Author Topic: Best Companies in China are Cheaper than the US  (Read 4094 times)

gary17

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Best Companies in China are Cheaper than the US
« on: May 07, 2018, 08:12:19 AM »
I was quite intrigued to see this comment from Munger that best companies in China are cheaper than the US-- I am ignorant on this subject , but when i think of the large Chinese companies... Tencent, Netease, Yumbrands in China comes to mind...  These aren't necessarily cheaper than the US companies such as Google / FB these days... but probably cheaper than Netflix, amazon  ...

Anyone else have thoughts on this ? What are some of these top Chinese companies that are trading at fair valuation? And is a real story, not fake accounting...

https://www.cnbc.com/2018/05/07/charlie-munger-chinas-best-companies-cheaper-than-us.html


WayWardCloud

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Re: Best Companies in China are Cheaper than the US
« Reply #1 on: May 07, 2018, 01:16:08 PM »
I'm intrigued too and I wish Munger would reveal what companies he's invested in.
Actually, it sounds more like it's a fund ("I respected the man who was going to do the investing").

JD.com trades 4 times lower than Amazon.com on a price/sales basis. Not that the two companies are exactly the same but it gives you a point of comparison.
I believe Buffet owns some BYD, which is a car manufacturer, and that stock has been lumpy for a while you might want to look into it.
Baidu/Google might be another pair, although I hear Baidu's search engine is not nearly as good as Google's.
« Last Edit: May 07, 2018, 01:18:13 PM by WayWardCloud »

Spekulatius

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Re: Best Companies in China are Cheaper than the US
« Reply #2 on: May 07, 2018, 07:19:29 PM »
When you buy JD for example, you donít directly purchase a stake in and internet business in China, you buy a stake in a shell holding company in the Cayman isles, which holds IOUs on shares in an Internet business in China.

If the government of the current managements decides to screw you out of your shares, then they can easily do so, and you keep holding your worthless shares in the Cayman shell company. That is one reason, why Chinese stocks with this structure should be much cheaper than comparable shares with a direct ownership structure.

To be a realist, one has to believe in miracles.

thowed

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Re: Best Companies in China are Cheaper than the US
« Reply #3 on: May 08, 2018, 08:02:23 AM »
Spekulatius - completely agree.

I think Munger's comments generally refer to companies he knows of through his investment with Li Lu (at Himalaya Capital).  Most of these are unlikely to be the big foreign-listed names we know, but lesser-known A-shares (where there also isn't a 'shell holding company' issue).

I've heard others say that the A-Shares market is one of the great stock-picking opportunities i.e. a ton of relatively under-analysed companies in a fast-growing country.  Of course you have to be super cautious about corporate governance, but hey, it's not supposed to be easy!

rogermunibond

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Re: Best Companies in China are Cheaper than the US
« Reply #4 on: May 08, 2018, 08:06:42 AM »
I think there are some ways to gain A share exposure through ETFs or indices.

ASHR comes to mind though it has a high-ish expense ratio.

LightWhale

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Re: Best Companies in China are Cheaper than the US
« Reply #5 on: May 08, 2018, 11:17:02 AM »
I would not want to second guess Munger, but generally H shares of Chinese companies with credible accounting and reliable managements do sell for 50-70% of American prices.  Some that come to mind are CK asset (1113:HK) which is a wonderful real estate company trading at 8-9 P/E; CRRC (1766:HK), the largest rolling stock manufacturer in the world, which sells for P/E of 15, and various shipping and port companies (144:HK, 1199HK) which trade at 9-11 P/E.  If I'm not mistaken, Southeastern Asset Management is invested in CK Asset, and Li Lu is invested in CRRC.
« Last Edit: May 08, 2018, 11:19:09 AM by LightWhale »

mwtorock

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Re: Best Companies in China are Cheaper than the US
« Reply #6 on: May 08, 2018, 01:43:42 PM »
best does not mean largest. A shares / H shares ETFs can give exposure to largest companies, but Munger is more likely pointing to individual companies that managers like Li Lu hand picked.

rb

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Re: Best Companies in China are Cheaper than the US
« Reply #7 on: May 08, 2018, 02:53:58 PM »
I just don't know that anyone from the west can confidently invest in china. There is just so much fraud. The auditors are a joke. We've seen audited financial statements where the cash just wasn't there. CASH!

In my opinion the fact that a company's size or that it has real operations and a real business that we know of is no defense. Enron was a real company with a real business and real operations. It was also a fraud. Furthermore the US is a place with very little fraud yet we still get the Enrons and the Worldcoms. China is a high fraud place. It follows that there are a lot more Enrons over there than in the US.

RichardGibbons

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Re: Best Companies in China are Cheaper than the US
« Reply #8 on: May 08, 2018, 03:52:39 PM »
I just don't know that anyone from the west can confidently invest in china. There is just so much fraud.

Yeah, I agree, and I think it's a extremely strong statement saying "anyone from the west". If a western investor believes in the concept of a "too hard pile" and that companies go in there when the true fundamentals of the company are too difficult to understand, I'm hard pressed to understand why they wouldn't put almost every Chinese company in that category.

I do understand speculating without confidence though.... :)

rukawa

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Re: Best Companies in China are Cheaper than the US
« Reply #9 on: May 08, 2018, 06:58:00 PM »
How about the Chinese red chips? Like 392, Bejing Enterprise Holdings.