WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

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nexesn
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WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by nexesn » Fri May 24, 2019 11:44 am

Interesting article from the WSJ. Sorry, it's paywalled.... but here are a few snippets.

https://www.wsj.com/articles/think-befo ... _lead_pos9

.....The best returns for the MSCI China index came in the early to mid 2000s, not long after Wall Street strategists branded Brazil, Russia, India and China as “the BRICs,” the indispensable cornerstones of a global growth portfolio.

Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.


....When companies buy back their own stock (or when corporate mergers and acquisitions remove it from the market), then shares become more scarce. That makes the remaining shares more valuable. With corporate profits parceled out among fewer shares, future returns are likely to be higher.

By contrast, when companies—or governments, as in China—sell more stock to the public, then shares become more plentiful. As the market is flooded with stock, ownership in such diluted shares becomes less valuable. Corporate profits get spread across a bigger base of stocks, causing future returns per share to fall. And investors become less choosy, enabling lower-quality companies to issue shares and making losses more likely.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by lukestuckenhymer » Fri May 24, 2019 12:01 pm

nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.

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nexesn
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by nexesn » Fri May 24, 2019 12:05 pm

lukestuckenhymer wrote:
Fri May 24, 2019 12:01 pm
nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.

Agreed! :happy

I just thought it was generally interesting from research standpoint (not forward info, but more past).

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by wolf359 » Fri May 24, 2019 12:47 pm

lukestuckenhymer wrote:
Fri May 24, 2019 12:01 pm
nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.
Sometimes, past results DO predict future results. The Chinese market is so rigged against outsiders and retail investors, that it is better not to play at all.

See: Documentary "The China Hustle" https://www.forbes.com/sites/markhughes ... a0dffa3357
See: Article describing "The China Hustle" issues (if you don't want to watch the documentary.) https://www.thedailybeast.com/the-dirty ... -away-with
See: Picked like leeks https://www.cnn.com/2018/11/03/asia/chi ... /index.htm

When reports of fraudulent financial statements and shell companies surfaced, the Chinese government responded quickly and effectively to eliminate the problem -- by making it illegal to take financial statements out of the country and classifying independent audits as espionage.

Reference: SEC warning about Chinese financial records. https://www.sec.gov/news/public-stateme ... -and-other
https://www.wsj.com/articles/sec-revive ... 1544229843
Restrictions on Access to Books and Records Maintained in China

While international cooperation and coordination have increased significantly in many parts of the world in recent years, the SEC and PCAOB still face challenges from laws and practices that can impede strong regulation, supervision, and enforcement. For example, both the SEC and the PCAOB currently face significant challenges in overseeing the financial reporting for U.S.-listed companies whose operations are based in China—a market where U.S. investors’ interest has increased and is significant.[18] The business books and records related to transactions and events occurring within China are required by Chinese law to be kept and maintained there. China also restricts the auditor’s documentation of work performed in the country from being transferred out of China.[19]

China’s state security laws are invoked at times to limit U.S. regulators’ ability to oversee the financial reporting of U.S.-listed, China-based companies. In particular, Chinese laws governing the protection of state secrets and national security have been invoked to limit foreign access to China-based business books and records and audit work papers. As a result, for certain China-based companies listed on U.S. stock exchanges, the SEC and PCAOB have not had access to the books and records and audit work papers to an extent consistent with other jurisdictions both in scope and timing.
You're investing in a market where the numbers can't be validated. They keep selling more shares just to collect more money. The next 10 years may well be like the last 10 years. Except maybe with a US-China trade war that also shakes confidence.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by asif408 » Fri May 24, 2019 2:17 pm

I don't know what the next 10 years will bring for China, but assuming you are 100% stock and hold a Total World Stock Market index fund (which most investors here don't, they hold less than world market cap weight in international), you only have 3% or so of your holdings in China. So whatever China's returns are, they will likely have little meaningful influence on the overall portfolio performance, even if shareholder dilution in China erodes the returns from their stock market.

Shareholder dilution is much less of a problem in other countries, so just another reason not to put all your investment eggs in one country's basket.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by SimpleGift » Fri May 24, 2019 3:13 pm

asif408 wrote:
Fri May 24, 2019 2:17 pm
Shareholder dilution is much less of a problem in other countries, so just another reason not to put all your investment eggs in one country's basket.
Right. To put some numbers on your point, China has been in a class all its own regarding share dilution (table below):
  • Image
    NOTE: Averages are simple arithmetic of the 6 markets.
    Data Source: Schroders
While I believe it still makes sense to allocate part of one's equity portfolio to emerging markets, there's no need to go overboard on the promise of rapid economic growth, at the expense of the slower-growing developed markets of the world.

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nexesn
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by nexesn » Fri May 24, 2019 5:39 pm

wolf359 wrote:
Fri May 24, 2019 12:47 pm
lukestuckenhymer wrote:
Fri May 24, 2019 12:01 pm
nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.
Sometimes, past results DO predict future results. The Chinese market is so rigged against outsiders and retail investors, that it is better not to play at all.

See: Documentary "The China Hustle" https://www.forbes.com/sites/markhughes ... a0dffa3357
See: Article describing "The China Hustle" issues (if you don't want to watch the documentary.) https://www.thedailybeast.com/the-dirty ... -away-with
See: Picked like leeks https://www.cnn.com/2018/11/03/asia/chi ... /index.htm

When reports of fraudulent financial statements and shell companies surfaced, the Chinese government responded quickly and effectively to eliminate the problem -- by making it illegal to take financial statements out of the country and classifying independent audits as espionage.

Reference: SEC warning about Chinese financial records. https://www.sec.gov/news/public-stateme ... -and-other
https://www.wsj.com/articles/sec-revive ... 1544229843
Restrictions on Access to Books and Records Maintained in China

While international cooperation and coordination have increased significantly in many parts of the world in recent years, the SEC and PCAOB still face challenges from laws and practices that can impede strong regulation, supervision, and enforcement. For example, both the SEC and the PCAOB currently face significant challenges in overseeing the financial reporting for U.S.-listed companies whose operations are based in China—a market where U.S. investors’ interest has increased and is significant.[18] The business books and records related to transactions and events occurring within China are required by Chinese law to be kept and maintained there. China also restricts the auditor’s documentation of work performed in the country from being transferred out of China.[19]

China’s state security laws are invoked at times to limit U.S. regulators’ ability to oversee the financial reporting of U.S.-listed, China-based companies. In particular, Chinese laws governing the protection of state secrets and national security have been invoked to limit foreign access to China-based business books and records and audit work papers. As a result, for certain China-based companies listed on U.S. stock exchanges, the SEC and PCAOB have not had access to the books and records and audit work papers to an extent consistent with other jurisdictions both in scope and timing.
You're investing in a market where the numbers can't be validated. They keep selling more shares just to collect more money. The next 10 years may well be like the last 10 years. Except maybe with a US-China trade war that also shakes confidence.

Thanks for the links!



SimpleGift wrote:
Fri May 24, 2019 3:13 pm
asif408 wrote:
Fri May 24, 2019 2:17 pm
Shareholder dilution is much less of a problem in other countries, so just another reason not to put all your investment eggs in one country's basket.
Right. To put some numbers on your point, China has been in a class all its own regarding share dilution (table below):
  • Image
    NOTE: Averages are simple arithmetic of the 6 markets.
    Data Source: Schroders
While I believe it still makes sense to allocate part of one's equity portfolio to emerging markets, there's no need to go overboard on the promise of rapid economic growth, at the expense of the slower-growing developed markets of the world.
Great table. Thanks for the info. Crazy the percentage of dilution!

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Ferdinand2014 » Fri May 24, 2019 6:52 pm

wolf359 wrote:
Fri May 24, 2019 12:47 pm
lukestuckenhymer wrote:
Fri May 24, 2019 12:01 pm
nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.
Sometimes, past results DO predict future results. The Chinese market is so rigged against outsiders and retail investors, that it is better not to play at all.

See: Documentary "The China Hustle" https://www.forbes.com/sites/markhughes ... a0dffa3357
See: Article describing "The China Hustle" issues (if you don't want to watch the documentary.) https://www.thedailybeast.com/the-dirty ... -away-with
See: Picked like leeks https://www.cnn.com/2018/11/03/asia/chi ... /index.htm

When reports of fraudulent financial statements and shell companies surfaced, the Chinese government responded quickly and effectively to eliminate the problem -- by making it illegal to take financial statements out of the country and classifying independent audits as espionage.

Reference: SEC warning about Chinese financial records. https://www.sec.gov/news/public-stateme ... -and-other
https://www.wsj.com/articles/sec-revive ... 1544229843
Restrictions on Access to Books and Records Maintained in China

While international cooperation and coordination have increased significantly in many parts of the world in recent years, the SEC and PCAOB still face challenges from laws and practices that can impede strong regulation, supervision, and enforcement. For example, both the SEC and the PCAOB currently face significant challenges in overseeing the financial reporting for U.S.-listed companies whose operations are based in China—a market where U.S. investors’ interest has increased and is significant.[18] The business books and records related to transactions and events occurring within China are required by Chinese law to be kept and maintained there. China also restricts the auditor’s documentation of work performed in the country from being transferred out of China.[19]

China’s state security laws are invoked at times to limit U.S. regulators’ ability to oversee the financial reporting of U.S.-listed, China-based companies. In particular, Chinese laws governing the protection of state secrets and national security have been invoked to limit foreign access to China-based business books and records and audit work papers. As a result, for certain China-based companies listed on U.S. stock exchanges, the SEC and PCAOB have not had access to the books and records and audit work papers to an extent consistent with other jurisdictions both in scope and timing.
You're investing in a market where the numbers can't be validated. They keep selling more shares just to collect more money. The next 10 years may well be like the last 10 years. Except maybe with a US-China trade war that also shakes confidence.
Just watched the movie. Go green! Go Spartans! In any case, Glad I am not invested with China or any emerging market for that matter. I think I’ll stick with my old fuddy duddy S&P 500 index fund and short term treasury bonds thank you very much.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

columbia
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Fri May 24, 2019 7:05 pm

Seems like a good old fashioned shell game.

Random Walker
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Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by Random Walker » Sat May 25, 2019 10:41 am

[Thread merged into here, see below. --admin LadyGeek]

https://www.wsj.com/articles/think-befo ... yURL_share

In this weekend’s WSJ Jason Zweig has an article titled Think Before You Fish For Bargains In Chinese Stocks. He makes a point that I initially read in Jeremy Siegel’s book that followed Stocks For The Long Run, called The Future For Investors. Siegel and Zweig point out that the relationship between GNP growth of a country’s economy and the returns to it’s stock market is often negative. Whether it’s at the individual company level or at the country level, there seems to be a strong human tendency to overpay for growth.

Dave
Last edited by Random Walker on Sat May 25, 2019 10:57 am, edited 1 time in total.

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Re: Jason Zweig: Counties with faster growing economies of produce lower-not higher-stock market returns

Post by grok87 » Sat May 25, 2019 10:45 am

Random Walker wrote:
Sat May 25, 2019 10:41 am
https://www.wsj.com/articles/think-befo ... yURL_share

In this weekend’s WSJ Jason Zweig has an article titled Think Before You Fish For Bargains In Chinese Stocks. He makes a point that I initially read in Jeremy Siegel’s book that followed Stocks For The Long Run, called The Future For Investors. Siegel and Zweig point out that the relationship between GNP growth of a country’s economy and the returns to it’s stock market is often negative. Whether it’s at the individual company level or at the country level, there seems to be a strong human tendency to overpay for growth.

Dave
thanks Dave.
just a slight comment. the linked article in Zweig's piece looked at per-capital GDP growth
https://site.warrington.ufl.edu/ritter/ ... cle_inline
chart on page 6.
original work on this was done by DImson and Marsh et al.
cheers,
grok
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Re: Jason Zweig: Counties with faster growing economies of produce lower-not higher-stock market returns

Post by ResearchMed » Sat May 25, 2019 10:47 am

Random Walker wrote:
Sat May 25, 2019 10:41 am
https://www.wsj.com/articles/think-befo ... yURL_share

In this weekend’s WSJ Jason Zweig has an article titled Think Before You Fish For Bargains In Chinese Stocks. He makes a point that I initially read in Jeremy Siegel’s book that followed Stocks For The Long Run, called The Future For Investors. Siegel and Zweig point out that the relationship between GNP growth of a country’s economy and the returns to it’s stock market is often negative. Whether it’s at the individual company level or at the country level, there seems to be a strong human tendency to overpay for growth.

Dave
Thanks. But I think you left out an "r" in "Countries", making it "Counties".
I was initially curious what was being measured at a county level :wink:

RM
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Re: Jason Zweig: Counties with faster growing economies of produce lower-not higher-stock market returns

Post by Random Walker » Sat May 25, 2019 10:56 am

Boy Grok you sure work fast! Thanks! Took a look at the paper you linked. A big point is this:

“The correlation between the mean geometric annual real return and mean per capita GDP growth is 0.007 ( p = 0.98) for the top 19 countries for 1970–2002 and 0.005 ( p = 0.99) for the bottom 13 countries for 1988– 2002.”

Dave

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by Random Walker » Sat May 25, 2019 10:58 am

Thanks RM, made that correction

Dave

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by JoMoney » Sat May 25, 2019 11:02 am

Interesting... haven't read it yet.
I believe someone posted here awhile back showing a relationship between growing economies and stock market dilution.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by SimpleGift » Sat May 25, 2019 11:17 am

JoMoney wrote:
Sat May 25, 2019 11:02 am
I believe someone posted here awhile back showing a relationship between growing economies and stock market dilution.
Yes, that post was included in this thread, which is a previous discussion of this same WSJ article.

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by TropikThunder » Sat May 25, 2019 11:17 am

Random Walker wrote:
Sat May 25, 2019 10:41 am
https://www.wsj.com/articles/think-befo ... yURL_share

In this weekend’s WSJ Jason Zweig has an article titled Think Before You Fish For Bargains In Chinese Stocks. He makes a point that I initially read in Jeremy Siegel’s book that followed Stocks For The Long Run, called The Future For Investors. Siegel and Zweig point out that the relationship between GNP growth of a country’s economy and the returns to it’s stock market is often negative. Whether it’s at the individual company level or at the country level, there seems to be a strong human tendency to overpay for growth.

Dave
A common argument against international investing that gets presented on this forum is that foreign stock markets are not a good way to participate in foreign economies. In other words, sure China and India are huge countries with rapidly growing economies but that doesn’t make Chinese or Indian stocks a good investment. This would seem to support that argument, at least superficially.

Note, I believe in diversifying internationally, perhaps not to world market cap, but I’m certainly not a 100% US advocate (especially for younger investors). Not sure how to accommodate this info into my world view.

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by Random Walker » Sat May 25, 2019 11:26 am

TropikThunder wrote:
Sat May 25, 2019 11:17 am
Note, I believe in diversifying internationally, perhaps not to world market cap, but I’m certainly not a 100% US advocate (especially for younger investors). Not sure how to accommodate this info into my world view.
It seems to me that if one really believes in market efficiency, then he should start with world market cap weighting as the baseline for his portfolio. Some might add a little home country bias for other reasons even if they are strong believers in market efficiency.

Dave

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by LadyGeek » Sat May 25, 2019 11:30 am

I merged Random Walker's thread into the on-going discussion.
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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by JoMoney » Sat May 25, 2019 11:48 am

SimpleGift wrote:
Sat May 25, 2019 11:17 am
JoMoney wrote:
Sat May 25, 2019 11:02 am
I believe someone posted here awhile back showing a relationship between growing economies and stock market dilution.
Yes, that post was included in this thread, which is a previous discussion of this same WSJ article.
Thanks, I was actually thinking of posts you made MUCH EARLIER, including some referencing older Dr. Bernstein blogs like
viewtopic.php?t=193493
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Jason Zweig: Counties with faster growing economies of produce lower-not higher-stock market returns

Post by grok87 » Sat May 25, 2019 12:00 pm

Random Walker wrote:
Sat May 25, 2019 10:56 am
Boy Grok you sure work fast! Thanks! Took a look at the paper you linked. A big point is this:

“The correlation between the mean geometric annual real return and mean per capita GDP growth is 0.007 ( p = 0.98) for the top 19 countries for 1970–2002 and 0.005 ( p = 0.99) for the bottom 13 countries for 1988– 2002.”

Dave
thanks
:)
i'm surprised by how low those correlations are (and how high the pvalues!) will have to look into that
RIP Mr. Bogle.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by unclescrooge » Sat May 25, 2019 12:04 pm

nexesn wrote:
Fri May 24, 2019 11:44 am
Interesting article from the WSJ. Sorry, it's paywalled.... but here are a few snippets.

https://www.wsj.com/articles/think-befo ... _lead_pos9

.....The best returns for the MSCI China index came in the early to mid 2000s, not long after Wall Street strategists branded Brazil, Russia, India and China as “the BRICs,” the indispensable cornerstones of a global growth portfolio.

Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.


....When companies buy back their own stock (or when corporate mergers and acquisitions remove it from the market), then shares become more scarce. That makes the remaining shares more valuable. With corporate profits parceled out among fewer shares, future returns are likely to be higher.

By contrast, when companies—or governments, as in China—sell more stock to the public, then shares become more plentiful. As the market is flooded with stock, ownership in such diluted shares becomes less valuable. Corporate profits get spread across a bigger base of stocks, causing future returns per share to fall. And investors become less choosy, enabling lower-quality companies to issue shares and making losses more likely.
How does the data look when you exclude state owned enterprises?

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by nedsaid » Sat May 25, 2019 3:15 pm

wolf359 wrote:
Fri May 24, 2019 12:47 pm
lukestuckenhymer wrote:
Fri May 24, 2019 12:01 pm
nexesn wrote:
Fri May 24, 2019 11:44 am
Over the past 10 years, a $10,000 investment in the MSCI China stock index would have grown to just under $19,600, while the same amount in the S&P 500 would have turned into nearly $39,700, according to FactSet.[/I]
Ah yes, because the past 10 years will be exactly like the next 10 years.
Sometimes, past results DO predict future results. The Chinese market is so rigged against outsiders and retail investors, that it is better not to play at all.

See: Documentary "The China Hustle" https://www.forbes.com/sites/markhughes ... a0dffa3357
See: Article describing "The China Hustle" issues (if you don't want to watch the documentary.) https://www.thedailybeast.com/the-dirty ... -away-with
See: Picked like leeks https://www.cnn.com/2018/11/03/asia/chi ... /index.htm

When reports of fraudulent financial statements and shell companies surfaced, the Chinese government responded quickly and effectively to eliminate the problem -- by making it illegal to take financial statements out of the country and classifying independent audits as espionage.

Reference: SEC warning about Chinese financial records. https://www.sec.gov/news/public-stateme ... -and-other
https://www.wsj.com/articles/sec-revive ... 1544229843
Restrictions on Access to Books and Records Maintained in China

While international cooperation and coordination have increased significantly in many parts of the world in recent years, the SEC and PCAOB still face challenges from laws and practices that can impede strong regulation, supervision, and enforcement. For example, both the SEC and the PCAOB currently face significant challenges in overseeing the financial reporting for U.S.-listed companies whose operations are based in China—a market where U.S. investors’ interest has increased and is significant.[18] The business books and records related to transactions and events occurring within China are required by Chinese law to be kept and maintained there. China also restricts the auditor’s documentation of work performed in the country from being transferred out of China.[19]

China’s state security laws are invoked at times to limit U.S. regulators’ ability to oversee the financial reporting of U.S.-listed, China-based companies. In particular, Chinese laws governing the protection of state secrets and national security have been invoked to limit foreign access to China-based business books and records and audit work papers. As a result, for certain China-based companies listed on U.S. stock exchanges, the SEC and PCAOB have not had access to the books and records and audit work papers to an extent consistent with other jurisdictions both in scope and timing.

You're investing in a market where the numbers can't be validated. They keep selling more shares just to collect more money.
The next 10 years may well be like the last 10 years. Except maybe with a US-China trade war that also shakes confidence.
Bingo. This post is a great post, it echoes my thinking on Chinese stocks. Certainly, I would not be overweight China. I did an analysis of my stock holdings with the Morningstar X-Ray and found that I had a couple of Chinese stocks in my top 25 stocks. So they are hard to avoid altogether. Plus I think China is 1989 Japan on steroids. Lots of problems that echo Japan's problems. Overcapacity, demographics, too much non-performing debt, etc. etc. But even Japan didn't build "ghost cities". China will grow and be an important nation but they aren't taking over the world anytime soon.
A fool and his money are good for business.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Crushtheturtle » Sat May 25, 2019 4:34 pm

Presumably, such concerns are already priced in by a global market with access to the same information.
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Sat May 25, 2019 5:03 pm

Crushtheturtle wrote:
Sat May 25, 2019 4:34 pm
Presumably, such concerns are already priced in by a global market with access to the same information.
Correct. The market has determined that investing in China is a sketchy idea.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by nedsaid » Sat May 25, 2019 8:48 pm

Crushtheturtle wrote:
Sat May 25, 2019 4:34 pm
Presumably, such concerns are already priced in by a global market with access to the same information.
Well, obviously the Japanese market in 1989 didn't anticipate a 30 year bear market very well. Something happened on the way of Japan surpassing the United States as the world's number one economy. The markets didn't anticipate that very well either.
A fool and his money are good for business.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Jeff Albertson » Sun May 26, 2019 7:21 pm

I really enjoyed this interview with Mr Zweig.
http://jasonzweig.com/a-conversation-with-david-perell/
There's probably more time spent on writing than on investments. Like he says, you can only say so much about the secret to successful investing, diversify & watch costs.
My guest today is Jason Zweig, a personal finance columnist for The Wall Street Journal. He's also the author of the revised edition of Benjamin Graham's The Intelligent Investor, which Warren Buffett has described as "by far the best book about investing ever written." We begin the episode by discussing the evening Jason spent with Charlie Munger at his home in Southern California. Then we talked about Jason's collaboration with Daniel Kahneman, the Nobel Prize winning behavioral economist. We discuss Jason's time growing up on a small farm in upstate New York, and why Jason's Wall Street Journal columns are intended to save investors from themselves. Then we had a conversation talking about the power of small details and communication, and why writing demands fresh language.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Carlos Danger » Mon May 27, 2019 9:38 am

I view Chinese stocks in much the same way I view bitcoin.

Others may indeed profit by investing in them. Good for them if they do. I'll take a hard pass.

There's plenty of unethical accounting, government interference, fraud, etc., etc. involved with publicly traded corporations in the United States and other 1st world countries. I have no desire to increase my exposure to such things by investing in "assets" where not even a half-hearted attempt is made to appear above-board.

Combine Enron, Napster, and a GSE like Fannie or Freddie, and you'd have a close approximation of how I view many large Chinese corporations.

Partisan politics aside, my view of Huawei's current struggles is that they don't even scratch the surface of what should be done and what Huawei deserves to have happen to it.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by SimpleGift » Mon May 27, 2019 2:44 pm

If interested in what's going on in China these days, I can highly recommend the book below. It's written by the Director of Asia Studies at the Council on Foreign Relations, and it presents a balanced and unbiased look at the state of the nation today:

The Third Revolution: Xi Jinping and the New Chinese State

This book didn't change our modest portfolio tilt toward emerging markets — but it did open my eyes to the renewed centralization of power under Xi, the expansion of the Communist Party's role in China's economy, plus the new limits being placed on the free flow of capital and ideas with the outside world. At the same time, China is seeking to recast itself as a great world power through its Belt and Road Initiative in Asia and Africa. Learned a lot from this book.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by retire2022 » Mon May 27, 2019 2:52 pm

All, it is over hyped, think of Mark Mobius https://en.wikipedia.org/wiki/Mark_Mobius his track record has been less than stellar compared against the US markets since I first heard of him in early 1990's.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Mon May 27, 2019 7:40 pm

Carlos Danger wrote:
Mon May 27, 2019 9:38 am
I view Chinese stocks in much the same way I view bitcoin.

Others may indeed profit by investing in them. Good for them if they do. I'll take a hard pass.

There's plenty of unethical accounting, government interference, fraud, etc., etc. involved with publicly traded corporations in the United States and other 1st world countries. I have no desire to increase my exposure to such things by investing in "assets" where not even a half-hearted attempt is made to appear above-board.

Combine Enron, Napster, and a GSE like Fannie or Freddie, and you'd have a close approximation of how I view many large Chinese corporations.

Partisan politics aside, my view of Huawei's current struggles is that they don't even scratch the surface of what should be done and what Huawei deserves to have happen to it.
One could call it - corruption - as anti-premium.
When and why do folks believe that will pay off?

Note: pay off = higher returns - on average - for the remainder of one’s investing life.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by HEDGEFUNDIE » Mon May 27, 2019 8:53 pm

Before writing off an entire country's stocks due to overbroad, amorphous claims of "corruption", I like to look at the facts:

1. Stocks of Chinese companies have outperformed Total International:
https://www.portfoliovisualizer.com/fun ... F27%2F2019

2. Stocks of Chinese companies traded on mainland Chinese exchanges have outperformed Chinese stocks generally, as well as Total International:

https://www.portfoliovisualizer.com/fun ... F27%2F2019

https://www.portfoliovisualizer.com/fun ... F27%2F2019

3. Even if you believe that Chinese stocks as a whole suffer from information disclosure inadequacies, there are mitigating strategies like dividend growth (i.e. it's hard to fake cash payouts) and active management (i.e. experts with boots on the ground to confirm what the companies are saying). Here is just one example of an active dividend fund consistently outperforming its passive peer:

https://www.portfoliovisualizer.com/fun ... F27%2F2019

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by JoMoney » Mon May 27, 2019 9:10 pm

HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
Before writing off an entire country's stocks due to overbroad, amorphous claims of "corruption"...
Before even considering an investment, I want some assurances of what it is my money is buying. I seriously don't even understand what claim it is Chinese stocks are offering. The majority seem to be still owned and controlled by the government... can someone buy them out and merge/move a Chinese company and take it private?
HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
...there are mitigating strategies like dividend growth (i.e. it's hard to fake cash payouts)...
Hah... Bernie Madoff paid out billions of fictitious dividends (with other peoples money) in his ponzi scheme lasting over 20 years.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by HEDGEFUNDIE » Mon May 27, 2019 9:20 pm

JoMoney wrote:
Mon May 27, 2019 9:10 pm
HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
Before writing off an entire country's stocks due to overbroad, amorphous claims of "corruption"...
Before even considering an investment, I want some assurances of what it is my money is buying. I seriously don't even understand what claim it is Chinese stocks are offering. The majority seem to be still owned and controlled by the government... can someone buy them out and merge/move a Chinese company and take it private?
This speaks more to your ignorance of the market than anything about the market itself.
HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
...there are mitigating strategies like dividend growth (i.e. it's hard to fake cash payouts)...
Hah... Bernie Madoff paid out billions of fictitious dividends (with other peoples money) in his ponzi scheme lasting over 20 years.
[/quote]

Do you think it's likely that a material portion of Chinese companies are run as ponzi schemes? Where is the evidence?

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by JoMoney » Mon May 27, 2019 9:32 pm

HEDGEFUNDIE wrote:
Mon May 27, 2019 9:20 pm
JoMoney wrote:
Mon May 27, 2019 9:10 pm
HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
Before writing off an entire country's stocks due to overbroad, amorphous claims of "corruption"...
Before even considering an investment, I want some assurances of what it is my money is buying. I seriously don't even understand what claim it is Chinese stocks are offering. The majority seem to be still owned and controlled by the government... can someone buy them out and merge/move a Chinese company and take it private?
This speaks more to your ignorance of the market than anything about the market itself.
Maybe so, and I would caution anyone from buying things they don't have a basic understanding of.
JoMoney wrote:
Mon May 27, 2019 9:10 pm
HEDGEFUNDIE wrote:
Mon May 27, 2019 8:53 pm
...there are mitigating strategies like dividend growth (i.e. it's hard to fake cash payouts)...
Hah... Bernie Madoff paid out billions of fictitious dividends (with other peoples money) in his ponzi scheme lasting over 20 years.
Do you think it's likely that a material portion of Chinese companies are run as ponzi schemes? Where is the evidence?
I have no idea. My response was to your "hard to fake cash payouts" statement. It's not hard at all if the accounting is not credibly substantiated.
Last edited by JoMoney on Mon May 27, 2019 9:34 pm, edited 1 time in total.
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by LadyGeek » Mon May 27, 2019 10:10 pm

This is a "no politics" forum. I removed an off-topic post and several replies. As a reminder, see: Politics and Religion
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Also, the discussion is starting to derail. Please stay on-topic.
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by JoMoney » Mon May 27, 2019 10:11 pm

One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by HEDGEFUNDIE » Mon May 27, 2019 11:57 pm

Here is the oldest China-focused fund I could find*, launched in 1998. It’s outperformed both Total International Stock and the S&P 500 since inception.

https://www.portfoliovisualizer.com/fun ... F27%2F2019

https://www.portfoliovisualizer.com/fun ... F27%2F2019

And it’s only 0.5 correlated with the US stock market, making it a great diversifier. It’s well-known that the Chinese economy didn’t miss a beat through the 2008-09 crisis.

https://www.portfoliovisualizer.com/ass ... ngDays=120

An accumulating investor who was 100% China over these past 21 years would have ended up with a 33% larger portfolio than one who was 100% US. We have lots of 100% US investors around here. When will we see the first 100% China investor?

https://www.portfoliovisualizer.com/bac ... 0&total3=0

*MCHFX is an actively managed fund that predates the passive China ETFs, but it has closely tracked MCHI and GXC since the latter were formed, so we can use it as a good proxy for the China index going back to 1998.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Ferdinand2014 » Tue May 28, 2019 6:39 am

Deleted to fix quote
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Ferdinand2014 » Tue May 28, 2019 6:41 am

HEDGEFUNDIE wrote:
Mon May 27, 2019 11:57 pm
Here is the oldest China-focused fund I could find*, launched in 1998. It’s outperformed both Total International Stock and the S&P 500 since inception.

https://www.portfoliovisualizer.com/fun ... F27%2F2019

https://www.portfoliovisualizer.com/fun ... F27%2F2019

And it’s only 0.5 correlated with the US stock market, making it a great diversifier. It’s well-known that the Chinese economy didn’t miss a beat through the 2008-09 crisis.

https://www.portfoliovisualizer.com/ass ... ngDays=120

An accumulating investor who was 100% China over these past 21 years would have ended up with a 33% larger portfolio than one who was 100% US. We have lots of 100% US investors around here. When will we see the first 100% China investor?

https://www.portfoliovisualizer.com/bac ... 0&total3=0

*MCHFX is an actively managed fund that predates the passive China ETFs, but it has closely tracked MCHI and GXC since the latter were formed, so we can use it as a good proxy for the China index going back to 1998.
Each to their own for sure. In my case, it wouldn’t matter if it was up 1000%. I simply do not feel comfortable investing in China until there is a consistent track record of laws and shareholder protections that match or exceed the U.S. It does not pass my sleep well at night test. Could I be wrong? Absolutely. Do I care? Nope. If I invested in China with the belief of better returns and diversification, I would still sell out the moment it tanked. I believe therefore that would be a worse ‘strategy’ then a theoretical diversification benefit. Staying the course on my suboptimal investment (based on the opinions on this forum for the most part), is still better if I know (my own history tells me this) I will ‘stay the course’.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by finite_difference » Tue May 28, 2019 7:06 am

Random Walker wrote:
Sat May 25, 2019 11:26 am
TropikThunder wrote:
Sat May 25, 2019 11:17 am
Note, I believe in diversifying internationally, perhaps not to world market cap, but I’m certainly not a 100% US advocate (especially for younger investors). Not sure how to accommodate this info into my world view.
It seems to me that if one really believes in market efficiency, then he should start with world market cap weighting as the baseline for his portfolio. Some might add a little home country bias for other reasons even if they are strong believers in market efficiency.

Dave
+1.

Use the global weighting. Can tilt a bit with an Emerging Markets Fund if you so desire. There is no need to buy solely stocks from any one country, and certainly not any individual stock.

Every country has challenges and advantages, pros and cons.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Valuethinker » Tue May 28, 2019 7:07 am

nedsaid wrote:
Sat May 25, 2019 8:48 pm
Crushtheturtle wrote:
Sat May 25, 2019 4:34 pm
Presumably, such concerns are already priced in by a global market with access to the same information.
Well, obviously the Japanese market in 1989 didn't anticipate a 30 year bear market very well. Something happened on the way of Japan surpassing the United States as the world's number one economy. The markets didn't anticipate that very well either.
If you look at the mathematics of it, Chinese economy seems to almost inevitably get to be bigger than USA. It's just a matter of time-- assuming US continues at its current growth rates, and China fades down to USA level.

Remember this country has 4x the people. Japan had c. 1/3rd of the population of US, no natural resources, etc. Japanese were not going to be 3x richer per capita than Americans.

On some adjusted measures of GDP, China may have crossed that line to a larger GDP per capita, now.

None of which is to say China does not have big problems and a big growth slowdown ahead -- again on some measures it may already have happened. There is a lot of what looks like hot air in that economy.

The "middle income trap" is widely documented - and China is into that problem zone (GDP per capita of c. $10k to $25k I think).

But when 1.4 billion people jump, the world shakes.
Last edited by Valuethinker on Tue May 28, 2019 7:10 am, edited 1 time in total.

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Re: Jason Zweig: Countries with faster growing economies of produce lower-not higher-stock market returns

Post by Valuethinker » Tue May 28, 2019 7:09 am

finite_difference wrote:
Tue May 28, 2019 7:06 am
Random Walker wrote:
Sat May 25, 2019 11:26 am
TropikThunder wrote:
Sat May 25, 2019 11:17 am
Note, I believe in diversifying internationally, perhaps not to world market cap, but I’m certainly not a 100% US advocate (especially for younger investors). Not sure how to accommodate this info into my world view.
It seems to me that if one really believes in market efficiency, then he should start with world market cap weighting as the baseline for his portfolio. Some might add a little home country bias for other reasons even if they are strong believers in market efficiency.

Dave
+1.

Use the global weighting. Can tilt a bit with an Emerging Markets Fund if you so desire. There is no need to buy solely stocks from any one country, and certainly not any individual stock.

Every country has challenges and advantages, pros and cons.
And there's no reason to believe we have superior knowledge and understanding re China than the market as a whole.

There are (troubling) features of China & China stock markets that remind me of SE Asia c. 1997 and Japan c. 1990. There may be a degree of domestic price manipulation. But foreign investors are limited in what they can buy, and conversely can take a view on fair value which domestic participants cannot (given exchange controls etc.).

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Valuethinker » Tue May 28, 2019 7:11 am

JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment...
That the marginal buyer and seller, who set the price, are at least as well informed as any individual investor (w public information).
or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.
Not sure that's equivalent to your first conjecture.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Wed May 29, 2019 8:42 pm

JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.

I think efficient market ideas are in play here:

China has about 2/3 of the US GDP, yet has about 6% of the US market cap.

There’s obviously a reason for that, so who am I to question the market.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by JoMoney » Wed May 29, 2019 8:56 pm

columbia wrote:
Wed May 29, 2019 8:42 pm
JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.

I think efficient market ideas are in play here:

China has about 2/3 of the US GDP, yet has about 5.6% of the US market cap.

There’s obviously a reason for that, so who am I to question the market.
I wouldn't quibble with someone that wanted to add or pass on a 5% holding of a lot of different things...
But my beef with "risk premiums" isn't arguing against market weighting or with the idea that markets are difficult to beat. If I was going to buy Chinese stocks, I would pick a market-weighted index over an active manager... but I'd just as soon pass altogether. If I'm passing on easy money, so be it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Wed May 29, 2019 9:04 pm

JoMoney wrote:
Wed May 29, 2019 8:56 pm
columbia wrote:
Wed May 29, 2019 8:42 pm
JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.

I think efficient market ideas are in play here:

China has about 2/3 of the US GDP, yet has about 5.6% of the US market cap.

There’s obviously a reason for that, so who am I to question the market.
I wouldn't quibble with someone that wanted to add or pass on a 5% holding of a lot of different things...
But my beef with "risk premiums" isn't arguing against market weighting or with the idea that markets are difficult to beat. If I was going to buy Chinese stocks, I would pick a market-weighted index over an active manager... but I'd just as soon pass altogether. If I'm passing on easy money, so be it.

My sarcasm was too subtle, perhaps. 😀

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by fennewaldaj » Wed May 29, 2019 9:06 pm

columbia wrote:
Wed May 29, 2019 9:04 pm
JoMoney wrote:
Wed May 29, 2019 8:56 pm
columbia wrote:
Wed May 29, 2019 8:42 pm
JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.

I think efficient market ideas are in play here:

China has about 2/3 of the US GDP, yet has about 5.6% of the US market cap.

There’s obviously a reason for that, so who am I to question the market.
I wouldn't quibble with someone that wanted to add or pass on a 5% holding of a lot of different things...
But my beef with "risk premiums" isn't arguing against market weighting or with the idea that markets are difficult to beat. If I was going to buy Chinese stocks, I would pick a market-weighted index over an active manager... but I'd just as soon pass altogether. If I'm passing on easy money, so be it.

My sarcasm was too subtle, perhaps. 😀
Fow what its worth China's equity market is quite a bit bigger than that as the number you are seeing is only Hong Kong listed shares. With A shares added in it is closer in size to the Japanese market.

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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by Sandtrap » Wed May 29, 2019 9:14 pm

After reading the following books, and more, I learned about :
SOE = China's "State Owned Enterprises".

Just finished reading:
China's Great Wall of Debt by McMahon
The Third Revolution by E Economy
End of an Era by Minzner

and several others.

The larger context of China's history and evolution, culturally, politically, economically, is . . . . interesting.
And, its "dynastic mindset" . . . . . daunting indeed.

j :happy
Last edited by Sandtrap on Wed May 29, 2019 9:21 pm, edited 1 time in total.
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Re: WSJ Article: Think Before You Fish for Bargains in Chinese Stocks

Post by columbia » Wed May 29, 2019 9:15 pm

fennewaldaj wrote:
Wed May 29, 2019 9:06 pm
columbia wrote:
Wed May 29, 2019 9:04 pm
JoMoney wrote:
Wed May 29, 2019 8:56 pm
columbia wrote:
Wed May 29, 2019 8:42 pm
JoMoney wrote:
Mon May 27, 2019 10:11 pm
One of the odder pieces of the "efficient markets" ethos is the belief in "risk premiums" and the bizarre confidence some have that some premium is being priced into every risky thing they're being sold as an investment... or that seemingly any risk can be accepted as long as it can fit under a "diversification" story.
Caveat emptor.

I think efficient market ideas are in play here:

China has about 2/3 of the US GDP, yet has about 5.6% of the US market cap.

There’s obviously a reason for that, so who am I to question the market.
I wouldn't quibble with someone that wanted to add or pass on a 5% holding of a lot of different things...
But my beef with "risk premiums" isn't arguing against market weighting or with the idea that markets are difficult to beat. If I was going to buy Chinese stocks, I would pick a market-weighted index over an active manager... but I'd just as soon pass altogether. If I'm passing on easy money, so be it.

My sarcasm was too subtle, perhaps. 😀
Fow what its worth China's equity market is quite a bit bigger than that as the number you are seeing is only Hong Kong listed shares. With A shares added in it is closer in size to the Japanese market.
Not of you’re adhering to doctrine and only investing in VT; it’s 6%, in that case.

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