investing in china
investing in china
I want to increase my asset allocation to china. VWO is too diversified and contains too many countries who depend upon US (and thus are highly correlated)
What is the best way to do so? I am debating between FXI and CAF but both of them seem to have issues.
Any pointers.
What is the best way to do so? I am debating between FXI and CAF but both of them seem to have issues.
Any pointers.
Hmmm. I doubt you will get many positive responses on this board, unless you live in China or expect to derive alot of your income there.
China is up something like 80% this year. Investing in China right now is performance chasing at its absolute worst, and you may well be buying into a richly priced market.
You might want to reconsider your aversion to a more balanced emerging market fund, as it might be spared the extreme ups and downs of the Chinese market.
Just my 2 cents.
China is up something like 80% this year. Investing in China right now is performance chasing at its absolute worst, and you may well be buying into a richly priced market.
You might want to reconsider your aversion to a more balanced emerging market fund, as it might be spared the extreme ups and downs of the Chinese market.
Just my 2 cents.
- simplesimon
- Posts: 4578
- Joined: Mon Feb 25, 2008 7:53 pm
Re: investing in china
How did you qualify this statement?rm wrote:VWO is too diversified and contains too many countries who depend upon US (and thus are highly correlated)
Like what?rm wrote:I am debating between FXI and CAF but both of them seem to have issues.
I would stay diversified across EM!
If you allow say 1% of your portfolio for hot money to play with then sure try something like HAO--China Smallcap ETF or BRF--Brazil Smallcap ETF --- but otherwise be careful about overweighting your portfolio to one individual EM country especially after a significant multi-year run. Again, there's nothing wrong with VWO (EM index) which not only includes China but also numerous other countries benefiting greatly by their trades with China. Then you also have the VG FTSE World ex-US Smallcap fund that also has about 20% in EM.
China's hidden debt problem
http://money.cnn.com/2009/07/27/news/in ... 2009072706
If you allow say 1% of your portfolio for hot money to play with then sure try something like HAO--China Smallcap ETF or BRF--Brazil Smallcap ETF --- but otherwise be careful about overweighting your portfolio to one individual EM country especially after a significant multi-year run. Again, there's nothing wrong with VWO (EM index) which not only includes China but also numerous other countries benefiting greatly by their trades with China. Then you also have the VG FTSE World ex-US Smallcap fund that also has about 20% in EM.
China's hidden debt problem
http://money.cnn.com/2009/07/27/news/in ... 2009072706
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
I can't quote actual numbers, but I would have to say that China, also, is fairly dependant on the U.S., both for buying their products, and also for the long term value of their $ holdings.VWO is too diversified and contains too many countries who depend upon US (and thus are highly correlated)
That said, if you are sure you want to invest, I remember about a year or two ago Burton Malkiel was recommending Templeton Dragon fund.
Wayne
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
- HardKnocker
- Posts: 2063
- Joined: Mon Oct 06, 2008 11:55 am
- Location: New Jersey USA
Again, for your investment portfolio - I'd stay diversified in EM. Even for mad money investments I might prefer the whole Asia-Pacific region rather than just China.
http://www.ft.com/cms/s/0/6a1c0a60-7c0d ... ck_check=1
http://www.ft.com/cms/s/0/6a1c0a60-7c0d ... ck_check=1
China shares tumble on liquidity fears
By Lindsay Whipp in Tokyo and Dave Shellock in London
Published: July 29 2009 08:00 | Last updated: July 29 2009 08:27
Chinese stocks suffered their worst one-day fall for eight months amid fears that the country’s central bank might take steps to curb liquidity.
Local reports yesterday claimed that China’s two biggest state-owned commercial banks, Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB), had capped their 2009 lending targets, triggering concerns about the country’s economic recovery.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
http://www.cnbc.com/id/32195646
Biggest IPO Sparks Fear of China Market Bubble
Published: Wednesday, 29 Jul 2009 | 5:19 AM ET
By: Reuters
The stronger-than-expected debut for China State Construction Engineering Corp's $7.3 billion IPO showed China's booming markets are drawing investors, but it heightened concerns about a speculative stock market bubble forming.
The IPO, the world's largest in a year, surged 56 percent in its Shanghai debut on Wednesday, while building materials group BBMG enjoyed the strongest listing in Hong Kong this year as ample investor funds chased exposure to Beijing's infrastructure stimulus spending.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
-
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- Location: Madison, WI
Fairly dependent is probably a huge under statement.fishndoc wrote:I can't quote actual numbers, but I would have to say that China, also, is fairly dependant on the U.S., both for buying their products, and also for the long term value of their $ holdings.VWO is too diversified and contains too many countries who depend upon US (and thus are highly correlated)
That said, if you are sure you want to invest, I remember about a year or two ago Burton Malkiel was recommending Templeton Dragon fund.
Wayne
If we were to stop economic activity with China, that country would probably collapse until it right sized itself to deal with the rest of the world.
- simplesimon
- Posts: 4578
- Joined: Mon Feb 25, 2008 7:53 pm
I saw this article a few days ago
http://money.cnn.com/2009/07/29/markets ... 2009072914
If China starts selling its treasuries how would that increase interest rates here?
http://money.cnn.com/2009/07/29/markets ... 2009072914
If China starts selling its treasuries how would that increase interest rates here?
- fluffyistaken
- Posts: 1435
- Joined: Fri Apr 04, 2008 1:32 pm
I think you have to be a bit nuts to overweigh FXI or something like it at this point. China valuations are *higher* than US ones according to Yahoo data... So much growth expectation is already baked into China prices already.
FXI (iShares China):
Average Price/Earnings 14.64
Average Price/Book 2.10
Average Price/Sales 1.53
Average Price/Cashflow 6.25
PGJ (PowerShares China):
Average Price/Earnings 14.36
Average Price/Book 1.68
Average Price/Sales 1.43
Average Price/Cashflow 5.57
vs.
SPY (StateStreet US Large Caps):
Average Price/Earnings 14.09
Average Price/Book 1.80
Average Price/Sales 0.82
Average Price/Cashflow 5.74
VTI (Vanguard US TSM):
Average Price/Earnings 11.86
Average Price/Book 1.47
Average Price/Sales 0.68
Average Price/Cashflow 4.74
VV (Vanguard US Large Caps):
Average Price/Earnings 11.89
Average Price/Book 1.55
Average Price/Sales 0.72
Average Price/Cashflow 4.88
IVV (iShares US Large Caps):
Average Price/Earnings 14.10
Average Price/Book 1.79
Average Price/Sales 0.83
Average Price/Cashflow 5.76
(I quotes several funds since these numbers vary quite a bit from one fund company to another, depending on how they do the accounting. It's probably best to compare these metrics only on funds within single fund family and not across families).
For that matter, even index emerging funds don't look all that cheap relative to US:
EEM (iShares emerging):
Average Price/Earnings 12.83
Average Price/Book 1.88
Average Price/Sales 1.17
Average Price/Cashflow 6.46
VWO (Vanguard emerging):
Average Price/Earnings 10.72
Average Price/Book 1.27
Average Price/Sales 0.68
Average Price/Cashflow 4.46
Since, as has been pointed out many times on this forum, your expected returns from China and/or emerging are higher because of higher risk and not because of higher growth, why would you jump in now when they are priced as if they're *less* risky than US?
If FXI reaches high 60s again in the near future then I'll become an active speculator and start buying long-dated puts on it
Edit: And the dividend yield of FXI and PGJ (and EEM for that matter) is much lower than that of US indices.
FXI (iShares China):
Average Price/Earnings 14.64
Average Price/Book 2.10
Average Price/Sales 1.53
Average Price/Cashflow 6.25
PGJ (PowerShares China):
Average Price/Earnings 14.36
Average Price/Book 1.68
Average Price/Sales 1.43
Average Price/Cashflow 5.57
vs.
SPY (StateStreet US Large Caps):
Average Price/Earnings 14.09
Average Price/Book 1.80
Average Price/Sales 0.82
Average Price/Cashflow 5.74
VTI (Vanguard US TSM):
Average Price/Earnings 11.86
Average Price/Book 1.47
Average Price/Sales 0.68
Average Price/Cashflow 4.74
VV (Vanguard US Large Caps):
Average Price/Earnings 11.89
Average Price/Book 1.55
Average Price/Sales 0.72
Average Price/Cashflow 4.88
IVV (iShares US Large Caps):
Average Price/Earnings 14.10
Average Price/Book 1.79
Average Price/Sales 0.83
Average Price/Cashflow 5.76
(I quotes several funds since these numbers vary quite a bit from one fund company to another, depending on how they do the accounting. It's probably best to compare these metrics only on funds within single fund family and not across families).
For that matter, even index emerging funds don't look all that cheap relative to US:
EEM (iShares emerging):
Average Price/Earnings 12.83
Average Price/Book 1.88
Average Price/Sales 1.17
Average Price/Cashflow 6.46
VWO (Vanguard emerging):
Average Price/Earnings 10.72
Average Price/Book 1.27
Average Price/Sales 0.68
Average Price/Cashflow 4.46
Since, as has been pointed out many times on this forum, your expected returns from China and/or emerging are higher because of higher risk and not because of higher growth, why would you jump in now when they are priced as if they're *less* risky than US?
If FXI reaches high 60s again in the near future then I'll become an active speculator and start buying long-dated puts on it
Edit: And the dividend yield of FXI and PGJ (and EEM for that matter) is much lower than that of US indices.
Last edited by fluffyistaken on Fri Jul 31, 2009 12:04 pm, edited 1 time in total.
From a recent Q&A with Arjun Divecha, Portfolio Manager, GMO Emerging Markets III Fund:
Short excerpt:
In what countries do you see the best opportunities?
The countries that we are most positive on are actually ones we think will have the biggest recovery from the bottom. Our favorite four are Turkey, Russia, South Korea and Thailand. Some of our less favorite countries where we are underweight are China, South Africa and India. China and India have recovered a lot. Their stock markets have gone up a lot this year, and are much more expensive than other markets. And given that we are primarily value investors, we look for cheapest above everything else. Countries like Turkey and Russia are very cheap in terms of stock valuations.
When we spoke earlier this month, you mentioned that you were bullish on China short term, but much less so over the long term. Is that still the case?
I've changed my mind since we last spoke. We are negative on China short term as well. The reason is that the stimulus package there has been absolutely massive. As a percentage of GDP, it is three or four times the size of the U.S. stimulus. In this year alone, they've had new loans worth over $1 trillion, of which more than $250 billion was issued in June. It is massive.
What's your biggest concern about that?
I believe that a lot of this money is not going into productive investment. What we are hearing anecdotally is that a lot is being lent by the banks, which, remember, are government-owned. Who are they lending to? For the most part, this money is going to state-owned enterprises, which are not particularly efficient companies.
We know that they are buying real estate, and they are doing all kinds of things that we don't think in the long run is particularly productive investment. Now, in the short run, the stimulus works, because it puts money in the hands of people who are buying and consuming stuff. So therefore, car sales in China hit an all-time record last month.
What will be the consequences in China?
Two things are likely to happen. First, longer term, if the banks don't have a problem with bad loans now, they will almost certainly have a lot more bad loans two or three years from now. Second, from a short-term point of view, at some point the government is going to get really worried about having too much credit-creation; that leads to a credit bubble, just like you had in this country and everywhere else. As a result, they will start to withdraw liquidity by tightening the gates on money. I don't know when that will be. But I worry that it is coming.
Short excerpt:
In what countries do you see the best opportunities?
The countries that we are most positive on are actually ones we think will have the biggest recovery from the bottom. Our favorite four are Turkey, Russia, South Korea and Thailand. Some of our less favorite countries where we are underweight are China, South Africa and India. China and India have recovered a lot. Their stock markets have gone up a lot this year, and are much more expensive than other markets. And given that we are primarily value investors, we look for cheapest above everything else. Countries like Turkey and Russia are very cheap in terms of stock valuations.
When we spoke earlier this month, you mentioned that you were bullish on China short term, but much less so over the long term. Is that still the case?
I've changed my mind since we last spoke. We are negative on China short term as well. The reason is that the stimulus package there has been absolutely massive. As a percentage of GDP, it is three or four times the size of the U.S. stimulus. In this year alone, they've had new loans worth over $1 trillion, of which more than $250 billion was issued in June. It is massive.
What's your biggest concern about that?
I believe that a lot of this money is not going into productive investment. What we are hearing anecdotally is that a lot is being lent by the banks, which, remember, are government-owned. Who are they lending to? For the most part, this money is going to state-owned enterprises, which are not particularly efficient companies.
We know that they are buying real estate, and they are doing all kinds of things that we don't think in the long run is particularly productive investment. Now, in the short run, the stimulus works, because it puts money in the hands of people who are buying and consuming stuff. So therefore, car sales in China hit an all-time record last month.
What will be the consequences in China?
Two things are likely to happen. First, longer term, if the banks don't have a problem with bad loans now, they will almost certainly have a lot more bad loans two or three years from now. Second, from a short-term point of view, at some point the government is going to get really worried about having too much credit-creation; that leads to a credit bubble, just like you had in this country and everywhere else. As a result, they will start to withdraw liquidity by tightening the gates on money. I don't know when that will be. But I worry that it is coming.
Last edited by Kenster1 on Thu Aug 06, 2009 8:23 pm, edited 1 time in total.
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
Remember they can be wrong. GMO has a global inflation linked bond fund where a few years ago they underweighted what turned out to be the best performing countries and overweighted the worst. They couldn't have "planned" their bad performance any better.Kenster1 wrote:From a recent Q&A with Arjun Divecha, Portfolio Manager, GMO Emerging Markets III Fund:
Managerial risk for actively managed funds is very real.
Paul
Paul - but it goes to show that not all EM investors are overweight China as many are also cautious while many more are bullish. This fellow below is also cautious.
http://online.barrons.com/article/SB124 ... mmBookmark
http://online.barrons.com/article/SB124 ... mmBookmark
Riding the China Tiger
AUGUST 5, 2009
Bubble nemesis Andy Xie says look out for a fourth-quarter correction in soaring China markets.
"PONZI SCHEME" gets thrown around a lot since Bernie Madoff made it part of the popular vernacular but it's worth paying attention when Andy Xie uses it.
"Chinese asset markets have become a giant Ponzi scheme, writes the highly regarded former Morgan Stanley Asian economist, Andy Xie. "The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn't enough liquidity to feed the beast."
"An element of judgment based on experience is inevitable when one calls a market boom a bubble. I have had a reasonably good record at calling bubbles in the past," Xie asserts with no false modesty.
"I wrote my doctoral thesis arguing that Japan was a bubble in late 1980s; a long report at the World Bank in early 1990s arguing that Southeast Asia was a bubble; research notes at Morgan Stanley in 1999 calling dot-com boom a bubble, and numerous research notes from 2003 onwards arguing that the U.S. property market was a bubble. On the other hand, I have never called something a bubble that turned out not to be a bubble."
The stock market, he continues, is in the final frenzy. "The most ignorant retail investors are being sucked in by the rising momentum. They again dream of getting rich overnight."
SURGEON GENERAL'S WARNING: Any overconfidence in your investing ability, willingness and need to take risk may be hazardous to your health.
-
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- Joined: Thu Jun 18, 2009 10:55 pm
You guys might want to check out some of this guy's stuff. He lives over there and contributes to the FT.
http://mpettis.com/
I am with GMO and the above link, I think China was the beneficiary of our profligate spending. Much of their growth matched our increasing debt, now the rest of the world has to pick up the rest of the slack to keep them growing.
I also don't get the "they just have to stimulate internal demand' theory. Something tells me that the average Chinese worker who makes I think 1/7 to 1/10 of a developed world worker is going to all of the sudden decide to go on a spending spree. Also while many of them are losing jobs.
China also is not very good at giving solid facts. They claim all kinds of manufacturing is up, but for some reason their electricity usage is way down. And the fact that their biggest businesses are all state run doesn't help either.
Obviously everyone has their opinion, I just think they need to invest (or not) with their eyes wide open. They are a powerhouse no doubt, but everyone seems to take it on faith that China will continue their dramatic growth and outperformance. I'm just trying to present some of the counterpoints for people to consider in opposition to the typically rosy outlook given to them. Like everything else, the truth is probably somewhere inbetween!
http://mpettis.com/
I am with GMO and the above link, I think China was the beneficiary of our profligate spending. Much of their growth matched our increasing debt, now the rest of the world has to pick up the rest of the slack to keep them growing.
I also don't get the "they just have to stimulate internal demand' theory. Something tells me that the average Chinese worker who makes I think 1/7 to 1/10 of a developed world worker is going to all of the sudden decide to go on a spending spree. Also while many of them are losing jobs.
China also is not very good at giving solid facts. They claim all kinds of manufacturing is up, but for some reason their electricity usage is way down. And the fact that their biggest businesses are all state run doesn't help either.
Obviously everyone has their opinion, I just think they need to invest (or not) with their eyes wide open. They are a powerhouse no doubt, but everyone seems to take it on faith that China will continue their dramatic growth and outperformance. I'm just trying to present some of the counterpoints for people to consider in opposition to the typically rosy outlook given to them. Like everything else, the truth is probably somewhere inbetween!
Malkiel in an interview someone posted here mentioned a few months ago China "A" shares were trading at 50 to 100% premiums. A broad EM index fund is the easiest way to not get burned.Kenster1 wrote:Paul - but it goes to show that not all EM investors are overweight China as many are also cautious while many more are bullish. This fellow below is also cautious.
Paul