Charlie Munger: Chinese stock market is cheaper than US

At the recent Berkshire Hathaway shareholder meeting in Omaha, vice chairman Charlie Munger said that he thinks that stock market investors may be able to find better investment opportunities in China. He said, "I do think the Chinese stock market is cheaper than the American stock market. And I do think China has a bright future."

"There will be growing pains of course," he added.

In a subsequent interview with Yahoo Finance, he added these thoughts:

“I think a shrewd person can find more bargain stocks in China than he can find in the United States. That’s all. That’s all I meant. It was a happier hunting ground for the value investor.”

“I didn’t say it was easy. But if you work at it, you can find more [attractive investment opportunities]. And better.”

PE and CAPE ratios

Two commonly used valuation metrics are PE or price to earnings and Robert Shillers CAPE ratio (cyclically adjusted PE). Currently China look very cheap on both measures. The Shanghai market trades at just 7.6x and a CAPE ratio of 14.4 as of March 31. The compares to the US market trading at 22.7x and a CAPE ratio of 27.5.

Here is a chart of the Chinese CAPE ratio plotted against 3 year forward returns (inverted). In the past buying at this type of CAPE ratio has led to impressive future gains. It will be interesting to check back in 3 years...

china tip sheet

Share This Story, Choose Your Platform!

About the Author: Chris Wang

Chris Wang


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.