People are saying the China bubble has popped and we won't see profits there for a while now - thoughts?
What do the TickerHounds think?
Answers
673 points
RobSmith answered one year ago …
I don't see it. The Olympics are coming to town, incomes are on the rise, the country is addressing its pollution issues (albeit, not as effective as it could) and more and more people are moving into the middle class. Granted they have a long way to go, but that is precisely where the growth is.
So short term, does China's market need a bit of a correction? Sure.
But will it be years before we can make money in the China markets again? No way!
543 points
warren answered one year ago …
The shanghai composite is down some 43% yoy. It's due for a rebound. Contrary investing would tell you if everyone says its going downthen it will go up. In this case I agree. I think the summer money making season in China and the Olympics will spark another rally. The legendary investor Jim Rogers just published another book called "Bull in a China Shop", he has a stellar track record, hence a billionaire. I doubt he would have published this if he thought the market was done.
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2709 points
Oldman answered one year ago …
China has a great future, but some of the securities are way over-priced relative to actual earnings and ROE.
There are three Chinese securities markets: Large State Operated Entitities (CNOOC, PTR, SHI) are examples in which the Central Committee often tells management how to spend their company's money (Last year, it was "Stop paying large dividends, and start developing your own infrastructure"...or words to that effect). These trade as ADR's on the U.S. exchanges.
The second market consists of truly private, but well-connected, politically important companies in shipping, rail transit, pipelines and real estate. The founders often have a deep connection to important persons in the current central committee and regional politicos. It's sort of similar to the U.S. military-industrial consortium, or the major oils, utilities & insurors here. Some of these trade in Hong Kong, Taipei and here. Some excellent research, drug innovators, and electronics/internet & software -and tourism connected companies are in this group. Many have really bright futures.
Finally, ther are the newcomers, and equivalent to the OTCBB, and penny-stocks. They're extremely volatile, and difficult to evaluate.
However, China has a very high inflation rate, a demanding and growing class of urban shoppers who want more "protein', and a hellish infrastructure burden. During this last winter, coal couldn't get through to the power plants and people literally froze to death. The gov't wants to move to a more modern agricultural level, but the problems of weather, increased costs of fertilizer and transportation, have set that back quite a bit. There have been local food riots, and other problems of a distribution nature (think post Katrina, all the time, all over...pork and rice prices have doubled in the last 10 months).
It took the U.S. nearly a hundred years to try to get a functioning USDA and FDA ... and there still are problems. Japan started later, and was more successful- between 1905 and 1933, they did accomplish those tasks, and other countries also have built upon lessons learned from successes in other countries ... but China has a much harder time beause of the deep, collective suspicion of "Western" concepts, plus cultural differences of the country's many ethnic groups and rural/urban strains. It's also a much larger country, geographically than the U.S. or Japan. So while it may be easy to buy a condo in a big modern development, there's no assurance as to the structural integrity of the building ... because simple things that Westerners expect, such as enforcable building codes are very recent in China, and are often circumvented. It's big and a novel news event here, but very common in China, when buildings fail, or elevators don't or bridges collapse.
We've had recent examples of pharmaceutical supplies being doctored so that the heparin-blood thinner was "doped" with a related compound, to make it appear as though it had the requirements for major U.S. pharmaceutical manufacturers to use the imported base material. Last year it was diethylene glycol-sweetened toothpaste, and pet foods that were contaminated with an additive to increase the apparent gluten-protein content (which caused kidney failure in the pets). And of course, use of lead paint and alloys in toys. This will happen with increasing frequency, because regulatory agencies are in their infancy in China, and if you think our USDA & FDA are overworked and understaffed,..theirs is just beginning to find out how ingenious their new "Capitalists" can be.
Short-term, I would buy Chinese mutual & closed-end funds when they appear to be cheaper than last Spring. I don't think I would buy the ETFs until I saw a trend above a 200 day moving average.
I would be very reluctant to buy a company's securities, unless i knew the technology of that company and its manufacturing processes. There are lots of good, and growing chinese companies, but they need to be evaluated in a microscopically intense way, and just because they have a great market share or seem to have some particular innovation, one still needs to be careful: Coal mining is huge in China, and so is their accident rate. Cement and bricks are made in every locale, and the quality varies with the locale, because the testing is spotty and standardization is specified by the purchaser...who maybe never heard of ANSI or ASTM consensus standards.
So adding to the inflation, the commodity shortages, the infrastructural gaps, the pollution problems and the movement of millions of rural persons, with no allegiance to anyone besides their immediate family members (who now may be scattered to different sites), with little formal education, and even less trade-craft in urban businesses, there's still another, bigger problem:
Tthe central committee and the govt. politicoes have a history and background of wanting to have the "best face' or appearance, despite the shortcomings of actual laws, procedures, and products. They lock people up who write things that are considered defamatory by them; Google is censored; and people are executed for "whistle-blowing". I think it will be some years before the economy matures,
3680 points
MNSL answered one year ago …
As Oldman said some securities in China are overpriced. It is better to do good research before we enter this market. I think Airlines industry will do better in China in next decade due to increase air travel within country as well as with outside world.
You can get some good ideas about China if you read books about hot commodities and Bull in China written by Jim Rojers.
We must remember even in the hot commodities book when we see classic bull hysteria, such as 2000 dot com rally, Oil price after 1980, new economy in Japan in 1989 we must recognize it for what it is, take profits and look for value elsewhere. Those are the words I read in hot commodities. I really take this information seriously in current market situation.
116 points
GigaBill answered one year ago …
I will ring in here just a little late but still on point...
In almost any week we can find evidence of "cheating or shortcutting" established practices, rules, laws or business ethics relating to Chinese companies. These signs should make a prudent investor take pause!
If many of us investors take pause appropriately, you will not see the trend above the 200 day moving averages that Oldman was looking for. That being said, why not profit from the dips by perhaps using FXP to hedge the FXI.
Just one investor thinking out loud!
150 points
tlune answered one year ago …
I think one of the best sources of current investment ideas in and around China right now is Robert Hsu's newsletter China Strategy. He is a former Goldman Sachs hedge fund manager who was born in Taiwan and spends a great deal of time in China researching investments. He speaks the language, he understands the culture, and he has a good track record. Generally, the only investments he recommends are Chinese ADR's and Asian ETF's to get exposure to China-related investments like Taiwan, Hong Kong and Singapore. One of the advantages of recommending ADR's is that they are subject to additional financial reporting requirements that make their financial statements more transparent and reliable.
He is still cautiously bullish on China at the moment, but just like America in the early 1900's, only a limited number of Chinese companies will emerge as the big winners and dominant companies of the 21st Century. The initial euphoria that raised all boats appears to be over - now it's time to be more discriminating. Having said that, there are still plenty of profits to be made in China, now and for decades to come.
260 points
Hillcat88 answered one year ago …
No need to look further - buy FXI. Technically speaking it has bottomed one month ago and is on the rise. The Hong Kong Stock Market perform differently from the China Stock Market. But the stocks in the FXI ETF are large Chinese companies earning their profit in China.
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mjrenn answered one year ago …
This is interesting.
http://www.moneymorning.com/2008/04/15/jim-rogers-chinas-economic-advance-is-all-but-unstoppable/
