United States investment guru Warren Buffett has responded to the frenzy in China's A share market by defending value investing.
Value investors seek stocks of companies that they believe the market has undervalued. They consider the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company's long term fundamentals. The result is an opportunity for such investors to profit by buying when the price is deflated.
Buffett defended the strategy at his company's annual shareholders' meeting during the weekend. The 84-year-old chairman and chief executive of multinational conglomerate holding company Berkshire Hathaway said value investing applies to all markets, although he sees greater speculative forces in the Chinese market.
"Investment principles do not stop at borders," he said in response to a Chinese questioner who asked whether Buffett's investment philosophy could apply to the Chinese market.
Commenting on the A share market,where the benchmark index has almost doubled in the past six months, Buffett said theremay bemore speculative influences in China because it has a relatively new investment environment.
Charlie Munger, Buffett's 91-year-old business partner and vicechairman of Berkshire Hathaway, agreed that China would be better served by taking a value approach, rather than speculation.
"I don't think value investingwillever go out of style," he said.
For years, many Chinese investors have traveled to Omaha, Nebraska, where Berkshire Hathaway has its headquarters, to hear Buffett's advice.
When he talks, his Chinese followers listen closely. More than 2,000 Chinese attended this year's shareholders'meeting, which attracted more than 40,000 investors from around the world.
But not all investors in China are buying into the concept of value investment and fundamentalanalysis, especially for a market that has been hit by financial fraud, insider trading and market manipulation.
Li Xinran, a 32-year-old retail investor in Beijing, said: "It (value investing) is not entirely impossible in China. But it is very hard, and part of the reason is that the financial
reports of many listed companies are not reliable. ... How can you analyze the value of a company if you are not sure whether its financial statements are true?"
At the shareholders'meeting, Buffett and Munger praised China's rapid development and its efforts to fight corruption.