Any concern about China? [Investments in China]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

nigel_ht wrote: Tue Jul 27, 2021 12:49 pm
anon_investor wrote: Tue Jul 27, 2021 10:06 am
etfan wrote: Tue Jul 27, 2021 10:01 am Not sure how accurate the this list is, but these are the top 11 countries by market weight.

Code: Select all

U.S.		55.9%
Japan		7.4%
China		5.4%
UK		4.1%
France		2.9%
Switzerland 	2.6%
Germany		2.6%
Canada		2.4%
Australia	2.1%
S Korea		1.8%
Taiwan		1.7%
Source
https://www.statista.com/statistics/710 ... y-country/
Old data (January 2021). China is most certainly less than 5% right now.

As of June 30, 2021, China was only 4.4% of VT (Vanguard Total World Stock ETF):
https://investor.vanguard.com/etf/profile/portfolio/vt
Unfortunately China is like 10% of VXUS.
But do any BHs hold 100% VXUS? Probably not, right?
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Any concern about China?

Post by nigel_ht »

anon_investor wrote: Tue Jul 27, 2021 12:50 pm
nigel_ht wrote: Tue Jul 27, 2021 12:49 pm
anon_investor wrote: Tue Jul 27, 2021 10:06 am
etfan wrote: Tue Jul 27, 2021 10:01 am Not sure how accurate the this list is, but these are the top 11 countries by market weight.

Code: Select all

U.S.		55.9%
Japan		7.4%
China		5.4%
UK		4.1%
France		2.9%
Switzerland 	2.6%
Germany		2.6%
Canada		2.4%
Australia	2.1%
S Korea		1.8%
Taiwan		1.7%
Source
https://www.statista.com/statistics/710 ... y-country/
Old data (January 2021). China is most certainly less than 5% right now.

As of June 30, 2021, China was only 4.4% of VT (Vanguard Total World Stock ETF):
https://investor.vanguard.com/etf/profile/portfolio/vt
Unfortunately China is like 10% of VXUS.
But do any BHs hold 100% VXUS? Probably not, right?
Good lord I hope not :). Although some folks have claimed that they are underweighting US…

The problem with international is China is one of the more appealing stories until you run into this sort of governmental behavior.

I don’t see the EU or Japan outperforming the US in a sufficiently large manner to make me go above 20% international.
Last edited by nigel_ht on Tue Jul 27, 2021 12:54 pm, edited 1 time in total.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

nigel_ht wrote: Tue Jul 27, 2021 12:52 pm
anon_investor wrote: Tue Jul 27, 2021 12:50 pm
nigel_ht wrote: Tue Jul 27, 2021 12:49 pm
anon_investor wrote: Tue Jul 27, 2021 10:06 am
etfan wrote: Tue Jul 27, 2021 10:01 am Not sure how accurate the this list is, but these are the top 11 countries by market weight.

Code: Select all

U.S.		55.9%
Japan		7.4%
China		5.4%
UK		4.1%
France		2.9%
Switzerland 	2.6%
Germany		2.6%
Canada		2.4%
Australia	2.1%
S Korea		1.8%
Taiwan		1.7%
Source
https://www.statista.com/statistics/710 ... y-country/
Old data (January 2021). China is most certainly less than 5% right now.

As of June 30, 2021, China was only 4.4% of VT (Vanguard Total World Stock ETF):
https://investor.vanguard.com/etf/profile/portfolio/vt
Unfortunately China is like 10% of VXUS.
But do any BHs hold 100% VXUS? Probably not, right?
Good lord I hope not :). Although some folks have claimed that they are underweighting US…
Some people are overweighting EM, and China is 40% of EM, those people might have more than 5% exposure to China...
UpperNwGuy
Posts: 9479
Joined: Sun Oct 08, 2017 7:16 pm

Re: Any concern about China?

Post by UpperNwGuy »

Vanguard's Emerging Markets Stock Index Fund (VEMAX) is 40.2% China. In recent months a lot of bogleheads have expressed a preference for VEMAX over the all-inclusive Vanguard Total International Stock Index Fund (VTIAX). A few days ago we had a thread in which the OP wondered why anyone would hold international developed markets when emerging markets were so much more diversified from the US.
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: Any concern about China?

Post by burritoLover »

lol lol lol - most Bogleheads follow Mr. Bogle's "no more than 20% international" mantra - so, at worst, they have maybe 2% in China. But they aren't worried about the 80% in the U.S. - a country projected to have an over 200% debt to GDP ratio within 10 years and whose people are tearing the country apart for ideological reasons. :oops: Just keep worrying about that 2%.
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Any concern about China?

Post by etfan »

nigel_ht wrote: Tue Jul 27, 2021 12:49 pm Unfortunately China is like 10% of VXUS.
So if you hold 80% stock, and half of that is VXUS, that's 40%. 10% of 40% is 4%. So 4% of your portfolio is the Chinese market. I don't think that's a huge risk.
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Any concern about China?

Post by investorpeter »

Not really. What is happening in China is not that different from what is happening in the US and EU with Google, Facebook, etc. When private companies become too large and/or powerful, governments will exert regulatory authority ostensibly to maintain a fair marketplace, but also to: 1) show who's the boss, 2) partake in the profits, 3) gain or buttress political advantage. In China, I would say priority #1 is paramount, in the EU it is #2, and in the US it is #3. Because the regulatory process is more opaque in China, it's hard to know when regulators will decide it has been enough, but the process is not irrational, and it will end at some point. At that point, there will be some discount opportunities in China. Consider Didi for example. Right now, Didi has less than half the market cap of Uber, twice the 2020 revenue, a much larger addressable market, and essentially no competition.
User avatar
nisiprius
Advisory Board
Posts: 52216
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Any concern about China?

Post by nisiprius »

nigel_ht wrote: Tue Jul 27, 2021 12:49 pmUnfortunately China is like 10% of VXUS.
That seems irrelevant unless you have decided for some reason to hold 100% VXUS.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Any concern about China?

Post by etfan »

anon_investor wrote: Tue Jul 27, 2021 12:49 pm
etfan wrote: Tue Jul 27, 2021 12:46 pm Part of the reason for my comment was exactly that. When you asked for examples, I wondered what fits the definition and figured one could selectively disqualify many incidents.

For example, the Peter Thiel Roth IRA story. He turned $2,000 into $5 billion. Some people find that to be an example of corporate corruption.
Really? He just found a legal way to avoid potential income taxes. Would they feel different if that $5 billion investment was in a taxable account? That would not fall under corporate corruption in my view.
Corruption isn't always illegal, in their view. For example, they say the "spirit" of retirement accounts is to give the "little guy" a break and allow people to save more money to have a more survivable retirement, not to give a billionaire a loophole to avoid taxes.
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Any concern about China?

Post by nigel_ht »

investorpeter wrote: Tue Jul 27, 2021 1:17 pm Not really. What is happening in China is not that different from what is happening in the US and EU with Google, Facebook, etc. When private companies become too large and/or powerful, governments will exert regulatory authority ostensibly to maintain a fair marketplace, but also to: 1) show who's the boss, 2) partake in the profits, 3) gain or buttress political advantage.
That seems like a large amount of false equivalences…

For example, we don’t make Jeff Bezos disappear for a few months and the dismember half his empire

Image
Because the regulatory process is more opaque in China, it's hard to know when regulators will decide it has been enough, but the process is not irrational, and it will end at some point.
It ends when Xi JinPing says it ends is the issue.
At that point, there will be some discount opportunities in China. Consider Didi for example. Right now, Didi has less than half the market cap of Uber, twice the 2020 revenue, a much larger addressable market, and essentially no competition.
Yeah, and without apps Didi is crippled until the government relents…which they may or may not ever do…

They sure have competition now:

https://www.cnbc.com/2021/07/15/didi-cr ... ntage.html
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

etfan wrote: Tue Jul 27, 2021 1:21 pm
anon_investor wrote: Tue Jul 27, 2021 12:49 pm
etfan wrote: Tue Jul 27, 2021 12:46 pm Part of the reason for my comment was exactly that. When you asked for examples, I wondered what fits the definition and figured one could selectively disqualify many incidents.

For example, the Peter Thiel Roth IRA story. He turned $2,000 into $5 billion. Some people find that to be an example of corporate corruption.
Really? He just found a legal way to avoid potential income taxes. Would they feel different if that $5 billion investment was in a taxable account? That would not fall under corporate corruption in my view.
Corruption isn't always illegal, in their view. For example, they say the "spirit" of retirement accounts is to give the "little guy" a break and allow people to save more money to have a more survivable retirement, not to give a billionaire a loophole to avoid taxes.
But is Thiel's $5 billion dollar Roth IRA corporate corruption?
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Any concern about China?

Post by gougou »

quantAndHold wrote: Tue Jul 27, 2021 10:39 am
eye.surgeon wrote: Tue Jul 27, 2021 10:00 am Although 5% or 3.8% China exposure won't take anyone down, I think recent events demonstrate the risk of investing in countries without the rule of law and an independent free market. China can put an entire sector of the market out of business on a whim overnight, which is what they did with the for-profit education business.
This is really the bottom line with any EM investment. EM countries don’t have the legal and reporting structures underpinning them that developed markets generally have. Looking specifically at China, all that economic growth over the last couple of decades should have led to huge stock market wins, right? But the Chinese market hasn’t really gone anywhere during that time. The gains get diluted out of existence, in corruption and cronyism, and existing shareholders don’t get the benefits of the economic growth.

I don’t follow China because I don’t really invest in China (see the previous paragraph), so I don’t know what has happened *now*. But I do know it’s just more of the same.
Those are some strong allegations from someone who "don't follow China". The economic gains and profits from the past decades mostly did not get diluted or corrupted. The Chinese stock market didn't do well because of multiple contraction. The CSI 300 was trading around 27x P/E in 2011, and around 16x P/E in 2021.

It's very clear if you just look at some of the largest Chinese companies. Bank of China (HK.3988) is trading 25% lower than 10 years ago even though it's making 50% more EPS now than 10 years ago. Its currently valuation (3.5x trailing P/E, 0.37x P/B and 8.5% dividend yield) is a joke for a company that's stable, low risk and growing steadily year over year. Ping An Insurance (HK.2318) is trading 87% higher than 10 years ago but making 550% more EPS today than 10 years ago. Its valuation (7x trailing P/E, 1.3x P/B and 4% dividend yield) is still quite low for a company growing 20%+ year over year.
Last edited by gougou on Tue Jul 27, 2021 2:01 pm, edited 3 times in total.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Any concern about China?

Post by etfan »

anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
investorpeter
Posts: 609
Joined: Sun Jul 31, 2016 5:46 pm

Re: Any concern about China?

Post by investorpeter »

nigel_ht wrote: Tue Jul 27, 2021 1:30 pm
investorpeter wrote: Tue Jul 27, 2021 1:17 pm Not really. What is happening in China is not that different from what is happening in the US and EU with Google, Facebook, etc. When private companies become too large and/or powerful, governments will exert regulatory authority ostensibly to maintain a fair marketplace, but also to: 1) show who's the boss, 2) partake in the profits, 3) gain or buttress political advantage.
That seems like a large amount of false equivalences…

For example, we don’t make Jeff Bezos disappear for a few months and the dismember half his empire

Image
Because the regulatory process is more opaque in China, it's hard to know when regulators will decide it has been enough, but the process is not irrational, and it will end at some point.
It ends when Xi JinPing says it ends is the issue.
At that point, there will be some discount opportunities in China. Consider Didi for example. Right now, Didi has less than half the market cap of Uber, twice the 2020 revenue, a much larger addressable market, and essentially no competition.
Yeah, and without apps Didi is crippled until the government relents…which they may or may not ever do…

They sure have competition now:

https://www.cnbc.com/2021/07/15/didi-cr ... ntage.html
I'm not saying the responses are equivalent. I am pointing out the similarities and differences in the way the various governments have responded to the growth of large tech. It is a very interesting process to observe, and in the end, I get the sense that large tech will adapt and continue to grow after this phase of increased governmental regulation. I could be wrong. Maybe this is the end of large tech. Maybe this is the first phase of China's self-destruction as they outright reject foreign investment in domestic companies. But I doubt it. Bloomberg has done some excellent reporting on this issue. There is actually some transparency in the Chinese regulatory process on view here, and in my opinion, it highlights the same concerns that US regulators would have.

You have to look at what the Chinese regulators have not done, but would have been within their power to do, to get a sense that this is a deliberate controlled action with objective goals in mind, and not an irrational attempt to completely crush an existing business. Didi Existing users of Didi can continue to use Didi. It is only new users who cannot download the Didi app anymore. But Didi had 90% of the market. I think there is reason to believe that the key issue with Didi is the insufficient safeguards for protecting the location data of users, including government officials. No doubt, there is more pain to come for Didi, and they seemed to have hit a nerve with their sloppiness on location data, but in my view, this isn't the type of all-out "self-destructive" type of behavior that we might have seen in Maoist China.

Also, it is a bit hyperbolic to say that Jack Ma was "disappeared". He stepped back from public view. And Alipay and Alibaba still continue to do business in China.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

etfan wrote: Tue Jul 27, 2021 1:56 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Any concern about China?

Post by etfan »

anon_investor wrote: Tue Jul 27, 2021 2:00 pm
etfan wrote: Tue Jul 27, 2021 1:56 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

etfan wrote: Tue Jul 27, 2021 2:12 pm
anon_investor wrote: Tue Jul 27, 2021 2:00 pm
etfan wrote: Tue Jul 27, 2021 1:56 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Any concern about China?

Post by Nathan Drake »

burritoLover wrote: Tue Jul 27, 2021 1:11 pm lol lol lol - most Bogleheads follow Mr. Bogle's "no more than 20% international" mantra - so, at worst, they have maybe 2% in China. But they aren't worried about the 80% in the U.S. - a country projected to have an over 200% debt to GDP ratio within 10 years and whose people are tearing the country apart for ideological reasons. :oops: Just keep worrying about that 2%.
I’ll be enjoying the momentum these posters bring to my exUS stock prices once they capitulate on their 80% US portfolio and performance chase into exUS once it’s had a good streak and US starts looking bleak
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Any concern about China?

Post by HomerJ »

gougou wrote: Tue Jul 27, 2021 1:46 pm
quantAndHold wrote: Tue Jul 27, 2021 10:39 am
eye.surgeon wrote: Tue Jul 27, 2021 10:00 am Although 5% or 3.8% China exposure won't take anyone down, I think recent events demonstrate the risk of investing in countries without the rule of law and an independent free market. China can put an entire sector of the market out of business on a whim overnight, which is what they did with the for-profit education business.
This is really the bottom line with any EM investment. EM countries don’t have the legal and reporting structures underpinning them that developed markets generally have. Looking specifically at China, all that economic growth over the last couple of decades should have led to huge stock market wins, right? But the Chinese market hasn’t really gone anywhere during that time. The gains get diluted out of existence, in corruption and cronyism, and existing shareholders don’t get the benefits of the economic growth.

I don’t follow China because I don’t really invest in China (see the previous paragraph), so I don’t know what has happened *now*. But I do know it’s just more of the same.
Those are some strong allegations from someone who "don't follow China". The economic gains and profits from the past decades mostly did not get diluted or corrupted. The Chinese stock market didn't do well because of multiple contraction. The CSI 300 was trading around 27x P/E in 2011, and around 16x P/E in 2021.

It's very clear if you just look at some of the largest Chinese companies. Bank of China (HK.3988) is trading 25% lower than 10 years ago even though it's making 50% more EPS now than 10 years ago. Its currently valuation (3.5x trailing P/E, 0.37x P/B and 8.5% dividend yield) is a joke for a company that's stable, low risk and growing steadily year over year. Ping An Insurance (HK.2318) is trading 87% higher than 10 years ago but making 550% more EPS today than 10 years ago. Its valuation (7x trailing P/E, 1.3x P/B and 4% dividend yield) is still quite low for a company growing 20%+ year over year.
I think you are confusing cause and effect.

"Multiple contractions" didn't CAUSE the Chinese stocks above to do poorly.

Chinese stocks did poorly, which was called a "contraction", and valuations went down

Now why did the share price do poorly, even though the companies themselves did well and earnings per share went up?

Because no company in China can be considered "stable and low risk". The market is less willing to pay for a share of a Chinese company with zero legal rights than a U.S. company covered by strong property laws.

That's the point.
Last edited by HomerJ on Tue Jul 27, 2021 2:55 pm, edited 1 time in total.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Any concern about China?

Post by HomerJ »

anon_investor wrote: Tue Jul 27, 2021 2:16 pm
etfan wrote: Tue Jul 27, 2021 2:12 pm
anon_investor wrote: Tue Jul 27, 2021 2:00 pm
etfan wrote: Tue Jul 27, 2021 1:56 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
There is some serious false equivalency going on here.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
ElJefeDelQueso
Posts: 171
Joined: Wed Mar 06, 2019 4:54 pm

Re: Any concern about China?

Post by ElJefeDelQueso »

jb3 wrote: Tue Jul 27, 2021 9:11 am New regulations are creating a lot of uncertainty.

All of my retirement funds are in Vanguard TD funds which hold a lot of international stock, including China and other Asian countries.

Is this a short term issue or something to make you take action?
I think larger actionable issues are that those Chinese 'stocks' represent indirect profit obligations, not corporate ownership, and that the financial statements investors use to make decisions about those obligations are, by Chinese law, unauditable by foreign entities. I'm not sure that the market can safely evaluate unauditable financial information except to assume it is false. The corollary is that these stocks should reasonably be assumed to be worthless.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Any concern about China?

Post by HomerJ »

ElJefeDelQueso wrote: Tue Jul 27, 2021 2:58 pm I think larger actionable issues are that those Chinese 'stocks' represent indirect profit obligations, not corporate ownership, and that the financial statements investors use to make decisions about those obligations are, by Chinese law, unauditable by foreign entities. I'm not sure that the market can safely evaluate unauditable financial information except to assume it is false.
This.

Anyone who is just looking at PE ratios is completely unaware of the actual risks they are taking.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Any concern about China?

Post by nigel_ht »

investorpeter wrote: Tue Jul 27, 2021 1:59 pm Also, it is a bit hyperbolic to say that Jack Ma was "disappeared". He stepped back from public view. And Alipay and Alibaba still continue to do business in China.
https://www.forbes.com/sites/georgecalh ... 850a387c7e

“ There have been (as far as I can tell) just 6 “reports” of Jack Ma’s doings since October, all of them strange, suspiciously vague, and indirect.



* There are no photographs of Ma anywhere in public in the last nine months.

The last point is striking. There are one billion smartphones in China today. Everyone knows what Jack Ma looks like. Given his notoriety, and the intense vested interest of the financial world in his status and well-being, if he is at liberty today, how could it be that there are no pictures of him in circulation?”

That’s some serious stepping back from public view…it doesn’t seem very hyperbolic to say he was disappeared for at least 3 months and perhaps is still restricted in movement.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Any concern about China?

Post by gougou »

HomerJ wrote: Tue Jul 27, 2021 2:46 pm
gougou wrote: Tue Jul 27, 2021 1:46 pm
quantAndHold wrote: Tue Jul 27, 2021 10:39 am
eye.surgeon wrote: Tue Jul 27, 2021 10:00 am Although 5% or 3.8% China exposure won't take anyone down, I think recent events demonstrate the risk of investing in countries without the rule of law and an independent free market. China can put an entire sector of the market out of business on a whim overnight, which is what they did with the for-profit education business.
This is really the bottom line with any EM investment. EM countries don’t have the legal and reporting structures underpinning them that developed markets generally have. Looking specifically at China, all that economic growth over the last couple of decades should have led to huge stock market wins, right? But the Chinese market hasn’t really gone anywhere during that time. The gains get diluted out of existence, in corruption and cronyism, and existing shareholders don’t get the benefits of the economic growth.

I don’t follow China because I don’t really invest in China (see the previous paragraph), so I don’t know what has happened *now*. But I do know it’s just more of the same.
Those are some strong allegations from someone who "don't follow China". The economic gains and profits from the past decades mostly did not get diluted or corrupted. The Chinese stock market didn't do well because of multiple contraction. The CSI 300 was trading around 27x P/E in 2011, and around 16x P/E in 2021.

It's very clear if you just look at some of the largest Chinese companies. Bank of China (HK.3988) is trading 25% lower than 10 years ago even though it's making 50% more EPS now than 10 years ago. Its currently valuation (3.5x trailing P/E, 0.37x P/B and 8.5% dividend yield) is a joke for a company that's stable, low risk and growing steadily year over year. Ping An Insurance (HK.2318) is trading 87% higher than 10 years ago but making 550% more EPS today than 10 years ago. Its valuation (7x trailing P/E, 1.3x P/B and 4% dividend yield) is still quite low for a company growing 20%+ year over year.
I think you are confusing cause and effect.

"Multiple contractions" didn't CAUSE the Chinese stocks above to do poorly.

Chinese stocks did poorly, which was called a "contraction", and valuations went down

Now why did the share price do poorly, even though the companies themselves did well and earnings per share went up?

Because no company in China can be considered "stable and low risk". The market is less willing to pay for a share of a Chinese company with zero legal rights than a U.S. company covered by strong property laws.

That's the point.
You need to read the original allegation: "... The gains get diluted out of existence, in corruption and cronyism, and existing shareholders don’t get the benefits of the economic growth ...". Now that means the gains were somehow siphoned out of the company and shareholders have no claims on those gains.

But it's quite clear that the gains were retained on company's book and reinvested to generate much higher EPS and much higher dividends. So the allegation was obviously not true, and shareholders got the benefits of the economic growth via higher EPS and dividends. The Chinese companies and businesses did great, but their stocks did poorly because the current market is not willing to assign a high multiple as before.

If you have evidence that there's large scale defrauding of shareholder money feel free to post it here. Otherwise I'll just assume it's some random allegations posted by people who "don't follow China".
Last edited by gougou on Tue Jul 27, 2021 3:29 pm, edited 3 times in total.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
etfan
Posts: 526
Joined: Sun May 16, 2021 4:22 pm

Re: Any concern about China?

Post by etfan »

anon_investor wrote: Tue Jul 27, 2021 2:16 pm
etfan wrote: Tue Jul 27, 2021 2:12 pm
anon_investor wrote: Tue Jul 27, 2021 2:00 pm
etfan wrote: Tue Jul 27, 2021 1:56 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm But is Thiel's $5 billion dollar Roth IRA corporate corruption?
What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
That was only given as an example of corporate corruption, which you said is not a good example of corporate corruption.

To the larger point, I didn't say government and corporate corruption are related. In other words, one has nothing to do with the other.

But, depending on the specific corruption case (whether corporate or government), it could lead to the loss of stock value. It all depends on the details.
MFD
Posts: 39
Joined: Fri Nov 06, 2015 9:46 pm

Re: Any concern about China?

Post by MFD »

anon_investor wrote: Tue Jul 27, 2021 1:36 pm
But is Thiel's $5 billion dollar Roth IRA corporate corruption?
Probably yes, because it appears that the corporation undervalued the stock Thiel bought for his Roth IRA. It is a lot easier to have outsized gains when you start with an asset that is undervalued 100x.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

MFD wrote: Tue Jul 27, 2021 4:27 pm
anon_investor wrote: Tue Jul 27, 2021 1:36 pm
But is Thiel's $5 billion dollar Roth IRA corporate corruption?
Probably yes, because it appears that the corporation undervalued the stock Thiel bought for his Roth IRA. It is a lot easier to have outsized gains when you start with an asset that is undervalued 100x.
How do you get pre-IPO stock?
Johnathon Livingston
Posts: 163
Joined: Sun May 09, 2021 6:10 pm

Re: Any concern about China?

Post by Johnathon Livingston »

SteadyOne
Posts: 688
Joined: Fri Mar 22, 2019 5:26 pm

Re: Any concern about China?

Post by SteadyOne »

investorpeter wrote: Tue Jul 27, 2021 1:17 pm Not really. What is happening in China is not that different from what is happening in the US and EU with Google, Facebook, etc. When private companies become too large and/or powerful, governments will exert regulatory authority ostensibly to maintain a fair marketplace, but also to: 1) show who's the boss, 2) partake in the profits, 3) gain or buttress political advantage. In China, I would say priority #1 is paramount, in the EU it is #2, and in the US it is #3. Because the regulatory process is more opaque in China, it's hard to know when regulators will decide it has been enough, but the process is not irrational, and it will end at some point. At that point, there will be some discount opportunities in China. Consider Didi for example. Right now, Didi has less than half the market cap of Uber, twice the 2020 revenue, a much larger addressable market, and essentially no competition.
Not true. What is happening in China is very different from the US. These developments are good example of why Chinese stocks have such low valuations — authoritarian regime decides out of the blue to change the rules without any recourse. No courts to challenge this, no way to publicly criticise the government, no public comments process no rule of law. Whatever ruling party decides. Tomorrow they might nationalise this or that company and wipe shareholders out to ‘show who is the boss.’ Didi, perhaps?
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
SteadyOne
Posts: 688
Joined: Fri Mar 22, 2019 5:26 pm

Re: Any concern about China?

Post by SteadyOne »

etfan wrote: Tue Jul 27, 2021 3:19 pm
anon_investor wrote: Tue Jul 27, 2021 2:16 pm
etfan wrote: Tue Jul 27, 2021 2:12 pm
anon_investor wrote: Tue Jul 27, 2021 2:00 pm
etfan wrote: Tue Jul 27, 2021 1:56 pm

What's the significance of the semantics here? Suppose that we concede that it's not "corporate" corruption but some other type of corruption.
The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
That was only given as an example of corporate corruption, which you said is not a good example of corporate corruption.

To the larger point, I didn't say government and corporate corruption are related. In other words, one has nothing to do with the other.

But, depending on the specific corruption case (whether corporate or government), it could lead to the loss of stock value. It all depends on the details.
This has nothing to do with ‘corruption’. Corruption is quid pro quo. I pay you to do something illegal to benefit me. In this case government is changing the market rules for whatever political or economic reasons without regard to owners of business / shareholders. Or perhaps there was no rules and shareholders actually are not even shareholders in the Western legal sense.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
greenway23
Posts: 107
Joined: Sun May 16, 2021 9:00 pm

Re: Any concern about China?

Post by greenway23 »

If there is enough of a selloff of PRC stocks over time due to the political risk, wouldn’t it follow that the stocks would eventually become a smaller and smaller proportion of VXUS?
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Any concern about China?

Post by nigel_ht »

greenway23 wrote: Tue Jul 27, 2021 11:21 pm If there is enough of a selloff of PRC stocks over time due to the political risk, wouldn’t it follow that the stocks would eventually become a smaller and smaller proportion of VXUS?
Sure…but if you’re holding VXUS it’s not going to be a fun process.

Plus, there are few countries with the same growth potential of China…
Whakamole
Posts: 1765
Joined: Wed Jan 13, 2016 8:59 pm

Re: Any concern about China?

Post by Whakamole »

nigel_ht wrote: Tue Jul 27, 2021 11:41 pm
greenway23 wrote: Tue Jul 27, 2021 11:21 pm If there is enough of a selloff of PRC stocks over time due to the political risk, wouldn’t it follow that the stocks would eventually become a smaller and smaller proportion of VXUS?
Sure…but if you’re holding VXUS it’s not going to be a fun process.

Plus, there are few countries with the same growth potential of China…
Growth potential is irrelevant to investors unless we can profit from it.

I don't think there is an international ex-China fund or ETF. There are a few EM funds that exclude China.
Wannaretireearly
Posts: 4880
Joined: Wed Mar 31, 2010 4:39 pm

Re: Any concern about China?

Post by Wannaretireearly »

Sounds like they made a move for their people by making education companies not for profit. I wonder if/where these merits are discussed?

I'll try to buy vemax low tomorrow with my Roth conversion $, if my vanguard account transition doesn't get in the way! 🇨🇳 🚀
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
TurtleBeatsHare
Posts: 121
Joined: Fri Jun 25, 2021 2:01 pm

Re: Any concern about China?

Post by TurtleBeatsHare »

China is roughly 15-20% of the world’s population, the second largest economy (on its way to first), has generated economic growth that is 2x to 6x of the US, has lifted a few hundred million people out of poverty, and has done all of this by gradually opening itself to market forces. There absolutely is political risk, but there is enormous upside potential as well. And given the relatively consistent trend of gradual economic opening, which has created an economic miracle for China, I seriously doubt the CCP will reverse that trend if only because it is not in their self interest. I certainly wouldn’t underweight them anymore than they are already underweighted. Remember, significant portions of China’s economy are still off limits to FDI, either because they are state owned/controlled or because of restrictions on foreign investments in critical sectors. As a result, most indices are underinvested in China relative to what a market capitalization approach would suggest.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Any concern about China?

Post by HomerJ »

TurtleBeatsHare wrote: Wed Jul 28, 2021 1:19 amAnd given the relatively consistent trend of gradual economic opening, which has created an economic miracle for China, I seriously doubt the CCP will reverse that trend if only because it is not in their self interest.
Their lockdown of Hong Kong (to put it mildly, are any of you pro-China people even paying attention to what is happening there?) shows that they are perfectly willing to destroy a good chunk of their economy in order to maintain political power.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Jaymover
Posts: 214
Joined: Wed May 12, 2021 8:19 pm

Re: Any concern about China?

Post by Jaymover »

It seems that for portfolios juiced up with EM stocks (like mine about 5%) the EM component has been a real drag on returns over the last 12 months compared to if you were in more of a total market fund. However the saying is don't try and chase over performers as EMs might come back with vengeance in a year or three and become over performers again. Just hang in there as todays out performers become tomorrows under performers etc.
User avatar
1789
Posts: 2223
Joined: Fri Aug 16, 2019 3:31 pm

Re: Any concern about China?

Post by 1789 »

Stay away. Lots of political risks there. And yes i have been saying this for a loooong time.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Any concern about China?

Post by JoeRetire »

Does this mean China will be on sale at some point soon?
This isn't just my wallet. It's an organizer, a memory and an old friend.
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Any concern about China?

Post by nigel_ht »

Wannaretireearly wrote: Wed Jul 28, 2021 12:56 am Sounds like they made a move for their people by making education companies not for profit. I wonder if/where these merits are discussed?

I'll try to buy vemax low tomorrow with my Roth conversion $, if my vanguard account transition doesn't get in the way! 🇨🇳 🚀
Lol, no. They didn’t do it for their people but to maintain state control of education (the ban on foreign teachers and foreign curricula), a bandaid on their inability to move away from gaokao, and to attempt to get folks to have more children by reducing access (and therefore cost) to cram schools.

Until they move from gaokao parents will still seek a competitive advantage for their kids and without the after school cram schools the gap between elite and middle class will simply grow wider.

Entrance to Beida or Tsing Hua is a golden ticket…more so than Harvard is for US middle class…

For their people? Lol. No. For the Party.
Whakamole
Posts: 1765
Joined: Wed Jan 13, 2016 8:59 pm

Re: Any concern about China?

Post by Whakamole »

JoeRetire wrote: Wed Jul 28, 2021 5:44 am Does this mean China will be on sale at some point soon?
It will be on sale in the same way that Enron was on sale for a few dollars a share.
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Any concern about China?

Post by Robot Monster »

One of the things I learned at Bogleheads is to pick an allocation I'm comfortable with, stick with it, and ignore the noise...ironically, there is sometimes noise on Bogleheads that needs to be ignored.

Stay the course.

China ETF MCHI is currently +3.58%.

No one knows what the future holds.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Any concern about China?

Post by HomerJ »

Robot Monster wrote: Wed Jul 28, 2021 8:39 am One of the things I learned at Bogleheads is to pick an allocation I'm comfortable with, stick with it, and ignore the noise...ironically, there is sometimes noise on Bogleheads that needs to be ignored.
Heh, I'm tempted to make that my new signature...
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Robot Monster
Posts: 4215
Joined: Sun May 05, 2019 11:23 am

Re: Any concern about China?

Post by Robot Monster »

HomerJ wrote: Wed Jul 28, 2021 10:14 am
Robot Monster wrote: Wed Jul 28, 2021 8:39 am One of the things I learned at Bogleheads is to pick an allocation I'm comfortable with, stick with it, and ignore the noise...ironically, there is sometimes noise on Bogleheads that needs to be ignored.
Heh, I'm tempted to make that my new signature...
:beer
patrick
Posts: 2594
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: Any concern about China?

Post by patrick »

anon_investor wrote: Tue Jul 27, 2021 12:01 pm
Nathan Drake wrote: Tue Jul 27, 2021 11:34 am Oh so the risk/fraud is good then because it reduced equity prices

Why aren’t you all in on China?
I get enough China exposure via multinationals in the S&P500, including my employer. :twisted:
One could just as easily say that there is enough US exposure in an all-China portfolio because plenty of Chinese multinationals transact with the US.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: Any concern about China?

Post by anon_investor »

patrick wrote: Wed Jul 28, 2021 12:15 pm
anon_investor wrote: Tue Jul 27, 2021 12:01 pm
Nathan Drake wrote: Tue Jul 27, 2021 11:34 am Oh so the risk/fraud is good then because it reduced equity prices

Why aren’t you all in on China?
I get enough China exposure via multinationals in the S&P500, including my employer. :twisted:
One could just as easily say that there is enough US exposure in an all-China portfolio because plenty of Chinese multinationals transact with the US.
Not so much (see Huawei).
RoadagentMN
Posts: 158
Joined: Tue Jun 08, 2021 11:09 am

Re: Any concern about China?

Post by RoadagentMN »

SteadyOne wrote: Tue Jul 27, 2021 8:52 pm
etfan wrote: Tue Jul 27, 2021 3:19 pm
anon_investor wrote: Tue Jul 27, 2021 2:16 pm
etfan wrote: Tue Jul 27, 2021 2:12 pm
anon_investor wrote: Tue Jul 27, 2021 2:00 pm

The relevance of the discussion? :beer
I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
That was only given as an example of corporate corruption, which you said is not a good example of corporate corruption.

To the larger point, I didn't say government and corporate corruption are related. In other words, one has nothing to do with the other.

But, depending on the specific corruption case (whether corporate or government), it could lead to the loss of stock value. It all depends on the details.
This has nothing to do with ‘corruption’. Corruption is quid pro quo. I pay you to do something illegal to benefit me. In this case government is changing the market rules for whatever political or economic reasons without regard to owners of business / shareholders. Or perhaps there was no rules and shareholders actually are not even shareholders in the Western legal sense.
“Corruption in China “ lol, corporate or government. You may want to review who the 1% are in China, virtually >>all<< of them have direct family connections to the Mao Revolution period. China is oligarchy system based on Mao family inter-circle and direct family period influences. Feel free to invest away, just don’t forget who is calling the shots.
RoadagentMN
Posts: 158
Joined: Tue Jun 08, 2021 11:09 am

Re: Any concern about China?

Post by RoadagentMN »

RoadagentMN wrote: Wed Jul 28, 2021 1:16 pm
SteadyOne wrote: Tue Jul 27, 2021 8:52 pm
etfan wrote: Tue Jul 27, 2021 3:19 pm
anon_investor wrote: Tue Jul 27, 2021 2:16 pm
etfan wrote: Tue Jul 27, 2021 2:12 pm

I don't think it changes the point if I use the wrong word for it.
What does legal US income tax avoidance have to do with Chinese regulatory risks impacting the price of Chinese equities?
That was only given as an example of corporate corruption, which you said is not a good example of corporate corruption.

To the larger point, I didn't say government and corporate corruption are related. In other words, one has nothing to do with the other.

But, depending on the specific corruption case (whether corporate or government), it could lead to the loss of stock value. It all depends on the details.
This has nothing to do with ‘corruption’. Corruption is quid pro quo. I pay you to do something illegal to benefit me. In this case government is changing the market rules for whatever political or economic reasons without regard to owners of business / shareholders. Or perhaps there was no rules and shareholders actually are not even shareholders in the Western legal sense.
“Corruption in China “ lol, corporate or government. You may want to review who the 1% are in China, virtually >>all<< of them have direct family connections to the Mao Revolution period. China is a oligarchy system based on Mao family inter-circle and direct family period influences. Feel free to invest away, just don’t forget who is calling the shots.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Any concern about China?

Post by gougou »

JoeRetire wrote: Wed Jul 28, 2021 5:44 am Does this mean China will be on sale at some point soon?
It's already on sale. But do you have the guts to buy?
The sillier the market’s behavior, the greater the opportunity for the business like investor.
02nz
Posts: 10508
Joined: Wed Feb 21, 2018 2:17 pm

Re: Any concern about China?

Post by 02nz »

nigel_ht wrote: Tue Jul 27, 2021 1:30 pm For example, we don’t make Jeff Bezos disappear for a few months and the dismember half his empire
Seems like kind of a missed opportunity, when he was up in space ... :D
Locked