Chinese bank stocks look very cheap

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Beliavsky
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Chinese bank stocks look very cheap

Post by Beliavsky »

A 05 August 2022 Bank of America report (available to Merrill Edge clients) on Chinese banks says
H-share bank sector was down 2.5% WoW (vs MSCI China/HSI -5.1%/-2.2%) with
BoComm (+0.6%) performing the best and PSBC (-7.6%) the worst. Sector P/B at
0.43x and P/E at 3.6x were at historical low levels. Dividend yield was very high at
9.0%.
In the table below from the report, the last 3 columns are P/B, P/E, and dividend yield

Code: Select all

ABC 1288 HK 145.3 2.58 -0.8% -5.0% -5.0% -7.5% +8.2% +5.0% 0.32x 3.1x 10.0%
BOC 3988 HK 123.8 2.75 -1.8% -4.8% -2.6% -3.5% +10.3% +6.8% 0.32x 3.1x 10.0%
BoComm 3328 HK 47.5 4.69 +0.6% -3.1% -5.2% -5.2% +10.4% +7.8% 0.33x 3.3x 9.6%
CCB 939 HK 156.6 4.86 -3.0% -7.8% -6.2% -14.7% -4.3% -2.7% 0.36x 3.2x 9.6%
ICBC 1398 HK 219.5 4.08 -1.4% -5.8% -5.5% -9.0% +1.5% +0.1% 0.36x 3.3x 9.1%
PSBC 1658 HK 60.8 4.87 -7.6% -16.8% -18.2% -22.5% -1.8% -6.6% 0.51x 4.3x 7.3%
CEB 6818 HK 21.2 2.37 -2.1% -6.0% -7.0% -15.0% -5.0% -6.4% 0.25x 2.6x 11.4%
CMB 3968 HK 126.6 40.65 -5.6% -18.1% -9.8% -38.1% -30.2% -30.4% 0.96x 6.2x 5.4%
CNCB 998 HK 27.7 3.28 -0.9% -6.0% -3.0% -4.5% +2.8% +7.1% 0.23x 2.4x 11.4%
MSB 1988 HK 21.8 2.55 -1.2% -6.3% -4.8% -13.4% -14.3% -7.1% 0.18x 2.8x 10.0%
CQRB 3618 HK 5.4 2.69 -3.2% -4.3% -2.2% +1.1% +1.8% +7.6% 0.23x 2.5x 11.3%
Weighted average -2.5% -8.1% -6.4% -13.6% -1.7% -2.9% 0.43x 3.6x 9.0%
Yahoo Finance has data consistent with this, for example for ABC (Agricultural Bank of China). Two brokers at which I have accounts, Fidelity and Interactive Brokers, let you trade on the Hong Kong exchange. I wonder if buying Chinese banks is a good speculation.
Hyperchicken
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Re: Chinese bank stocks look very cheap

Post by Hyperchicken »

Maybe it is a good speculation. Or maybe these banks' stock is cheap for a reason. Or maybe "a good speculation" is an oxymoron.

If it is an objectively good buying opportunity, then someone already bought them - with billions of institutional money. Up to the point where it's not a good buying opportunity anymore.
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JoMoney
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Re: Chinese bank stocks look very cheap

Post by JoMoney »

Is the "book value" of a banks assets (presumably bonds or debt) "marked to market" ?
My vague understanding was that banks have options in how they choose to carry the value on their books.
If it's not marked to market, but instead carried at face value or purchase cost, the bonds I bought a year ago are currently selling below "book value".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
NoRegret
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Re: Chinese bank stocks look very cheap

Post by NoRegret »

Beliavsky wrote: Thu Aug 04, 2022 7:46 pm A 05 August 2022 Bank of America report (available to Merrill Edge clients) on Chinese banks says
H-share bank sector was down 2.5% WoW (vs MSCI China/HSI -5.1%/-2.2%) with
BoComm (+0.6%) performing the best and PSBC (-7.6%) the worst. Sector P/B at
0.43x and P/E at 3.6x were at historical low levels. Dividend yield was very high at
9.0%.
In the table below from the report, the last 3 columns are P/B, P/E, and dividend yield

Code: Select all

ABC 1288 HK 145.3 2.58 -0.8% -5.0% -5.0% -7.5% +8.2% +5.0% 0.32x 3.1x 10.0%
BOC 3988 HK 123.8 2.75 -1.8% -4.8% -2.6% -3.5% +10.3% +6.8% 0.32x 3.1x 10.0%
BoComm 3328 HK 47.5 4.69 +0.6% -3.1% -5.2% -5.2% +10.4% +7.8% 0.33x 3.3x 9.6%
CCB 939 HK 156.6 4.86 -3.0% -7.8% -6.2% -14.7% -4.3% -2.7% 0.36x 3.2x 9.6%
ICBC 1398 HK 219.5 4.08 -1.4% -5.8% -5.5% -9.0% +1.5% +0.1% 0.36x 3.3x 9.1%
PSBC 1658 HK 60.8 4.87 -7.6% -16.8% -18.2% -22.5% -1.8% -6.6% 0.51x 4.3x 7.3%
CEB 6818 HK 21.2 2.37 -2.1% -6.0% -7.0% -15.0% -5.0% -6.4% 0.25x 2.6x 11.4%
CMB 3968 HK 126.6 40.65 -5.6% -18.1% -9.8% -38.1% -30.2% -30.4% 0.96x 6.2x 5.4%
CNCB 998 HK 27.7 3.28 -0.9% -6.0% -3.0% -4.5% +2.8% +7.1% 0.23x 2.4x 11.4%
MSB 1988 HK 21.8 2.55 -1.2% -6.3% -4.8% -13.4% -14.3% -7.1% 0.18x 2.8x 10.0%
CQRB 3618 HK 5.4 2.69 -3.2% -4.3% -2.2% +1.1% +1.8% +7.6% 0.23x 2.5x 11.3%
Weighted average -2.5% -8.1% -6.4% -13.6% -1.7% -2.9% 0.43x 3.6x 9.0%
Yahoo Finance has data consistent with this, for example for ABC (Agricultural Bank of China). Two brokers at which I have accounts, Fidelity and Interactive Brokers, let you trade on the Hong Kong exchange. I wonder if buying Chinese banks is a good speculation.
Lots of political risk (delisting, outlaw ownership etc.), at a minimum should only consider owning H shares in HK.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
BV3273
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Re: Chinese bank stocks look very cheap

Post by BV3273 »

Maybe the price of the mortgage issues is priced into the share prices.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

JoMoney wrote: Thu Aug 04, 2022 8:06 pm Is the "book value" of a banks assets (presumably bonds or debt) "marked to market" ?
My vague understanding was that banks have options in how they choose to carry the value on their books.
If it's not marked to market, but instead carried at face value or purchase cost, the bonds I bought a year ago are currently selling below "book value".
They do not mark to market. But the banks have rules to determine how likely a loan will default and put them in different categories. Some loans are sold off to collection agencies and some are written down which will be reflected on the income statements.
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peetsperk
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Re: Chinese bank stocks look very cheap

Post by peetsperk »

A wise man named Jack Bogle once said “Don't look for the needle in the haystack. Just buy the haystack!”. I believe his wisdom may apply in this type of situation. Good luck.
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willthrill81
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Re: Chinese bank stocks look very cheap

Post by willthrill81 »

Yesterday's bread is on sale for a reason.
I have left the forum but occasionally check PMs.
chrisdds98
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Re: Chinese bank stocks look very cheap

Post by chrisdds98 »

the chinese real estate market is hanging on by a thread. if it crashes the banks will have to write off a ton of loans
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
Hyperchicken
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Re: Chinese bank stocks look very cheap

Post by Hyperchicken »

gougou wrote: Thu Aug 04, 2022 10:09 pm
willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
The irony.
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peetsperk
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Re: Chinese bank stocks look very cheap

Post by peetsperk »

gougou wrote: Thu Aug 04, 2022 10:09 pm
willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
And therefore?
Valuethinker
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Re: Chinese bank stocks look very cheap

Post by Valuethinker »

willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
As China is the midst of the greatest real estate lending default of all time (Evergrande + other developers) it's perhaps not surprising these banks are on low multiples.

It smells of "value trap". But because the banks real equity value is so low (and potentially negative) small changes in government policy which increase the loan recovery rate can have huge impacts on that equity value.

In effect, the investment is highly leveraged to Chinese govt policy and the workout they are attempting with the property development sector. To speak in favour of the PRC/ Chinese Communist Party they have pulled off these sorts of things before.
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Cheez-It Guy
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Re: Chinese bank stocks look very cheap

Post by Cheez-It Guy »

Nope!
BV3273
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Re: Chinese bank stocks look very cheap

Post by BV3273 »

gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
Where do you buy these stocks?
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nisiprius
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Re: Chinese bank stocks look very cheap

Post by nisiprius »

I'll quote from the prospectus of the iShares MSCI China Index fund. The Bogleheads' investing philosophy is against individual stocks anyway, on the theory that such investing involves taking uncompensated idiosyncratic risk. But the parts I've underlined suggest to me that the risks of buying individual Chinese stocks are even greater than they would be in a developed market. Because of concerns about accuracy of public information, the case against investing in individual stocks, and the case for using index funds--or at least diversified mutual funds and ETFs, is even stronger for emerging markets countries than it is for developed markets. The iShares MSCI China Index ETF has 636 holdings, the Matthews China Fund has over fifty.

Source

Selected portions, and my underlining.
Chinese markets generally continue to experience inefficiency, volatility and pricing anomalies resulting from governmental influence, a lack of publicly available information and/or political and social instability....

Chinese companies, including Chinese companies that are listed on U.S. exchanges, are not subject to the same degree of regulatory requirements, accounting standards or auditor oversight as companies in more developed countries. As a result, information about the Chinese securities in which the Fund invests may be less reliable or complete....

Emerging markets often have less reliable securities valuations and greater risk associated with custody of securities than developed markets. There may be significant obstacles to obtaining information necessary for investigations into or litigation against companies and shareholders may have limited legal remedies.
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.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

Speculation isn't about buying the cheapest stocks based P/E, P/B or whatever. The rest of the market already knows this and pricing is low because the market perceives a lot of risk there. What you need to determine is if the market has oversold this category of stocks - i.e., are they overreacting? That doesn't have anything to do with low P/E - there could be a growth stock that you think the market has underpriced. If you can't articulate specifics on why you think the market is overreacting to bad news (or doesn't realize the potential of a specific company), then you shouldn't be speculating with individual stocks. In that case, if you want to speculate, you are better off buying broad-based value ETF (if value is what you want to target) - in this case, EM value.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
martincmartin
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Re: Chinese bank stocks look very cheap

Post by martincmartin »

Hyperchicken wrote: Thu Aug 04, 2022 7:52 pm If it is an objectively good buying opportunity, then someone already bought them - with billions of institutional money. Up to the point where it's not a good buying opportunity anymore.
Exactly. All public information is already priced in. "Something that's known by everybody isn't worth knowing."
seajay
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Re: Chinese bank stocks look very cheap

Post by seajay »

Concerns over banks runs against a number of smaller banks, with some saying tanks and other physical restraint methods are being employed to prevent depositor withdrawals, less inclination to trust/deposit-into banks, some not paying their mortgage - potential contagion as the 'economy slows' and where in China deposits only up to 50,000 yuan (around $7,400) are insured (depositor protection).
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Beliavsky
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Re: Chinese bank stocks look very cheap

Post by Beliavsky »

burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
If a stock pays a 10% dividend, as some of the Chinese banks do, a constant stock price would give you a 10% return, which is good. In fact, if investors become confident that a stock will pay $1 in dividends annually, they will typically bid the stock price above $10, resulting in capital gains. The question is whether Chinese banks will cut their dividends.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

Beliavsky wrote: Fri Aug 05, 2022 8:23 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
If a stock pays a 10% dividend, as some of the Chinese banks do, a constant stock price would give you a 10% return, which is good. In fact, if investors become confident that a stock will pay $1 in dividends annually, they will typically bid the stock price above $10, resulting in capital gains. The question is whether Chinese banks will cut their dividends.
No, that is not how dividends work.
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Re: Chinese bank stocks look very cheap

Post by gougou »

BV3273 wrote: Fri Aug 05, 2022 5:30 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
Where do you buy these stocks?
You can buy them directly on IBKR.
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 6:35 am Speculation isn't about buying the cheapest stocks based P/E, P/B or whatever. The rest of the market already knows this and pricing is low because the market perceives a lot of risk there. What you need to determine is if the market has oversold this category of stocks - i.e., are they overreacting? That doesn't have anything to do with low P/E - there could be a growth stock that you think the market has underpriced. If you can't articulate specifics on why you think the market is overreacting to bad news (or doesn't realize the potential of a specific company), then you shouldn't be speculating with individual stocks. In that case, if you want to speculate, you are better off buying broad-based value ETF (if value is what you want to target) - in this case, EM value.
Speculation has many kinds. One kind of speculation is to buy stocks that are so cheap that have to be good investments. Such companies trade well below cash, well below book value, very low P/E ratio, or pay large dividends relative to the stock price. Investors are well-compensated for the risk taken and have a margin of safety to wait for acceptable returns.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 9:38 am
gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
No you make no money trying to capture the dividends. I think we’ve discussed this before. The market is efficient enough that capturing dividends is futile.
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Beliavsky
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Re: Chinese bank stocks look very cheap

Post by Beliavsky »

burritoLover wrote: Fri Aug 05, 2022 9:38 am
gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
It is true that if a stock always traded at $10 and paid a $1 annual dividend on a known date, it would be an arbitrage to pay $10 on the day before ex-div, sell the next day, and make 10% in one day. Since the market is not that inefficient, if the stock price traded at $9 on ex-div day, it would gradually appreciate to $10 over the year, just before the next ex-div day, due to retained earnings and the approaching dividend, and then fall back to $9 on ex-div day. The annual return on that stock would be 1/9 = 11%.
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willthrill81
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Re: Chinese bank stocks look very cheap

Post by willthrill81 »

gougou wrote: Thu Aug 04, 2022 10:09 pm
willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
So have a great many other financial instruments.
I have left the forum but occasionally check PMs.
invest2bfree
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Re: Chinese bank stocks look very cheap

Post by invest2bfree »

Beliavsky wrote: Thu Aug 04, 2022 7:46 pm A 05 August 2022 Bank of America report (available to Merrill Edge clients) on Chinese banks says
H-share bank sector was down 2.5% WoW (vs MSCI China/HSI -5.1%/-2.2%) with
BoComm (+0.6%) performing the best and PSBC (-7.6%) the worst. Sector P/B at
0.43x and P/E at 3.6x were at historical low levels. Dividend yield was very high at
9.0%.
In the table below from the report, the last 3 columns are P/B, P/E, and dividend yield

Code: Select all

ABC 1288 HK 145.3 2.58 -0.8% -5.0% -5.0% -7.5% +8.2% +5.0% 0.32x 3.1x 10.0%
BOC 3988 HK 123.8 2.75 -1.8% -4.8% -2.6% -3.5% +10.3% +6.8% 0.32x 3.1x 10.0%
BoComm 3328 HK 47.5 4.69 +0.6% -3.1% -5.2% -5.2% +10.4% +7.8% 0.33x 3.3x 9.6%
CCB 939 HK 156.6 4.86 -3.0% -7.8% -6.2% -14.7% -4.3% -2.7% 0.36x 3.2x 9.6%
ICBC 1398 HK 219.5 4.08 -1.4% -5.8% -5.5% -9.0% +1.5% +0.1% 0.36x 3.3x 9.1%
PSBC 1658 HK 60.8 4.87 -7.6% -16.8% -18.2% -22.5% -1.8% -6.6% 0.51x 4.3x 7.3%
CEB 6818 HK 21.2 2.37 -2.1% -6.0% -7.0% -15.0% -5.0% -6.4% 0.25x 2.6x 11.4%
CMB 3968 HK 126.6 40.65 -5.6% -18.1% -9.8% -38.1% -30.2% -30.4% 0.96x 6.2x 5.4%
CNCB 998 HK 27.7 3.28 -0.9% -6.0% -3.0% -4.5% +2.8% +7.1% 0.23x 2.4x 11.4%
MSB 1988 HK 21.8 2.55 -1.2% -6.3% -4.8% -13.4% -14.3% -7.1% 0.18x 2.8x 10.0%
CQRB 3618 HK 5.4 2.69 -3.2% -4.3% -2.2% +1.1% +1.8% +7.6% 0.23x 2.5x 11.3%
Weighted average -2.5% -8.1% -6.4% -13.6% -1.7% -2.9% 0.43x 3.6x 9.0%
Yahoo Finance has data consistent with this, for example for ABC (Agricultural Bank of China). Two brokers at which I have accounts, Fidelity and Interactive Brokers, let you trade on the Hong Kong exchange. I wonder if buying Chinese banks is a good speculation.

How did buying RSX Russia etf pan out?

Russia was unbelievable value and everyone who jumped in got wiped out.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

willthrill81 wrote: Fri Aug 05, 2022 9:56 am
gougou wrote: Thu Aug 04, 2022 10:09 pm
willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
So have a great many other financial instruments.
The point is you never know who’s yesterday’s bread that’s currently on sale.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Fri Aug 05, 2022 9:49 am
burritoLover wrote: Fri Aug 05, 2022 9:38 am
gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
No you make no money trying to capture the dividends. I think we’ve discussed this before. The market is efficient enough that capturing dividends is futile.
So you must believe that investors drive up the price before the ex-div date to the exact amount of the dividend payout and then on ex-div, the price drops by the amount of the dividend so you don't net anything with a capture strategy but you do if buy and hold?
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

Beliavsky wrote: Fri Aug 05, 2022 9:55 am
burritoLover wrote: Fri Aug 05, 2022 9:38 am
gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
gougou wrote: Thu Aug 04, 2022 9:38 pm I own a lot of Bank of China (3988) and some Agricultural Bank of China (1288). I think they are good value and I plan to hold them long term. Can’t beat that well covered 9%+ dividends. I don’t need any price appreciation as long as those dividends keep coming.

I don’t think they are high risk. The put options on these stocks are pretty cheap so you can even hedge your downside if you are worried.

P. S. Chinese everything is very cheap.
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
It is true that if a stock always traded at $10 and paid a $1 annual dividend on a known date, it would be an arbitrage to pay $10 on the day before ex-div, sell the next day, and make 10% in one day. Since the market is not that inefficient, if the stock price traded at $9 on ex-div day, it would gradually appreciate to $10 over the year, just before the next ex-div day, due to retained earnings and the approaching dividend, and then fall back to $9 on ex-div day. The annual return on that stock would be 1/9 = 11%.
If markets were that inefficient and/or pricing was that predictable, then active managers would still have a field day. That's dividend marketing propaganda.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 10:03 am
gougou wrote: Fri Aug 05, 2022 9:49 am
burritoLover wrote: Fri Aug 05, 2022 9:38 am
gougou wrote: Fri Aug 05, 2022 9:33 am
burritoLover wrote: Fri Aug 05, 2022 6:39 am
You do need price appreciation if you want to actually make any money. The dividend yield is irrelevant to your net worth.
Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Then you should buy the day before ex-div and sell the morning of ex-div if you think you are actually adding 9% to your net worth. That way you collect the full dividend while reducing the risk of holding the stock so free lunch which of course, the market allows cause they must be clueless.
No you make no money trying to capture the dividends. I think we’ve discussed this before. The market is efficient enough that capturing dividends is futile.
So you must believe that investors drive up the price before the ex-div date to the exact amount of the dividend payout and then on ex-div, the price drops by the amount of the dividend so you don't net anything with a capture strategy but you do if buy and hold?
I believe Bank of China is worth more than $120B. It also makes more than $36B a year and retains more than $25B a year on its book to make more loans. I couldn’t care less about how the stock behaves on the ex-dividend date or right before the ex-dividend date as I plan to hold it all year around until the market realizes its value.
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Re: Chinese bank stocks look very cheap

Post by random_walker_77 »

gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

random_walker_77 wrote: Fri Aug 05, 2022 10:13 am
gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

random_walker_77 wrote: Fri Aug 05, 2022 10:13 am
gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
Market tells you nobody wants to buy highly profitable Chinese state-own banks. They rather buy TSLA and make quick bucks.

Like I said I’m fine with a 9% well-covered, growing dividends. So it works for me.
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willthrill81
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Re: Chinese bank stocks look very cheap

Post by willthrill81 »

gougou wrote: Fri Aug 05, 2022 9:58 am
willthrill81 wrote: Fri Aug 05, 2022 9:56 am
gougou wrote: Thu Aug 04, 2022 10:09 pm
willthrill81 wrote: Thu Aug 04, 2022 9:50 pm Yesterday's bread is on sale for a reason.
Yesterday’s bread? It outperformed S&P 500 in the past year.
So have a great many other financial instruments.
The point is you never know who’s yesterday’s bread that’s currently on sale.
The market obviously puts a low value on Chinese bank stocks right now.
I have left the forum but occasionally check PMs.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Fri Aug 05, 2022 10:21 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am
gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
Market tells you nobody wants to buy highly profitable Chinese state-own banks. They rather buy TSLA and make quick bucks.

Like I said I’m fine with a 9% well-covered, growing dividends. So it works for me.
So state-owned Chinese banks should be priced similarly to US banks otherwise they are a bargain?!? I'm sure you don't believe that but if we go just by dividend yield and if a US bank like Jp Morgan is yielding 3.5% currently, what should these Chinese banks be yielding if they were merely not underpriced nor overpriced in your opinion.
random_walker_77
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Re: Chinese bank stocks look very cheap

Post by random_walker_77 »

burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 10:29 am
gougou wrote: Fri Aug 05, 2022 10:21 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am
gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
Market tells you nobody wants to buy highly profitable Chinese state-own banks. They rather buy TSLA and make quick bucks.

Like I said I’m fine with a 9% well-covered, growing dividends. So it works for me.
So state-owned Chinese banks should be priced similarly to US banks otherwise they are a bargain?!? I'm sure you don't believe that but if we go just by dividend yield and if a US bank like Jp Morgan is yielding 3.5% currently, what should these Chinese banks be yielding if they were merely not underpriced nor overpriced in your opinion.
No I never said Chinese banks should be valued the same as US banks. In fact if JPM traded at 3x P/E it would yield about 10% which looks pretty similar to Bank of China’s valuation. So it looks like Bank of China trades at about 1/3 of the valuation level if JPM for the same earning/dividend power.

I simply believe I am getting more bang for the bucks to buy Chinese banks here. If the valuation gap recovers to 2/3 of US banks (so Chinese banks are still undervalued) that’s a double on my investments plus 3x more dividends received over the holding period waiting for the recovery.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Fri Aug 05, 2022 10:39 am
burritoLover wrote: Fri Aug 05, 2022 10:29 am
gougou wrote: Fri Aug 05, 2022 10:21 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am
gougou wrote: Fri Aug 05, 2022 9:33 am Bank of China is worth about $120B. It pays about $11B of dividends a year while retaining most of the profits it makes every year. As long as the value of Bank of China stays at $120B I’m making 9% a year. And that’s enough for me, I don’t really care if the market keeps undervaluing it.
Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
Market tells you nobody wants to buy highly profitable Chinese state-own banks. They rather buy TSLA and make quick bucks.

Like I said I’m fine with a 9% well-covered, growing dividends. So it works for me.
So state-owned Chinese banks should be priced similarly to US banks otherwise they are a bargain?!? I'm sure you don't believe that but if we go just by dividend yield and if a US bank like Jp Morgan is yielding 3.5% currently, what should these Chinese banks be yielding if they were merely not underpriced nor overpriced in your opinion.
No I never said Chinese banks should be valued the same as US banks. In fact if JPM traded at 3x P/E it would yield about 10% which looks pretty similar to Bank of China’s valuation. So it looks like Bank of China trades at about 1/3 of the valuation level if JPM for the same earning/dividend power.

I simply believe I am getting more bang for the bucks to buy Chinese banks here. If the valuation gap recovers to 2/3 of US banks (so Chinese banks are still undervalued) that’s a double on my investments plus 3x more dividends received over the holding period waiting for the recovery.
Ok, well good luck.
random_walker_77
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Re: Chinese bank stocks look very cheap

Post by random_walker_77 »

burritoLover wrote: Fri Aug 05, 2022 10:43 am
random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
Well said, I completely agree! (But somehow, I get the sense that you might've misread my original post up there and think we disagree?)
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

random_walker_77 wrote: Fri Aug 05, 2022 12:34 pm
burritoLover wrote: Fri Aug 05, 2022 10:43 am
random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
Well said, I completely agree! (But somehow, I get the sense that you might've misread my original post up there and think we disagree?)
Sounds like I did. Not enough caffeine for me yet apparently. :sharebeer
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 10:43 am
random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
That is your unproven claim that you keep recycling. It may be true in some limited circumstances but there is definitely a preference for dividends over selling shares when a stock is trading way below book value/intrinsic value. You own a lot more of the book value/underlying assets if you received dividends vs if you sold shares.
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burritoLover
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Re: Chinese bank stocks look very cheap

Post by burritoLover »

gougou wrote: Fri Aug 05, 2022 1:11 pm
burritoLover wrote: Fri Aug 05, 2022 10:43 am
random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
random_walker_77 wrote: Fri Aug 05, 2022 10:13 am Some people look at this and see that it's yielding 9% and trading at a low P/E and think, "wow, a chance for massive price appreciation, and if not a wonderful yield. This is a no-lose situation!"

There's no free lunch. Markets transmit information.

The market is saying, 9% yield is fair to compensate for the risk of loss of principal. Then again, maybe all the big investors in China, the US, Europe etc have made a mistake and you know something they don't know. In that case, feel free to invest, but for 99.99% of people, it'd be a mistake to think that you have the edge.
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
That is your unproven claim that you keep recycling. It may be true in some limited circumstances but there is definitely a preference for dividends over selling shares when a stock is trading way below book value/intrinsic value. You own a lot more of the book value/underlying assets if you received dividends vs if you sold shares.
If there's a preference for dividends over selling shares when the price is low vs fundamentals, that would drive the price upwards, all-else-equal so you should expect a lower total return, not higher.

From Rational Reminder episode 201:
Ben Felix: Hartzmark and Solomon refer to this, to their empirical finding, as the free dividends fallacy. The effect makes a stock, these are my words not theirs, the effect makes a stock that pays a dividends seem more attractive than one that doesn't to some investors, to investors that have a preference for dividends. Now, if dividend investors place a high value on the cash flow stream from dividend paying stocks, they'll be willing to pay a premium for those cash flows above and beyond what a rational investor would. The result, if that is the case, would be higher prices and lower expected returns for dividend paying stocks when yield is in high demand.

So, in support of that statement, Hartzmark and Solomon find that dividend demand is higher when interest rates are low and bond interest payments provide less income, and the effect is more pronounced for stocks whose dividends are more stable or have increased in the recent past. They explain that dividends seeking investors are likely to buy dividend paying stocks at the same time as each other. And this is important. They estimate that investors buying dividend paying stocks during times of high demand have reduced their expected returns by roughly 2-4% per year.
gougou
Posts: 1145
Joined: Thu Sep 28, 2017 7:42 pm

Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 1:23 pm
gougou wrote: Fri Aug 05, 2022 1:11 pm
burritoLover wrote: Fri Aug 05, 2022 10:43 am
random_walker_77 wrote: Fri Aug 05, 2022 10:35 am
burritoLover wrote: Fri Aug 05, 2022 10:18 am
So how does the market determine "fair" compensation for a risky non-dividend paying stock? By your theory, in those cases, companies with the same fundamentals, the non-dividend payers should have a lower price than the dividend paying stock (equivalent to the dividend amount). Which would mean the dividend paying stock has a lower expected return.
You're looking at just price appreciation? In theory, market participants are looking at total return b/c they could take that dividend and use it to buy the stock. That makes it directly comparable to a stock that doesn't pay any dividends. Going the other way, a shareholder of a stock that doesn't pay any dividends, could roll their own by selling 2% (or whatever % they feel is sustainable) of the stock each year.
There's no difference between receiving a dividend and selling the same amount as far as your net worth. So if I have two stocks of companies that are exactly the same, and one pays a 4% dividend yield and the other pays an 3% dividend, there should be no preference for one over the other (barring tax considerations).
That is your unproven claim that you keep recycling. It may be true in some limited circumstances but there is definitely a preference for dividends over selling shares when a stock is trading way below book value/intrinsic value. You own a lot more of the book value/underlying assets if you received dividends vs if you sold shares.
If there's a preference for dividends over selling shares when the price is low vs fundamentals, that would drive the price upwards, all-else-equal so you should expect a lower total return, not higher.

From Rational Reminder episode 201:
Ben Felix: Hartzmark and Solomon refer to this, to their empirical finding, as the free dividends fallacy. The effect makes a stock, these are my words not theirs, the effect makes a stock that pays a dividends seem more attractive than one that doesn't to some investors, to investors that have a preference for dividends. Now, if dividend investors place a high value on the cash flow stream from dividend paying stocks, they'll be willing to pay a premium for those cash flows above and beyond what a rational investor would. The result, if that is the case, would be higher prices and lower expected returns for dividend paying stocks when yield is in high demand.

So, in support of that statement, Hartzmark and Solomon find that dividend demand is higher when interest rates are low and bond interest payments provide less income, and the effect is more pronounced for stocks whose dividends are more stable or have increased in the recent past. They explain that dividends seeking investors are likely to buy dividend paying stocks at the same time as each other. And this is important. They estimate that investors buying dividend paying stocks during times of high demand have reduced their expected returns by roughly 2-4% per year.
Mock me all you want but I don't understand some complicated theories. The investment thesis is pretty simple. This $120B company owns $360B worth of net assets, they make some $35B of net profit a year, distributing over $10B and keeping $24B to make more loans to grow the business.

Next year this time, I would have received my 9.5% dividend, and this company would have $384B worth of net assets, which is more than the $360B today. I don't see why it should be worth less than the $120B today unless the market grows a lot more pessimistic on China. I get 9.5% yield and I own an appreciating asset, so yes I think the 9.5% dividend is free money. And no I'm not selling any shares trading at 1/3 book value.
Topic Author
Beliavsky
Posts: 1071
Joined: Sun Jun 29, 2014 10:21 am

Re: Chinese bank stocks look very cheap

Post by Beliavsky »

If you have high confidence in management, it may not matter whether the company pays dividends, buys back stock, or reinvests in the business. Berkshire Hathaway does not pay dividends, although Buffett does repurchase shares when he deems them cheap. When you are less confident in management, and you wonder if book value is properly reported, a high dividend provides some reassurance, at least to me. I would be less interested in Chinese banks if they had the same P/E and P/B but were not paying dividends.

In the U.S. and Europe, bank stocks responds positively to regulators allowing dividend increases and buybacks. Often analyst reports discuss prospects for dividends and buybacks.
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