Chinese bank stocks look very cheap

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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 1:38 pm
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
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.
I'm not mocking you - just stating some facts about dividends presented by those much smarter than me. I used to believe dividends were "free money" until I researched it further. When you dig into it, it makes a lot of sense. But, we don't need another dividend argument thread so I'll bow out of this one.
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Beliavsky
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Re: Chinese bank stocks look very cheap

Post by Beliavsky »

As a U.S. resident, if I bought an H-share in a taxable account, do I pay the qualified dividend tax rate?
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

Beliavsky wrote: Fri Aug 05, 2022 2:38 pm As a U.S. resident, if I bought an H-share in a taxable account, do I pay the qualified dividend tax rate?
It's not qualified dividends. There's a 10% dividend withholding tax which you can deduct against your US tax obligations.
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happyisland
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Re: Chinese bank stocks look very cheap

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There's no such thing as a free lunch.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

happyisland wrote: Fri Aug 05, 2022 3:52 pm There's no such thing as a free lunch.
It could totally underperform the SP500. In fact it has been for many years.
SeasOfCheese
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Re: Chinese bank stocks look very cheap

Post by SeasOfCheese »

I don't know... invest with Xi Jinping and the CCP? I think I'd maybe prefer Sberbank or Gazprombank. Or maybe Argentinian bonds?

Yeah, definitely Argentinian bonds. Backed by the full faith and credit of the government de la Argentina. As much as I think Xi and Vlad are swell guys with swell state-owned banks, I'm picking los gauchos for my hard earned money. Safety first! :beer
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

SeasOfCheese wrote: Fri Aug 05, 2022 7:09 pm I don't know... invest with Xi Jinping and the CCP? I think I'd maybe prefer Sberbank or Gazprombank. Or maybe Argentinian bonds?

Yeah, definitely Argentinian bonds. Backed by the full faith and credit of the government de la Argentina. As much as I think Xi and Vlad are swell guys with swell state-owned banks, I'm picking los gauchos for my hard earned money. Safety first! :beer
That’s why Chinese stocks are cheap, especially the H-shares. Foreigners are skeptical, and it’s a hassle to buy H-shares on Hong Kong exchange. Chinese investors mostly buy the A shares because they can’t easily move their money offshore to buy the H-shares. So nobody buys them. The H-shares typically trade at large discount to A-shares even though they represent the same company and pay the same dividends.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

burritoLover wrote: Fri Aug 05, 2022 1:53 pm
gougou wrote: Fri Aug 05, 2022 1:38 pm


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.
I'm not mocking you - just stating some facts about dividends presented by those much smarter than me. I used to believe dividends were "free money" until I researched it further. When you dig into it, it makes a lot of sense. But, we don't need another dividend argument thread so I'll bow out of this one.
Well in this specific case, I rather they pay me $300 worth of dividends, than hoarding the $300 on the book. Their stock trades at about 1/3 book value, so the $300 extra on the book would give me only $100 worth of appreciation.
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Beliavsky
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Re: Chinese bank stocks look very cheap

Post by Beliavsky »

gougou wrote: Sat Aug 06, 2022 11:12 am
SeasOfCheese wrote: Fri Aug 05, 2022 7:09 pm I don't know... invest with Xi Jinping and the CCP? I think I'd maybe prefer Sberbank or Gazprombank. Or maybe Argentinian bonds?

Yeah, definitely Argentinian bonds. Backed by the full faith and credit of the government de la Argentina. As much as I think Xi and Vlad are swell guys with swell state-owned banks, I'm picking los gauchos for my hard earned money. Safety first! :beer
That’s why Chinese stocks are cheap, especially the H-shares. Foreigners are skeptical, and it’s a hassle to buy H-shares on Hong Kong exchange. Chinese investors mostly buy the A shares because they can’t easily move their money offshore to buy the H-shares. So nobody buys them. The H-shares typically trade at large discount to A-shares even though they represent the same company and pay the same dividends.
For example, the BoA report mentioned in the OP shows the H-shares 1288 HK and 3988 HK yielding 10.0% and the corresponding A-shares 601288 CH and 601988 CH yielding 7.8%.
gougou
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Re: Chinese bank stocks look very cheap

Post by gougou »

Beliavsky wrote: Sat Aug 06, 2022 11:37 am
gougou wrote: Sat Aug 06, 2022 11:12 am
SeasOfCheese wrote: Fri Aug 05, 2022 7:09 pm I don't know... invest with Xi Jinping and the CCP? I think I'd maybe prefer Sberbank or Gazprombank. Or maybe Argentinian bonds?

Yeah, definitely Argentinian bonds. Backed by the full faith and credit of the government de la Argentina. As much as I think Xi and Vlad are swell guys with swell state-owned banks, I'm picking los gauchos for my hard earned money. Safety first! :beer
That’s why Chinese stocks are cheap, especially the H-shares. Foreigners are skeptical, and it’s a hassle to buy H-shares on Hong Kong exchange. Chinese investors mostly buy the A shares because they can’t easily move their money offshore to buy the H-shares. So nobody buys them. The H-shares typically trade at large discount to A-shares even though they represent the same company and pay the same dividends.
For example, the BoA report mentioned in the OP shows the H-shares 1288 HK and 3988 HK yielding 10.0% and the corresponding A-shares 601288 CH and 601988 CH yielding 7.8%.
Major bank H-shares trade at about 20% discount.

Insurance companies are trading at even bigger discount. For example, China Life Insurance (NYSE: LFC, 2628 HK) trades at 63% discount to 601628 SH, probably due to possibility of delisting from NYSE.

This website lists all the A-H premium-discount which I find pretty useful:
https://www.bnppwarrant.com/en/stock-co ... nt-premium
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