Investing in China, India : 'Irrational Exuberance'?

Stock markets in China and India are soaring high every other day. In USA, ADRs (American Depository Receipts) of stocks from these two countries are regularly seeing new highs. We think it's time to sit down quietly and decide whether you would like to be a part of what seems to be a repeat of year 1999, the year of technology stocks, when Fed Chairman uttered those two words 'irrational exuberance'.

We are afraid that these markets are being driven predominantly by liquidity (rather than value or earnings) that aggressive investors are regularly throwing in just for the hope of becoming richer in an easy way. We may ask question, how many of those individual investors are looking closely at balance sheets of these companies? How many of them are keeping track of the moves that management of these companies are making, while sitting in Bangalore or Shanghai? Are these companies handling their accounts properly and with all truthfulness?

We have bitter memories of malpractices by our own US companies (Enron, and so on...) right before the noses of the authorities of Securities and Exchange Commission. How can we trust all those earning numbers from these companies in emerging markets? After all, big scandals happened in both China and India not so long back and, in fact, the absence of democracy and the absence of a free press in China make that country more vulnerable to such malpractices.

If you were there in 1999-2000, remind yourself those bright mornings and evenings when analysts used to put 'Buy' recommendation on any 4 letter ticker symbols. Infospace, Comverse,.... Where are those stocks now? As John Bogle of Vanguard once said,"We are too smart for our own good'.

It's thus time to sit down quietly and have a deep look at your portfolio of Chinese and Indian stocks and ask yourself: "How much do you know about the earnings and activities of the companies that you are throwing your hard-earned money on?" If it's 'no' for most of your stocks, it's time to rationalize your feelings and put a rein on your exuberance. A steep fall always hurts and it always falls with all other good things that you worked so hard to acquire and possess: confidence, grace, self-respect.