The incredible shrinking bubble

Well, if you have been reading my blog since the beginning you know this has been a recurring theme - the bubble that is the Shanghai Stock Market. The latest is the bubble has shrunk to a level where things are starting to look reasonable. Seems like this market is destined to bottom out sometime around the Olympics. The Shanghai index has taken an eye-popping 53% haircut since last October (6124 to 2869). Reminds you of the NASDAQ bubble doesn't it?

I think there is still some more to go. I think a fair value for this market is around 2000 but in a situation like this the correction will surely overshoot. So I would not be surprise if it hits 1500. This market stood at 1161 on 1/1/06 so if this market falls to 1500 it would still be a return of 30% over a period of around 3 years, still not too bad by traditional measures.

Surprisingly, most of the regular small investors taken all of this in stride. It seems like they view stock market investing as gambling anyway so they can accept the fact that they lost money. That is a bad state of affairs when people have so little faith in the stock market.