Tencent now largest non-US stock

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jalbert
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Tencent now largest non-US stock

Post by jalbert » Mon Apr 16, 2018 5:16 pm

The largest stock in major non-US index funds as measured by free float capitalization is now Tencent, the maker of the Chinese app WeChat.

It is the largest holding in both IXUS and VXUS, Total int’l index funds, tracking MSCI and FTSE indices respectively.
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Re: Tencent now largest non-US stock

Post by whodidntante » Mon Apr 16, 2018 6:09 pm

Just in time, it looks like it is Tencent's turn to be whipped by the news.

https://www.wsj.com/articles/u-s-is-exa ... 1523910784

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Re: Tencent now largest non-US stock

Post by Aquarama » Tue Apr 17, 2018 7:45 am

Tencent is not in that WSJ article, whodidntante .

Funny is that I found your article as I have been running away from the Technology Sector and toward international. Buying a social media site sounds way less appealing than buying the company whose product is cell phones. They are excellent cell phones, but so were Nokia's cell phones in their era.

In all fairness, Apple also makes Macs and iPads and is moving into services. Services probably means cloud computing, which has a bright future.

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Re: Tencent now largest non-US stock

Post by fortyofforty » Tue Apr 17, 2018 9:29 am

I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Original Vanguard Diehard

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Re: Tencent now largest non-US stock

Post by anil686 » Tue Apr 17, 2018 9:33 am

They seem to be doing similar things to the tech companies here - getting into content and production in several Asian nations, expanding their apps and growing with increased use and advertising. Maybe it is time for VG to release global cap weighted value and growth index funds?...

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Re: Tencent now largest non-US stock

Post by jalbert » Tue Apr 17, 2018 3:55 pm

fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
In the case of market cap of a stock, the indexing companies measure free float of shares. The correct statement is that the free float of Tencent is now the largest of any non-US company. Fudging of data might lead one to question if the market cap of some company is justifiable by true fundamentals.
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fortyofforty
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Re: Tencent now largest non-US stock

Post by fortyofforty » Tue Apr 17, 2018 8:12 pm

jalbert wrote:
Tue Apr 17, 2018 3:55 pm
fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
In the case of market cap of a stock, the indexing companies measure free float of shares. The correct statement is that the free float of Tencent is now the largest of any non-US company. Fudging of data might lead one to question if the market cap of some company is justifiable by true fundamentals.
Absolutely. But what if the entire Chinese stock market is Enron writ large? Profits, losses, sales, costs, manpower, assets, customers, clicks... every objective measurement of performance subject to question. You could create a balloon the size of the earth, but it wouldn't be the same as the earth.

China could induce investment in a company to create the largest corporation outside of the United States, and even perhaps induce domestic investment therein. I take it with a grain of salt, and hope those with more experience and intelligence in valuing overseas companies are digging.
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Re: Tencent now largest non-US stock

Post by k66 » Tue Apr 17, 2018 11:36 pm

fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
And "we" can't--or don't?!

The Ten Worst Corporate Accounting Scandals of All Time
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Re: Tencent now largest non-US stock

Post by MossySF » Wed Apr 18, 2018 12:38 am

Tencent is more than just a social networking app. Facebook went the advertising/selling your info route to make money. Tencent went the route of allowing their platform to do everything: digital money, bank accounts, cds, mutual funds, shopping, games, government IDs online, ridesharing (taxi), renting bikes, buying train/plane/bus tickets/movie tickets, takeout food, etc.

WeChat even has defacto money now -- it used to be just fun & games for passing out lucky money envelopes when it debut a few years ago. Now you can use it all over China to buy things ... even a street vendor will let you send him some WeChat money over their platform to buy BBQ chicken wings. And Tencent charges some percentage to convert of their money back into real-world money.

Tencent is in a fight with Alibaba to make everything in China accessable via a single click on a smartphone app. Alibaba leads in some things, Tencent in others.

Now whether you should invest directly as an individual stock -- umm, we are Bogleheads -- we don't even do that with U.S. stock so what is this thread about anyways?
Last edited by MossySF on Wed Apr 18, 2018 12:45 am, edited 1 time in total.

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Re: Tencent now largest non-US stock

Post by Always passive » Wed Apr 18, 2018 12:44 am

fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
How do you know? In today's world it seems you cannot trust anyone. How do you feel about US based companies? Better? That is the reason that diversification is the only save thing to do. Buy the index.

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Re: Tencent now largest non-US stock

Post by jalbert » Wed Apr 18, 2018 12:52 am

k66 wrote:
Tue Apr 17, 2018 11:36 pm
fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
And "we" can't--or don't?!

The Ten Worst Corporate Accounting Scandals of All Time
We know about these because the US and India have laws prohibiting fraudulent accounting, and mechanisms to enforce the laws.
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Re: Tencent now largest non-US stock

Post by bogleblitz » Wed Apr 18, 2018 2:51 am

They should change their name from Tencent to TenBillion.

I hate using Wechat but find myself reinstalling it everytime I need to talk to certain people.

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Re: Tencent now largest non-US stock

Post by fortyofforty » Wed Apr 18, 2018 6:32 am

jalbert wrote:
Wed Apr 18, 2018 12:52 am
k66 wrote:
Tue Apr 17, 2018 11:36 pm
fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
And "we" can't--or don't?!

The Ten Worst Corporate Accounting Scandals of All Time
We know about these because the US and India have laws prohibiting fraudulent accounting, and mechanisms to enforce the laws.
That's the difference. In one case, it is a government actively encouraging specific accounting methods and practices for political reasons. In the other, it is individual companies breaking the law and, when caught, paying the price. Can't see the difference, there?

Tencent currently has a higher market capitalization than Berkshire Hathaway or Nestle, to pick two names. Again, I trust that people are digging, as best they can.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Original Vanguard Diehard

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Re: Tencent now largest non-US stock

Post by MossySF » Wed Apr 18, 2018 6:41 am

fortyofforty wrote:
Wed Apr 18, 2018 6:32 am
That's the difference. In one case, it is a government actively encouraging specific accounting methods and practices for political reasons. In the other, it is individual companies breaking the law and, when caught, paying the price. Can't see the difference, there?

Tencent currently has a higher market capitalization than Berkshire Hathaway or Nestle, to pick two names. Again, I trust that people are digging, as best they can.
And Tesla is worth more than GM. (At least it was 3 months ago -- I haven't kept up with the stock prices lately.)

Shrug ... if you're going to go into every stock one at a time wondering why something is overvalued or undervalued, then the Bogleheads philosophy is not the right one for you.

All investing strategies are horrible. We are simply using the least awful one -- which is hold your nose, ignore insane valuations (in your opinion), and accept what the market decides.

I would like if we could have exceptions in this philosophy to not invest in certain companies/industries for moral reasons ... but I'm not sure how to do it with what Vanguard or ETFs gives us.

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Re: Tencent now largest non-US stock

Post by Valuethinker » Wed Apr 18, 2018 6:42 am

k66 wrote:
Tue Apr 17, 2018 11:36 pm
fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
And "we" can't--or don't?!

The Ten Worst Corporate Accounting Scandals of All Time
This is an argument about relative quality of financial reporting.

I think we need to be clear that US financial reporting and regulation standards are high. Set a benchmark for other countries.

There may be some countries which are higher. Perhaps UK. Perhaps Scandinavia.

The existence of scandals in USA means nothing is perfect. Canada has quite a bad reputation for example (SinoForest, Nortel, Bre-X ; all multi billion dollar frauds; Valleant which was not fraud per se but was accounting-related is another example).

This is an argument about relative standards and also whether valuations have reflected those risks properly.

What was clear from the movie was that Chinese companies which listed via shell reversals in USA were not held to same standards as ordinary US listed, or IPO'd, companies.

Chinese stocks (some of them) appear to be quite highly valued. There's not a big discount being implied for these risks to investors.

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Re: Tencent now largest non-US stock

Post by fortyofforty » Wed Apr 18, 2018 8:28 am

MossySF wrote:
Wed Apr 18, 2018 6:41 am
fortyofforty wrote:
Wed Apr 18, 2018 6:32 am
That's the difference. In one case, it is a government actively encouraging specific accounting methods and practices for political reasons. In the other, it is individual companies breaking the law and, when caught, paying the price. Can't see the difference, there?

Tencent currently has a higher market capitalization than Berkshire Hathaway or Nestle, to pick two names. Again, I trust that people are digging, as best they can.
And Tesla is worth more than GM. (At least it was 3 months ago -- I haven't kept up with the stock prices lately.)

Shrug ... if you're going to go into every stock one at a time wondering why something is overvalued or undervalued, then the Bogleheads philosophy is not the right one for you.

All investing strategies are horrible. We are simply using the least awful one -- which is hold your nose, ignore insane valuations (in your opinion), and accept what the market decides.

I would like if we could have exceptions in this philosophy to not invest in certain companies/industries for moral reasons ... but I'm not sure how to do it with what Vanguard or ETFs gives us.
If you had read what I wrote, I stated clearly that I am allowing the market to work, in the hope that there are people trying their best to accurately value each and every stock. I think that's pretty clearly Boglehead.

I never stated any valuation is "insane" (your word). I merely chose one example of a Chinese company that may or may not be properly valued based on fundamental measures, because we might not have access to accurate fundamental measures.

Perhaps this doesn't fit with your moralistic philosophy, but it's what I will stick with for now: invest in a little slice of everything.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Original Vanguard Diehard

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Re: Tencent now largest non-US stock

Post by jalbert » Sat Apr 21, 2018 9:53 pm

From: https://www.bloomberg.com/news/articles ... ty-problem
The world has long suspected that China fudges its numbers, which is why the investment community has assembled an array of alternative measures, including rail cargo volume, electricity use, and satellite imagery of factory sites, to gauge economic output. “I suggest investors ignore China’s GDP growth rate,” says Andy Rothman, a former U.S. diplomat in Beijing who’s now an investment strategist at Matthews Asia, a money manager. “There are so many other data points which help us understand the health of the Chinese economy and which we can verify by comparison with private data.” High-frequency metrics on movie ticket sales, iron ore imports, and orders for bulldozers are considered a more useful measure of demand in key sectors from consumption to construction. Bloomberg Economics’ monthly growth tracker, which shows more variability than the official GDP number, registered growth of 6.97 percent in March.
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Re: Tencent now largest non-US stock

Post by unclescrooge » Sun Apr 22, 2018 12:21 am

jalbert wrote:
Wed Apr 18, 2018 12:52 am
k66 wrote:
Tue Apr 17, 2018 11:36 pm
fortyofforty wrote:
Tue Apr 17, 2018 9:29 am
I'm not sure how much we can trust anything reported about a Chinese company. They have the ability to fudge their numbers.
And "we" can't--or don't?!

The Ten Worst Corporate Accounting Scandals of All Time
We know about these because the US and India have laws prohibiting fraudulent accounting, and mechanisms to enforce the laws.
India isn't against changing the laws to screw over US corporations.

And the US isn't against changing the laws to benefit corporations at the expense of its citizens.

But in general, I agree that rule of law has helped shape the US business environment.

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Re: Tencent now largest non-US stock

Post by unclescrooge » Sun Apr 22, 2018 12:25 am

MossySF wrote:
Wed Apr 18, 2018 12:38 am
Tencent is more than just a social networking app. Facebook went the advertising/selling your info route to make money. Tencent went the route of allowing their platform to do everything: digital money, bank accounts, cds, mutual funds, shopping, games, government IDs online, ridesharing (taxi), renting bikes, buying train/plane/bus tickets/movie tickets, takeout food, etc.

WeChat even has defacto money now -- it used to be just fun & games for passing out lucky money envelopes when it debut a few years ago. Now you can use it all over China to buy things ... even a street vendor will let you send him some WeChat money over their platform to buy BBQ chicken wings. And Tencent charges some percentage to convert of their money back into real-world money.

Tencent is in a fight with Alibaba to make everything in China accessable via a single click on a smartphone app. Alibaba leads in some things, Tencent in others.

Now whether you should invest directly as an individual stock -- umm, we are Bogleheads -- we don't even do that with U.S. stock so what is this thread about anyways?
Tencent is my only individual stock holding over the past year, along with Naspers which was just another indirect play on Tencent.

Constitutes 1% if my investment portfolio.

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Re: Tencent now largest non-US stock

Post by jminv » Sun Apr 22, 2018 7:05 am

One of the biggest risks with Tencent for a US based investor is the stock's ownership structure which is through a variable interest entity. A VIE is setup as a workaround to Chinese laws and regulations that ban foreign ownership in certain sectors. One day, the founders or the government could decide to no longer honor them and as they exist in a legal grey area/are not legal/laws are 'flexible' in China, they won't be enforced in China and foreign investors in VIEs will have no legal recourse. Also, a VIE investor isn't investing in the company itself, has no voting rights, and none of the normal legal remedies available to shareholders apply. The risk is probably low at the moment as repudiating VIEs would cause reputational issues for the owners and for the government but the possibilty of it occuring in the future is not nil.

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Re: Tencent now largest non-US stock

Post by SlowMovingInvestor » Sun Apr 22, 2018 7:51 am

jminv wrote:
Sun Apr 22, 2018 7:05 am
One of the biggest risks with Tencent for a US based investor is the stock's ownership structure which is through a variable interest entity. A VIE is setup as a workaround to Chinese laws and regulations that ban foreign ownership in certain sectors. One day, the founders or the government could decide to no longer honor them and as they exist in a legal grey area/are not legal/laws are 'flexible' in China, they won't be enforced in China and foreign investors in VIEs will have no legal recourse. Also, a VIE investor isn't investing in the company itself, has no voting rights, and none of the normal legal remedies available to shareholders apply. The risk is probably low at the moment as repudiating VIEs would cause reputational issues for the owners and for the government but the possibilty of it occuring in the future is not nil.
When you're investing in a foreign market, don't you always run the risk that the government could impose capital controls at any time, and prevent/delay repatriation ? That has happened before in the past in many countries.

Also, investment in some countries is often done through offshore trusts in a 3rd country to make use of tax treaties between the 3rd country and the country you are actually investing in.

I'm not saying the risk you mention doesn't exist, but I'm not sure it exceeds the general risk of investing in a foreign market.

About Tencent: my general impression is that Chinese high tech companies are expanding rapidly and are actually developing new and interesting technology (the stereotype of Chinese companies being pure copycats is no longer valid). It would be suboptima to overlook such a fast growing sector.

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Re: Tencent now largest non-US stock

Post by fortyofforty » Sun Apr 22, 2018 8:04 am

SlowMovingInvestor wrote:
Sun Apr 22, 2018 7:51 am
About Tencent: my general impression is that Chinese high tech companies are expanding rapidly and are actually developing new and interesting technology (the stereotype of Chinese companies being pure copycats is no longer valid). It would be suboptima to overlook such a fast growing sector.
I would agree that investors who choose to invest internationally ought not to ignore China, which includes Chinese technology companies. However, as I said above and as was pointed out in a quotation by jalbert of a Bloomberg article, I hope there are people digging and scratching and prying and making every other effort to correctly evaluate the value of Chinese companies, so that lazy investors like me can benefit from their hard work. :moneybag :beer
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Re: Tencent now largest non-US stock

Post by Valuethinker » Sun Apr 22, 2018 8:27 am

MossySF wrote:
Wed Apr 18, 2018 6:41 am
fortyofforty wrote:
Wed Apr 18, 2018 6:32 am
That's the difference. In one case, it is a government actively encouraging specific accounting methods and practices for political reasons. In the other, it is individual companies breaking the law and, when caught, paying the price. Can't see the difference, there?

Tencent currently has a higher market capitalization than Berkshire Hathaway or Nestle, to pick two names. Again, I trust that people are digging, as best they can.
And Tesla is worth more than GM. (At least it was 3 months ago -- I haven't kept up with the stock prices lately.)

Shrug ... if you're going to go into every stock one at a time wondering why something is overvalued or undervalued, then the Bogleheads philosophy is not the right one for you.

All investing strategies are horrible. We are simply using the least awful one -- which is hold your nose, ignore insane valuations (in your opinion), and accept what the market decides.
The problem is when companies become distortingly large proportions of the index. Vodafone was 15% of UK index in 2000. Nortel was 25% of the Canadian index (and later went broke).

So within the context of Emerging Market indices, this is of some concern.

Whether we can do anything about this, though, is perhaps moot. With a strict market cap index weighting strategy that includes Emerging Markets, you cannot.

What you should do in theory is take out a short against those particular overvalued stocks- -but that's hard to do in reality. The very reason why valuation bubbles are not self correcting.

I would like if we could have exceptions in this philosophy to not invest in certain companies/industries for moral reasons ... but I'm not sure how to do it with what Vanguard or ETFs gives us.
This all comes down to the A O Hirschman typology of "Exit or Voice".

https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty

There is precious little evidence that Exit (refusing to invest) does much-- it just makes assets cheaper for someone else-- but the cash flows from those assets are not changed. In equilibrium there is no discouragement of the activity.

Voice is a different matter. Lobbying for change by shareholders, eg wrt Apartheid, can have real results. As well as hitting cos where it really counts-- in the sale and use of their products.

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Re: Tencent now largest non-US stock

Post by fortyofforty » Sun Apr 22, 2018 9:17 am

Valuethinker wrote:
Sun Apr 22, 2018 8:27 am
MossySF wrote:
Wed Apr 18, 2018 6:41 am
fortyofforty wrote:
Wed Apr 18, 2018 6:32 am
That's the difference. In one case, it is a government actively encouraging specific accounting methods and practices for political reasons. In the other, it is individual companies breaking the law and, when caught, paying the price. Can't see the difference, there?

Tencent currently has a higher market capitalization than Berkshire Hathaway or Nestle, to pick two names. Again, I trust that people are digging, as best they can.
And Tesla is worth more than GM. (At least it was 3 months ago -- I haven't kept up with the stock prices lately.)

Shrug ... if you're going to go into every stock one at a time wondering why something is overvalued or undervalued, then the Bogleheads philosophy is not the right one for you.

All investing strategies are horrible. We are simply using the least awful one -- which is hold your nose, ignore insane valuations (in your opinion), and accept what the market decides.
The problem is when companies become distortingly large proportions of the index. Vodafone was 15% of UK index in 2000. Nortel was 25% of the Canadian index (and later went broke).

So within the context of Emerging Market indices, this is of some concern.

Whether we can do anything about this, though, is perhaps moot. With a strict market cap index weighting strategy that includes Emerging Markets, you cannot.

What you should do in theory is take out a short against those particular overvalued stocks- -but that's hard to do in reality. The very reason why valuation bubbles are not self correcting.

I would like if we could have exceptions in this philosophy to not invest in certain companies/industries for moral reasons ... but I'm not sure how to do it with what Vanguard or ETFs gives us.
This all comes down to the A O Hirschman typology of "Exit or Voice".

https://en.wikipedia.org/wiki/Exit,_Voice,_and_Loyalty

There is precious little evidence that Exit (refusing to invest) does much-- it just makes assets cheaper for someone else-- but the cash flows from those assets are not changed. In equilibrium there is no discouragement of the activity.

Voice is a different matter. Lobbying for change by shareholders, eg wrt Apartheid, can have real results. As well as hitting cos where it really counts-- in the sale and use of their products.
That said, I am an indirect shareholder in companies via ETFs and mutual funds. I do not want Vanguard making decisions for me based on the latest political issue-du-jour or hot topic in terms of trying to pressure companies. Perhaps a company like Vanguard would have to put such issues to a shareholder vote, before taking action based on what some board decides is "right" or "proper" or "moral", in order to be fair. Unfortunately, the choice "exit or voice" applies equally with a fund company as with an individual corporation.

Besides which, pressure apparently has only worked in influencing the behavior of one entity--South Africa--and failed in dozens of others, at least. China, the Soviet Union, Cuba, Nicaragua, and Venezuela, come readily to mind.
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Re: Tencent now largest non-US stock

Post by jminv » Sun Apr 22, 2018 10:01 am

SlowMovingInvestor wrote:
Sun Apr 22, 2018 7:51 am


When you're investing in a foreign market, don't you always run the risk that the government could impose capital controls at any time, and prevent/delay repatriation ? That has happened before in the past in many countries.

Also, investment in some countries is often done through offshore trusts in a 3rd country to make use of tax treaties between the 3rd country and the country you are actually investing in.

I'm not saying the risk you mention doesn't exist, but I'm not sure it exceeds the general risk of investing in a foreign market.

sector.
Of course you run the risk of capital controls when investing in foreign markets. In which case, it is nice actually owning a stake in the underlying company or holding the underlying company's debt so that you can have a hope of eventually recovering your assets...or using a trust that actually owns a stake in the underlying contracts. This is not the case with Chinese VIEs. I am talking about Chinese VIEs in particular, not investing in a foreign market in general.

VIEs are not used in China to make use of tax treaties. They are used to circumvent the foreign investment ban in certain sectors. VIEs are not owned by the foreign investors who own shares in them but by their sponsors which are normally the management group of the actual company (in this case, Tencent).

There are three risks when one invests in a variable interest entity (VIE). First, the Chinese government could invalidate VIEs in general or in a particular case. Second, the Chinese management of the parent company who created the VIE (and own it, not the foreign shareholders) could expropriate firm assets to themselves which would leave foreign shareholders with no recourse if done on a large scale. This has happened on smaller scales before. Third, related to what you mentioned about capital controls, since foreign shareholders are not legal owners of the VIE entity, capital controls would stop the imitating cash flow of the company to the VIE's foreign shareholders. All three risks would individually make a foreign investor's holding worthless.

The risk is real and exceeds the general risk of investing in a foreign market. Research has shown that there is a discount in the price of the shares foreign investors hold in VIEs because of this risk. The size of the discount varies principally on whether the company has operations outside of China (that could be secured by VIE foreign investors) and whether the firm is judged as too big to fail.

Alibaba and Tencent have been favorites of individual stock pickers for awhile now. I don't have a problem with the companies or foreign invesment in general, just the VIE structure in a Chinese context.

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Re: Tencent now largest non-US stock

Post by jalbert » Sun Apr 22, 2018 12:53 pm

Also, a VIE investor isn't investing in the company itself, has no voting rights, and none of the normal legal remedies available to shareholders apply. 
I believe investors who make direct investments in Chinese companies through China A-shares have no voting rights nor any legal standing to make claims against the bankruptcy estate of a company that goes under. Even if the VIE maintained the shareholder rights of the underlying company, it would not be so different in this case.
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Re: Tencent now largest non-US stock

Post by fortyofforty » Sun Apr 22, 2018 2:27 pm

jalbert wrote:
Sun Apr 22, 2018 12:53 pm
Also, a VIE investor isn't investing in the company itself, has no voting rights, and none of the normal legal remedies available to shareholders apply. 
I believe investors who make direct investments in Chinese companies through China A-shares have no voting rights nor any legal standing to make claims against the bankruptcy estate of a company that goes under. Even if the VIE maintained the shareholder rights of the underlying company, it would not be so different in this case.
It was recently demonstrated that--even in the United States, with clear legal precedent--bondholders can still be forced to accept a value imposed for their bonds, rather than one that they would have otherwise received. (Trying to avoid any political hint and keep it all economic.) No bondholder is truly protected in full, no matter the illusory belief firmly held.
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Re: Tencent now largest non-US stock

Post by jalbert » Sun Apr 22, 2018 9:04 pm

Different scenario. If you hold a bond or stock issued by a US corporation that goes into bankruptcy, you have a legal claim against the bankruptcy estate of the company. A bankruptcy court proceeding will approve payouts from the residual assets in the legally mandated order of payout. You may not be made whole, but you get your day in court.

Usually creditors who loan money to the company after it went into bankruptcy are paid first, secured creditors paid second, unsecured creditors paid after that, and holders of common stock are paid last.

With China A-shares, you have no legal standing for even making a claim against the bankruptcy estate.

Voting rights are more interesting. Only a small minority of shares of Facebook are voting shares. Mr. Zuckerberg decided to liquidate a very substantial majority of the company as non-voting shares so that he was able to liquidate a substantial majority of the value of his holdings, and retain controlling interest of voting shares. The market obliged, so he got away with it. He recently tried to issue additional non-voting shares but backed off in the face of a threatened lawsuit. So there are some examples of weak voting rights in the US as well. The NYSE at one time did not allow non-voting shares to be traded, but that was relaxed at some point.
Last edited by jalbert on Mon Apr 23, 2018 2:58 pm, edited 4 times in total.
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md&pharmacist
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Re: Tencent now largest non-US stock

Post by md&pharmacist » Sun Apr 22, 2018 10:44 pm

fortyofforty wrote:
Sun Apr 22, 2018 8:04 am
SlowMovingInvestor wrote:
Sun Apr 22, 2018 7:51 am
About Tencent: my general impression is that Chinese high tech companies are expanding rapidly and are actually developing new and interesting technology (the stereotype of Chinese companies being pure copycats is no longer valid). It would be suboptima to overlook such a fast growing sector.
I would agree that investors who choose to invest internationally ought not to ignore China, which includes Chinese technology companies. However, as I said above and as was pointed out in a quotation by jalbert of a Bloomberg article, I hope there are people digging and scratching and prying and making every other effort to correctly evaluate the value of Chinese companies, so that lazy investors like me can benefit from their hard work. :moneybag :beer
China is undeniably a rising power. My best performing fund holding (I own 10) in my retirement account is my leveraged China fund. Currently up about 58,5% 1 year return, even after recent correction. I suspect in the long term China will do very well, but expect more volatility than US funds in the meantime.

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fortyofforty
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Re: Tencent now largest non-US stock

Post by fortyofforty » Mon Apr 23, 2018 6:08 am

md&pharmacist wrote:
Sun Apr 22, 2018 10:44 pm
fortyofforty wrote:
Sun Apr 22, 2018 8:04 am
SlowMovingInvestor wrote:
Sun Apr 22, 2018 7:51 am
About Tencent: my general impression is that Chinese high tech companies are expanding rapidly and are actually developing new and interesting technology (the stereotype of Chinese companies being pure copycats is no longer valid). It would be suboptima to overlook such a fast growing sector.
I would agree that investors who choose to invest internationally ought not to ignore China, which includes Chinese technology companies. However, as I said above and as was pointed out in a quotation by jalbert of a Bloomberg article, I hope there are people digging and scratching and prying and making every other effort to correctly evaluate the value of Chinese companies, so that lazy investors like me can benefit from their hard work. :moneybag :beer
China is undeniably a rising power. My best performing fund holding (I own 10) in my retirement account is my leveraged China fund. Currently up about 58,5% 1 year return, even after recent correction. I suspect in the long term China will do very well, but expect more volatility than US funds in the meantime.
Making such leveraged bets can often lead to extraordinary returns. Picking certain sectors, or certain countries, or certain sectors in certain countries, can make you a fortune. I prefer to let the market choose weightings for me, however, in keeping with the Boglehead philosophy, but underweighting international slightly.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Original Vanguard Diehard

talzara
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Re: Tencent now largest non-US stock

Post by talzara » Mon Apr 23, 2018 10:55 am

jalbert wrote:
Sun Apr 22, 2018 9:04 pm
Usually creditors who loan money to the company after it went into bankruptcy are paid first, secured creditors paid second, unsecured creditors paid after that, and holders of common stock are paid last.
That's what's supposed to happen, but that's not what always happens. A senior claim does not always have absolute precedence over the junior claim.
jalbert wrote:
Sun Apr 22, 2018 9:04 pm
With China A-shares, you have no legal standing for even making a claim against the bankruptcy estate.
That's not true. Ordinary shares in China are entitled to a piece of the bankruptcy estate, behind the preferred shares.
Before any distribution of liquidation proceeds can be made to holders of ordinary shares, the holders of preferred shares are entitled to receive the per share liquidation value of their preferred shares and all unpaid accumulated dividends.

https://uk.practicallaw.thomsonreuters. ... rue&bhcp=1

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Re: Tencent now largest non-US stock

Post by jalbert » Mon Apr 23, 2018 2:57 pm

I found the article I had read a couple of years ago and did not recollect correctly in terms of details:

http://www.businessinsider.com/r-amid-c ... dle-2015-5

The issue is not one of theoretical legal standing, as I had suggested above. China passed bankruptcy code that applies to all investors. However, Chinese courts exercise broad discretion in applying the bankruptcy code, and may not give much priority to the claims of foreign investors.

There are also several academic legal articles that are not hard to find on-line that articulate the broad discretion of bankruptcy courts in China.
Risk is not a guarantor of return.

talzara
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Re: Tencent now largest non-US stock

Post by talzara » Mon Apr 23, 2018 5:49 pm

jalbert wrote:
Mon Apr 23, 2018 2:57 pm
http://www.businessinsider.com/r-amid-c ... dle-2015-5

The issue is not one of theoretical legal standing, as I had suggested above. China passed bankruptcy code that applies to all investors. However, Chinese courts exercise broad discretion in applying the bankruptcy code, and may not give much priority to the claims of foreign investors.
That article is about creditors, not shareholders.

By owning A shares, you put yourself in the same pool as the Chinese shareholders. That makes them much safer than VIEs, where you're in a Caribbean tax haven.

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