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Stop dance music such as stocks lastYesterday the market were mainly constituted by the small and medium companies, the introduction of the Shanghai Stock Exchange Risk Warning weekend stock trading implementing rules is a major motivating factor. However, the pattern from the market point of view, the main reason was to see the introduction of rules, but in reality as an incentive not assume what this Bye A shares, but in the U.S. the introduction, there will be what kind of impact it? What impact are not afraid. From the U.S. point of view of the market constitutes a small company valuations are generally larger companies is low. In fact, this is a common phenomenon in the world, even in India, Malaysia, Thailand, Vietnam and other emerging markets as well. The logic behind this phenomenon is very simple, because of the small company's non-monetary relatively large proportion of the replacement cost less in the A-share companies, small companies, large companies than in the high valuation, an average of 1-2 times. This premium mainly from the following aspects: no IPO market-oriented mechanisms and immature market delisting mechanism caused by scarcity of resources, accompanied with the previous one because of the small companies are more intense raw chips attributes (ie higher The stock price volatility), and more importantly, from the beginning of 2009 a small company with the expected stock price bubble in stock prices led to mutual feedback overvalued in our bearish smaller companies the past two years, many people told us that China's small companies have overestimated their intrinsic properties, will not change. But, as Peter Lynch Turning Japanese equities in the 1980s described the high valuation, when the overall Japanese stock market overvalued until the 1990s when the Japanese market, there are numerous logical description of how Japanese and Western stock different, why will always enjoy a higher valuation than in the West. However, the laws of economics eventually defeated the investors for their own to find the reason: not only in Japan now valuations are much lower than in the past, even in the developed markets throughout the group also belong to underestimate some people might say that economic laws In a pure free market is effective, but where the A-share market is not a pure free market system, a great impact, resulting in A shares do not fully comply with the laws of economics. In fact, this view neglect one aspect of the design of the system is actually a product of economic laws, rather than parallel objects. Economic laws and the laws of many other social produces economic and social status, leading to system designers must make a system appropriate to the prevailing circumstances in the period of a few years or even ten years, due to the time lag signal transduction, such system design may be lagging behind the development of economic laws, but does not mean that there is a natural barrier between the two. However, as an investor, a few years or ten years time is long enough, the pressure of performance led to the vast majority of investors can not wait for the return of institutional and economic laws. This involves the second question - the turning point of view from the front of this issue, has been supporting small companies overestimated the following five main factors: shares of listed companies in the distribution system and the rigid joint action of the delisting system produce chips of, adequate liquidity, four trillion era of economic restructuring is expected to result in overly optimistic outlook for small companies expectations associated with a small company money effect of rising stock prices, and small companies than large companies results growth. From the current point of view, these five factors have subsided. As Chuck Prince, former president of Citibank said, When the music sounded, you will have to get up to dance, the opposite, when the music stops, the dance will stop the subdivision structure, such a small company also overestimated brought the A shares and the difference between mature markets. When carefully studied U.S. stock data when the difference with the A shares, we found two significant in the U.S., in the A shares is not obvious phenomenon. First, a high ROE stocks but a large number of low valuation of the company, two are in the U.S. there are a considerable number of company valuation is very low (either PE or PB), shows the market for these companies is very common understanding of these two phenomena lead to underestimate the value of mining stocks, quality company much easier than in the A shares, in other words, make the value of discovery-based investment will be much easier than the A shares. In a sense, just as bad money drives out good money, as this phenomenon has spawned an increase in the A-share speculators, investors reduced, however, set aside some of the high valuation of small companies aside, the stock is still China The best categories of assets. In the past ten years, A shares of the stock's fundamentals average annual growth rate of about 15% to 20%, higher than the bond, even higher than the growth rate of the rent. But market capitalization weighted average valuation dropped by about 70 percent, resulting in the growth of this fundamental hardly be reflected in the stock price (both rent yields declining rapidly lead investors in the property produces too good impression) from long term, those currently undervalued growth prospects good company will eventually bring in huge profits for investors. However, how to judge undervalued? A simple way is to look at the global market in this industry are probably much stock valuations. Economic laws work sooner or later, there will be a special market, but will not always be there.
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