Wednesday, February 28, 2007

Market plunges - its all China's fault

Been a tough day/night on the markets. The mainstream news is blaming China.
[The main China stock exchange] fell nearly 9 percent on Tuesday, erasing about $140 billion of value in its biggest fall for a decade, on concerns that share valuations had become overextended and economic growth may slow
according to Reuters/Ninemsn. The Chinese government is trying to fight back announcing that they had no plans to add a 20% capital gains tax . Related to not the market bounced back - up 1.2% according to the SMH.

Thought I would take a look at what impact their was/wasn't on eLong and Ctrip. Over the last five days eLong is down almost 10% and about 7% from where it was a year ago. Ctrip is down a similar 7% over the last 5 days but is up almost 50% over the last twelve months. This reflects Ctrip's widening gap over eLong and a premium for being number one in the market with the biggest potential. That said, Ctrip is trading at an extraordinary P/E of more than 65 (compared to Expedia's 30 times, Priceline's 32 times and Wotif's almost 40 times). Clearly a lot of work for eLong to catch up but also a lot of work for Ctrip to prove that the enormous multiple is justified.

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