Monday, October 29, 2007

Is China's Hot Stock Market "Too Hot"?

Sources: Buffett Calls for Caution Over China Stocks, Warren Buffett Warns Investors that the Chinese Stock Market is "Too Hot"

Warren Buffett warned investors last week to take caution when dealing in the Chinese stock market. His warnings come on the heel of a 2 year hot streak during which the Chinese market rose over fivefold. He claims that the market has been too hot and, thus, most likely does not present investors with many good buys. Such steep surges in markets oftentimes leads to overvaluation.

Buffet has himself recently sold all of his investment group's (Berkshire Hathaway) holdings in PetroChina. Buffet managed to watch his holdings in this company, which he purchased in 2003, rise 76% just in the past year. Berkshire Hathaway sold its 11% stake in PetroChina, which it purchased for $488 million and grew to a worth of $3.31 billion in 2006.

Questions:
1) Is China's breakneck speed of growth going to break soon?
2) Will overseas investors heed Buffet's warnings and turn away form the Chinese market?

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