China's Bubbling Consensus

By MOHAMMED HADI Bubbles are forming in China. The consensus among market strategists, though, is that worrying about their risks is so much less rewarding for investors than trying to profit from them. As long as cash from China's $1 trillion bank-lending spree keeps finding its way into the markets, prices are destined to rise. Beijing isn't going to interfere while the lending, and spending, keeps generating results like the 7.9% second-quarter economic growth rate reported Thursday. With stocks up this year, valuations already are high. Ten of 13 sectors in the MSCI China Index are above their long-term price-to-earnings averages, said Morgan Stanley. But as was clear during the last Chinese stock-market bubble in 2007, Chinese companies have proved themselves willing to invest excess cash into stock and real-estate markets. Evidence points to this happening again. The winners of some recent land auctions have been cash-rich companies with no real-estate business, J.P. Morgan said. Individual investors, too, are piling in. In the mainland, more than 1.6 million stock-trading accounts were opened in June, 68% more than the year before. For now, economists expect little in the way of tightening until next year. Investors ought to consider that the bubble's certainty is now the consensus. Surprises then will be of the unpleasant variety. Write to Mohammed Hadi at mohammed.hadi@dowjones.com