The major news of the morning has been the plunge in Chinese equities as shares retreat from recent exuberance in a sharp correction lower. The Shanghai Composite has tumbled as much as 6.50% during the session with brokerage shares bearing the brunt of the losses as the Hong Kong Hang Seng trades down approximately 2.50%. After nearly a week of shares rallying skyward on the backs of increased retail flow trading, today’s major pullback highlights the inherent dangers of excessive valuations evident across Chinese stocks and initial public offerings. The modest reconnect with reality today highlights the downside of momentum as panic selling amongst novice retail traders sparks a selloff. Price-to-earnings multiples have hit levels that traditionally signal overvaluation that should signal caution ahead. The Hong Kong dollar is steady after yesterday’s sharp downtick before erasing all losses.
What Goes Up Must Come Down
Daily Analysis - 28/05/2015