally undervalued when compared with the valuation of large cap stocks in western markets. And second, many institutional investors are underweight Chinese A-shares in their international portfolios. Especially the sovereign wealth funds. As the market opens up, many billions of dollars will flow into the Chinese stock market. And the third and most important reason is the mentality of the Chinese retail investor. Put simply, the higher the stock market goes the more they want to buy. This can be an unstoppable force, as we have seen in the past”.
Written by LL