Hello macavity, <<China Bull Market>>
Before I put some thoughts to your issue, here are some thoughts concerning:
The inevitable and approaching China Bust:
Message 19505900 <<November 15th, 2003>>
The Five Common Misunderstandings about China:
Message 19506147 <<November 15th, 2003>>
The Nature of the China Fact:
Message 19506215 <<November 15th, 2003>>
On the issue you raised, it is opportune.
Within the past 30 days, two outfits approached me about China public equity fund management and two other outfits approached me about China private equity fund management.
The China deal heat is on, the money is piling up at the gate, and the barbarian investors are getting antsy, concerned about missing the proverbial train, boat, and the arduous donkey ride to money heaven ;0)
I might as well put some of my thoughts on paper, so that I can rehearse the dialogue with more groups that are no doubt out there, and that invariably has more money than awareness when it comes to China. They will be delicious when coated with the right BBQ sauce :0)
First up, on China private equity, I think there are easier ways to make money than engaging in China private equity investment, involving less risk, more risk-adjusted potential for gain, augmented gain-adjusted return on time spent, infinitely better liquidity, comparatively no anguish, and far less the opportunity for despair.
Next, on China fixed asset acquisition. My philosophy on China asset acquisition is simple, if the asset does not have a handle, and I cannot stuff it into a suitcase, I do not need it, and am better without it. I do not need the headache that is surely be attached to it or will be attracted by it.
If I were forced to buy China-based asset, I would only do so with a rare and good (honest, connected, well capitalized, and true friend) partner, and I would only buy real estate/location/infrastructure based asset with good economics from otherwise distressed sellers. But, then, once identified after much work, so would everyone else do the trade ;0)
Now, let us discuss the broader issue of China public equities xfn.com;
A-share market in Shanghai finance.yahoo.com^SSEA&d=t and Shenzhen finance.yahoo.com^SZSA&d=t are comprised of Chinese public companies meant for domestic investors (beginning to be opened to international funds) and are perennially over-priced by traditional and sound measures, mostly engage in industries with tremendous completion and stupendous blood letting, offer effectively zero transparency and has zip management accountability, offer a crazy patchwork of diversification flavored with strategic unpredictability, and their shares are manipulated, traded by insiders and institutional speculators, and best steered clear by Jay.
B-share market in Shanghai baby.boom.com.hk^SSEB&m=CN&t=6m and Shenzhen baby.boom.com.hk^SZSB&m=CN&t=6m are comprised of Chinese public companies that have some overlap with names on the A-share markets and are meant for off-shore investors. Some domestic investors do manage to buy these shares via off-shore based accounts. These shares are priced cheaper then the A-shares market by traditional measures. The same company’s A and B shares, with the same dividend and voting rights, often trade by as much as 100% difference in price. The B-shares market is not liquid, and I believe the only reason folks buy the shares is they are playing a waiting game, for the A and B-share markets to be merged and for the pricing discrepancy to be arbitraged away. They have been waiting a long time. I had also played this waiting game, and my patience failed me.
Red Chips home.boom.com.hk (HSCCI on the right-hand side) on Hong Kong Stock Exchange are Hong Kong-based mainland companies with their primary listing in Hong Kong. They were a novelty when they first appeared on the scene and were one of the few ways to play the China market. They supposedly had good relationships in China that enabled access to easy profit. Their prices were bid way high, and then collapsed, with much blood spilled all about and plenty of excitement all around. You know the usual script … valuation on permanent high plateau, of companies at the cusp of new era, followed by market clearing collapse, debt default, bankruptcies, and a few reincarnations. These wagers should only be played for what they are, gambles, and nothing more. These companies have fair disclosure, OK management, tolerable governance, and the liquidity of the Hong Kong Red Chips market is good, enable those who want to get out to exit, and those who want to commit financial hari-kari to get in and stay in until blood flow from their pores.
H-share home.boom.com.hk (HSCEI on the right-hand side) market in Hong Kong is my preferred playground, full of juicy dividend-paying China-based companies trading in Hong Kong with good liquidity, fair disclosure, tolerable management, and are value at the low-end range of China A through ADR markets. These shares offer a good way to gain from China’s structural reform, industrialization, urbanization, and internationalization.
China ADRs finance.yahoo.com^BKCN&d=t are what they are, and are almost all comprised of a select group of H-share companies. I trade them because they allow me to do dual-time zone entry/exit, and many of them have options traded. I like options, because they allow us to enhance return at reduced risk, and they allow us to leverage our knowledge and pivot our conviction :0)
I do not recommend putting my than 5% of any NAV as a starting stake in China shares of all flavors, although I am OK with the initial 5% growing into a 10-15% NAV portion over time. Here is the context for my comments achamchen.com .
I do not recommend Chinese manufacturing companies, as opposed to service and asset-based companies, as main constituents of a China portfolio.
I do not recommend placing 5% of any NAV into China at one sitting, as opposed to over a boom/bust cycle.
I am watching these shares achamchen.com , had owned many of them over considerable elapsed time (for example, long before Mr. Buffett Message 19504325 <<November 15th, 2003>> had a clue), had accumulated more during SARS event, and I had sold them back in September, because I was fearful of SARS II. I am looking to slowly buy in again.
I believe any SARS II panic or NYSE/Nasdaq triggered correction, any China political triggered retrenchment, and/or any geopolitical (ME, Korea, US-China) engendered bursting of price would be a present from the money gods.
Chugs, Jay |
