My previous post looked at the bubble in Chinese stocks and the decision of Vanguard and FTSE Russell, in spite of sky-high valuations, to incorporate such stocks into their emerging market indices and funds. Here’s a nice confirming anecdote about the Chinese rally that I came across in my weekend reading: Jicheng Umbrella, a Hong Kong-listed maker of, unsurprisingly, umbrellas, revealed that it is looking to get into internet finance and its stock price rose by one-quarter.
What could go wrong there?
As the Financial Times points out, “[o]ld economy companies [like Jicheng Umbrella] have been slipstreaming the technology rush — often with limited substance to their business models. Last year, struggling restaurant-chain operator Cloud Live announced a move into big data and cloud computing. In April, it defaulted on a redemption of part of an $80m onshore bond, only the second ever such default. The shares are now suspended. And between May and June, shares in real estate company Shanghai Duolun Industry more than doubled when it bought the domain name www.P2P.com , suggesting it would move into internet financing. The last sector to inspire similar strategic reinventions was real estate. That mania did not end well: it led to overcapacity and two years of downturn. When the tech frenzy, too, ends Jicheng may wish that it had held on more tightly to its umbrellas.”