Global Macro Trading Journal

[Specterx]

These chinese stock ETFs are pretty interesting.

They trade at 14-18 PE ratios(12 forward PE for the MSCI China Index), 2% div yields, 1.7 book value and they are off more than 50% of their all time highs. That in a world of zero to low interest rates. And most investors dont seem to care about them. Especially in the US. They always have a list of 10 reasons why they shouldn't buy, but that list always exists no matter what stock market you are looking at!

The same way one could have come up with those reasons during the US bull run from 2009, and they would have been wrong every year.
Every year "analysts" like Gary Shilling and Rosenberg would go out and list all these 'risk' factors, well of course there are risks, thats why you get paid a premium over fixed income! That same thing is true in China with folks like Chanos

I urge my readers here to consider allocating some of their stock exposure to China ETFs (I can list the ones I'm using if anyone wants it). This corona thing is a joke, its the stuff for day and swing traders. The long-term value of equities is determined by the present value of future cash flows into infinity, a couple of bad quarters make little difference to its final value. I have written about that here before and anyone can confirm that using a simple DCF. So fundamentally, the corona virus thing makes little to no difference. Remember when Charlie Munger went to cash because there was a virus outbreak in the US in the 60's? Of course not, that never happened because, as an investor, avoiding stocks because of a virus is suicide

If anything, if China tanks 20% from here, its an opportunity to load the boat more than anything. There I said it

I agree 100% - I'd be heavily long China in my long-term account, if I didn't think playing a possible Nasdaq blowoff was a higher RoR medium-term bet.

I think a good possibility is that China continues to underwhelm for a few more years as US stocks, and especially tech shares get bid to the stratosphere, but then benefits from a rotation out of overpriced USD assets. That said, my feeling is that awareness of China value is starting to grow quickly - we're still in the "smart money" stage, but maybe not for long.

One of the issues is the ETFs are a bit expensive - 50-75bps is a pretty big drag on returns.

 

[traider]

These chinese stock ETFs are pretty interesting.

They trade at 14-18 PE ratios(12 forward PE for the MSCI China Index), 2% div yields, 1.7 book value and they are off more than 50% of their all time highs. That in a world of zero to low interest rates. And most investors dont seem to care about them. Especially in the US. They always have a list of 10 reasons why they shouldn't buy, but that list always exists no matter what stock market you are looking at!

The same way one could have come up with those reasons during the US bull run from 2009, and they would have been wrong every year.
Every year "analysts" like Gary Shilling and Rosenberg would go out and list all these 'risk' factors, well of course there are risks, thats why you get paid a premium over fixed income! That same thing is true in China with folks like Chanos

I urge my readers here to consider allocating some of their stock exposure to China ETFs (I can list the ones I'm using if anyone wants it). This corona thing is a joke, its the stuff for day and swing traders. The long-term value of equities is determined by the present value of future cash flows into infinity, a couple of bad quarters make little difference to its final value. I have written about that here before and anyone can confirm that using a simple DCF. So fundamentally, the corona virus thing makes little to no difference. Remember when Charlie Munger went to cash because there was a virus outbreak in the US in the 60's? Of course not, that never happened because, as an investor, avoiding stocks because of a virus is suicide

If anything, if China tanks 20% from here, its an opportunity to load the boat more than anything. There I said it

What ETF are you using? I am currently holding EEM

 

[Daal]

What ETF are you using? I am currently holding EEM

I'm using
US ETFs:
FXI, KWEB, ASHS
London:
CNYA (LSE)

But its my intention to sell the FXI and substitute for the hong kong equivalent (HK: 3040) in order to save on the tax withholding of dividends (HK doesnt have it).
KWEB and ASHS pay so little in dividends that I dont care

I'm basically trying to create my own broad index with a mix of H shares, A shares, a decent exposure to the tech sector (KWEB) and small caps (ASHS)
The ratios are as follows:
FXI 40%
KWEB 25%
CNYA 23%
ASHS 12%

 

[Daal]

A big part of my thesis in China is the following, what if somehow you went back in time to 1950 but lost all your memory. But them a certain individual came up to you and explained what happened. He also told you "The United States stock market will be the best market for the next 50 years, every recession is a buying opportunity, every crash is an opportunity to buy more. When you are scared shitless of the market, calm down and buy more. Then one day there will be a huge bubble, there will be so many signs and contrarian indicators you can be safe that selling is the right move. At that point you can cash out and retire".

Lets say you believed that man, what would you do? You would put most of your money in that market and you would ignore all the naysayers, all the 'gurus' trying to talk you out of the market. All the recession/crisis calls and etc.
Well, that's what is quite possible that China will be like that in the coming decades. I have been to Hong Kong and Macau in 2018, I also have been to "Chinatown" in Sao Paulo. Most countries I go to there are 'the chinese' stores and neighborhoods. The chinese are the hardest working people in the world! When I was in HK I could do pretty much anything on Sundays, in my city most things are closed. I would hate to compete with them in business because they will sacrifice their family, health and leisure in order to beat me and get rich. I'm not willing to go there, I want balance in my life, the chinese don't give a damn about balance.
And they have proven themselves with decades of big GDP growth, gigantic companies and a global presence. Why would that stop all of the sudden? Because of a crisis? Well, that's an opportunity buy more! Like 2008 was in the US

Instead of competing against the Chinese which is a nightmare, what I want instead is them working for me, and the way I achieve that is by owning pieces of their capital markets through China ETFs.

I can't be 100% sure China will be as great as the US in terms of market performance but I believe that's pretty likely so it makes total sense to sell more expensive markets like the US (or even Brazil to some extent) and buy some China.

And when the gurus and naysayers try to talk me out of owning my shares, I'm just going to say "forget it gurus, its Chinatown"

 

[traider]

A CFO told me to sell everything and average into the Yuan. Instead of doing that I've just been buying Chinese etf and stocks.

 

[Chuck Krug]

Good posts on China, Daal.
The only flaw I see is: Can we trust the info we receive from China? I have my doubts.

 

[luisHK]

But its my intention to sell the FXI and substitute for the hong kong equivalent (HK: 3040) in order to save on the tax withholding of dividends (HK doesnt have it).
KWEB and ASHS pay so little in dividends that I dont care

Just a note, in case someone missed it. There is no witholding tax on most HK listed companies but there is on H shares, chinese shares traded on HKSE, it should be 10 to 15% at the source, i think i get hit @10%.
Besides I m not about to touch my portfolio which holds a bunch of chinese and HK shares but am surprised they haven't crashed harder in the light of recent events. Much of life and economy has aparently turned to a standstill in China, offices and some sport centers were supposed to reopen tomorrow in Shenzhen, which is not on of the worst hit areas, but it has been delayed again.

 

[Daal]

Just a note, in case someone missed it. There is no witholding tax on most HK listed companies but there is on H shares, chinese shares traded on HKSE, it should be 10 to 15% at the source, i think i get hit @10%.
Besides I m not about to touch my portfolio which holds a bunch of chinese and HK shares but am surprised they haven't crashed harder in the light of recent events. Much of life and economy has aparently turned to a standstill in China, offices and some sport centers were supposed to reopen tomorrow in Shenzhen, which is not on of the worst hit areas, but it has been delayed again.

Thanks for the info.
I was thinking of one way that this corona thing might actually be bullish is the following: things will be in this standstill for a quarter or two, but that creates pent-up demand from the people stuck at home because they are not spending. When things normalize, or even before, the Chinese government can open the fiscal and monetary stimulus spigot (and they have done that before), that combined with the pent-up demand can create a snapback effect that's even greater than the problem in the first place. Its the lesson that Dalio learned going broke shorting the stock market in the 1982 latin american debt crisis. Sometimes a problem creates a government response that overwhelms the problem.

Is that going to happen? I dont know but it sure casts doubt that the market should clearly collapse as the zerohedge crowd seems to believe

 

[Daal]

In addition, the number of daily cases of Coronavirus, if the numbers are to be trusted, is clearly reversing now

 

[vanzandt]

He's right af d... but it may take time. This is a HUGE buying opportunity. Its a great call.
China's going up. Just give it some time.
Pffff... you know I never say that about posts here.
This one is a gem. My gut... best call here I've ever read.

The Shangai Composite is up nearly 10% Since this post.


Dead cat bounce... ?

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