China (SSEC)

http://www.sharetrader.co.nz/picture...5&pictureid=42
I have been tracking the SSEC to keep an eye out for an entry signal into AGF, the AMP China fund. It looks like MacDunk's "crash after the Olympics" theory might be having some credulance if the SSEC keeps falling like this.

What are the implications for oil and commodities?

AMR,
I look at it from completely a different view...
in many ways it can be argued that the market has already crashed...
in saying that, Downtrending and not crashing (which is what is happening) is great news for the spec market...
and the Shanghai Composite index falling as it has reduces risk of a crash...my fear is markets rising, as we will then truely have a crash... I will probably have to sell the whole portfolio if the DOW reaches 13200, as the downside pressure will then open up....

Markets falling (downtrending) will pressure oil and commodity prices to fall, but I guess the markets pulling prices down is weighed up against specific issues on that commodity/resource which could in turn pull them up...
I guess nobody really knows when Oil and Commodity prices will be above the recent high levels... all we can be sure of, is that it will eventually happen...
:cool:
.^sc

I am waiting for a signal to buy the Shanghai Index. This is an opportunity.

China now on a PE of 18. Much better than the 50 early last year.

Falls in Shanghai put valuations in focus

By Andrew Wood in Hong Kong
Published: August 25 2008 03:00 | Last updated: August 25 2008 03:00

The fall of 54 per cent in Shanghai share prices this year has taken valuations to much more attractive levels that compare with companies in the US, according to Jing Ulrich, head of China equities at JPMorgan in Hong Kong.
The Shanghai market was Asia's best performer last year, with the Composite index rising 141 per cent in an eight-month rally that peaked in October. The stock market became home to world's first company with a trillion-dollar value, the oil refiner PetroChina.
The optimism about the prospects for China's economy meant that Shanghai shares were last year trading at more than 50 times predicted annual profits on average. But speaking in a video interview for FT.com, Ms Ulrich said the plunge in mainland Chinese shares this year meant price-earnings ratios are now looking more realistic.
"If you look at the Shanghai traded shares, the p/e multiples are now on 18 times, similar to that in the US for the very first time," she said. "So some rational investors are beginning to see value emerging, but it will take a while for the market's confidence to be rebuilt."
In spite of the fall in the market, it is still common for the Shanghai share prices to trade much higher than the Hong Kong shares of the same companies as China's economy is not open enough to the outside world to allow arbitrage between the two markets. For example, China South Locomotive & Rolling Stock, the country's largest train maker, rose as much as 17 per cent as they made their debut in Hong Kong on Thursday.
The shares had begun trading in Shanghai last Monday and the dual-listing raised a total of $1.5bn.
But the Hong Kong debut was muted compared to China South Loco's 83 per cent jump during its first day of trading in Shanghai. The company closed its first day in Hong Kong at HK$2.63, a premium of just 1.2 per cent on the offer price. In Shanghai, it had closed 58.3 per cent higher at Rmb3.45 on its first day and are trading at about 50 per cent higher in value than the Hong Kong-listed shares.
But Ms Ulrich notes that the gap between the Shanghai "A" shares and Hong Kong "H" shares of dual-listed companies has narrowed considerably.
According to JPMorgan research, the weighted-average premium peaked at more than 200 per cent in January, and has since dropped to 18 per cent by mid-month.
The A-shares for several major listed companies, she says, such as Anhui Conch Cement, Bank of Communications, and China Life Insurance have even been trading recently at significant discounts to their H-share counterparts.

I am amazed that there isn't more activity on this thread as there seems to be strong International belief that China is the place of the future. I have a significant portion of my portfolio in China stocks (Alibaba, Baillie Gifford's Scottish Mortgage and China Growth Funds). Interested to know what others feel about future China potential and how they are investing in it.

Every advisor seems to have a different take on China. I've read that China's recovery is highly dependent on the US recovery as CNBC's sensationalist critic, Jim Cramer has put it, "The USA holds the purse..." meaning, China is an exporting nation; the power of American consumption is the key factor for China's factories, economy to keep rolling. This stems all the way back that not all central banks are the same and that the US Fed is the one that has the advantage of printing $ being the USD as the world reserve currency.

Alibaba is a good example in recent days where it's share price was slammed just on the scent of China's CCP imposing regulations. Their authoritarian gov't may have no bounds and that extra level of risk is they key reason why BABA trades at substantially less than AMZN, despite the former having more turn over sales than AMZN & EBAY combined. BABA's Ant Financial is an eye opener in the future but under the CCP guise? control? we don't know with certainty.

Therefore, it's not so clear cut that China economy will rank supreme leader of the world ; as a disclaimer I too own BABA stock since IPO, but BABA is more than just China - they have operations all over Asia.

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Originally Posted by SBQ

Every advisor seems to have a different take on China. I've read that China's recovery is highly dependent on the US recovery as CNBC's sensationalist critic, Jim Cramer has put it, "The USA holds the purse..." meaning, China is an exporting nation; the power of American consumption is the key factor for China's factories, economy to keep rolling. This stems all the way back that not all central banks are the same and that the US Fed is the one that has the advantage of printing $ being the USD as the world reserve currency.

Alibaba is a good example in recent days where it's share price was slammed just on the scent of China's CCP imposing regulations. Their authoritarian gov't may have no bounds and that extra level of risk is they key reason why BABA trades at substantially less than AMZN, despite the former having more turn over sales than AMZN & EBAY combined. BABA's Ant Financial is an eye opener in the future but under the CCP guise? control? we don't know with certainty.

Therefore, it's not so clear cut that China economy will rank supreme leader of the world ; as a disclaimer I too own BABA stock since IPO, but BABA is more than just China - they have operations all over Asia.

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Thanks for your thoughts - much appreciated. Yes, the authoritarian government is always going to be the big question mark going forward. Having said that, the burgeoning middle class, transition to a more service based economy and hardworking population make China a compelling investment for me. Very much a long term play though I hasten to add.

Quote:

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Originally Posted by Swala

Interested to know what others feel about future China potential and how they are investing in it.

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I am an original investor in the listed entity Yum China, which is the master franchise licensee for KFC and Pizza Hut in that market. Because Yum China is actually listed in the USA, despite all its operational units being China based, there is a very extensive break down of possible risks to investors, with a whole section on the risks of doing business in China. United States investors are apparently so stupid and uneducated, they have to be told of even the tiniest possibility of risk from any source, no matter how obscure.. Well, that is what the US law appears to say anyway. In YUMC AR2019, this starts on p34 of the 10-k report. It makes for interesting reading, but here are a few highlights.

1/ China Specific Political Risk: Boycotts against western brands in 2016 after an unfavourable international court ruling on the South China Sea and island sovereignty.

2/ Resource Allocation Risk: A significant proportion of productive assets in China are owned and controlled by the Chinese government. The Chinese government exercises control over Chinese economic growth through allocating resources, , controlling payment of foreign currency denominated obligations, regulating financial services and institutions and providing preferential treatment to particular industries and/or companies.

3/ Chinese Law is a civil law system based on written statutes. This means that previous case histories on similar matters of law do not form precedents and the results of legal procedures taken to court are consequently unpredictable. Some government rules ,that may not be published in a timely manner or at all, can affect legal positions retrospectively.

4/ The value of the Chinese currency in foreign currency, the Renminbi (RMB) is based on rates set by the 'People's Bank of China'. Because of this, few hedging options are in China to reduce exposure to government controlled exchange rate changes.

5/ A Chinese company must set aside 10% of profits to fund statutory requirements. These requirements include staff welfare payments and bonus funds.

6/ Auditing some documents for reporting purposes requires approval of the Chinese authorities.

All of these 'unwestern ways of operating' increase the risk for 'outsiders' investing in the Chinese market.

SNOOPY

Quote:

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Originally Posted by Swala

The authoritarian government is always going to be the big question mark going forward.

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You may be interested in some of the business structures that foreign businesses that operate in China have adopted to get around some of the 'President Eleven' governmental edicts. In some sensitive business areas, like those connected to the internet as value added service providers, foreigners are still not allowed to own a more than 50% controlling stake in such a company operating in China. The Variable Interest Entity (VIE) structure allows a parent business to effectively control 'associated companies' without going over that 50% ownership limit. A parent company can enter into contractual arrangements with 'consolidated affiliated entities' and the nominee shareholders of 'consolidated affiliated entities'.

These contractual arrangements allow the western parent company to:

1/ Receive substantially all of the economic benefits and absorb all of the expected losses from its consolidated affiliated entities;
2/ Exercise effective control over its consolidated affiliated entities; and
3/ Hold an exclusive option to purchase all or part of the equity interests in its consolidated affiliated entities when and to the extent permitted by Chinese law.

In all behavioural ways then, the consolidated affiliated entities' (<50% owned) behave as subsidiaries. But from a technical perspective, ownership of each affiliate is below 50%.

(Reference YUMC Annual Report p27)

SNOOPY