Hats off to Huskie. Because I am apparently the most experienced person on the English speaking internet with Chinese equities, I can tell you these numbers look right just by glancing. Fantastic!
All I would add – both the 2nd and 3rd holding periods were massively biased. In the 2nd holding period CN was starting from a 520% ratio of marketcap/GDP , in the 3rd holding period CN was starting from 50X trailing P/E. Would you buy then? This is a massively volatile market, that can work for us, but obviously don’t start your holding period at that time.
Let’s do this, valuations are comparable today at 18X. So let’s go back to when they were comparable in the past, and run that period! In mid 2005 they were roughtly 18X in CN, and from my memory S&P500 was not over/under valued at that time? Obviously CN will win, because CN has much better GDP growth and earnings…fundamentals do matter over time, even in China!
After reading all of the posts here (actually, I didn’t read them), I have liquidated my entire portfolio and gone all-in on a 3x levered long Shanghai ETF with no short book. Numbers and risk control are for chumps anyway. I plan to opportunistically market time and rotate between the Shanghai ETF and some yet to be determined very speculative 3x levered biotech ETF.
Past my bedtime, might be a sloppy post… The sensible thing would be a CSI-300 ETF. The CSI300 is the S&P500 of China and is going to be the index to follow going forward, I imagine it is the one they will put into the global benchmarks. It’s a collection of the 300 largest A-shares on the SH/SZ exchanges (Petrochina, ICBC, Saic Motors), etc. In NY the best one is ASHR , in HK 3188 , and there is also one on the London exchange that I forget. I would like the A50 index except the largest 50 include too many financials. There’s been “a floor” on the CSI300 at 3650 so far, seems to be holding. Some people want to see 3450. Small cap is insane as it is the playground the manic Chinese retail investors. The ChiNext is tech small cap trading 75X P/E. Foreigners can’t even buy that though, unless you buy a ChiNext ETF like 3147 in HK. Not advised. Stuff like B-shares and H-shares are crap, that stuff is packed into ETFs like FXI. That’s old school. We want A-shares, because that’s what the 100,000,000 Chinese investors buy. No hedge on the RMB, dead stable, govies will defend to the death as it needs to become a reserve currency. If you’ve got the balls for SH, a little RMB ain’t nuffin.
MLA still has an important point, which is that unless you yourself are a rich guy in China, it makes no sense to say “You should have been invested in China’s stock market” when foreigners were not allowed to invest. It’s like private equity… those returns are just not available to the ordinary-tooled investor. If you’re an institutional investor, that’s a different story, because you may have been able to get access, but the risks are also different, because you may not have been able to get your money out when you wanted it.
A lot of those gains in the index, I suspect, had to do with opening the floodgates to foreign investment, which is why price returns are likely to have been concentrated at specific points.
As for P/E, just make sure that the E is really there. All companies have incentives to distort their E upwards, but between a Chinese firm and a size-and-industry comparable US firm, I’ll bet that the Chinese firm’s E is more likely to be inflated, meaning that a raw comparision of P/E ratios between CSI and SPX looks low for the amount of risk that’s truly there.
As I look at the chart here (http://www.bloomberg.com/quote/SHSZ300:IND) and set the time frame to Max, it looks like the gains are very lumpy. You can put SPX there for comparison and it looks like your standard thing that has caught attention and everyone’s rushed in. It’s also true that one year ago, those returns, while presumably not that shabby if you had been a long-term investor, had been stuck in the doldrums for a long long time.
Certainly it’s good to keep an eye on China as part of a portfolio, and some tactical reblanancing based (most likely) on momentum and trend-following, and a government that likely sees its stock market as a national security instrument worth defending is something that can midtigate the risk. It’s the Beijing Put, I suppose. Just as long as Beijing doesn’t Put you down, as they like to do now and then.
the weak are fleeing the market. there are only about ~50m retail investors in china now vs ~75m juss last month. like druckenmiller said, confidence builds on confidence. in this scenarior fear builds on fear. he was wrong after all. respect to him either way.
and to the chinese. though they are terrible investors (ridiculous volumes relative to market cap). at least they are good savers.(roughly 50% of income is saved)
I know people have hardened their stance here, but I think purealpha and MLA both have a point. In purealpha’s support, returns are returns whether they were available to foreigners or not. After all, thanks to currency controls, many non-US folks cannot buy SPY. Does that make S&P 500 historical returns invalid? No.
But to me the more useful metric is what MLA has been preaching - for most of the world’s investors, future returns are the only ones that are going to matter. Should they rely on returns since 1991 which included a one-time gain, or since 1993 that makes up a long-term trend? I would think 1993. Even though great big one-time upheavals will always happen, you can’t predict them so you shouldn’t expect them in your returns model - only in your risk models. Consider a, I don’t know, Zimbabwean or someone who can just now buy US stocks. Should he take 2000 or 2009 as his starting point when the stocks were beginning the Great Meltdown / Great Rebound? I’d think not.
Are we resorting to straw man now? Nobody has said that. It is investable now, and so we look at past returns as part of our analysis. Which nobody here had done until I arrived (strange given that it is the 2nd largest stock market on the planet).
Are we talking about the 2014 run up? As I’ve said before, it had almost nothing to do foreigners being able to invest in A-shares. Foreign money prior to, and after opening the gates, makes up a tiny percent (from memory 3%). The gains are from the Chinese investors getting interested in stocks again, after a long period of disinterest where prices went down despite earnings going up (reaching 8X before the correction upward).
Also, that foreign money can now trickle in over the coming decades – if anything this may drive further outperformance (the money comes from US/UK/JP, which is why the media propaganda exists influencing you away from this rational decision), and would certainly decrease volatility (one of the reasons why Beijing has done this).
But this is just the cliche thing Americans always say “we Americans don’t trust those communists to count GDP and earnings right”, zero proof. I’ve been thru more Chinese financial statements than anyone here, and it all looks reasonable. People everywhere tweak financials, we always take it with a shaker of salt, it just tells us approximate direction of movement and rough ratios. In business we must make decisions with incomplete information. But known – GDP is high, earnings are high, they did not make that up kids.
See above regarding “doldrum”. A-shares are volatile, this is known, they move around from 50X to 8X because the locals do not trade on fundamentals, but over a 10-yr period they do slowly pull to fundamentals, and you see highs and lows where you can get in out. Over time it has been 15% CAGR + 2% dividends, and that’s all that matters for the long term investor. Going forward that may come down, and so might volatility, but US/JP/UK are coming down also, thus base case CN stays ahead in any reasonable unbiased model.
Starting from the largest over-valuation of any market on the planet in the last 20yrs is biased. When you start from 1991, that peak comes and goes, only the amount that sticks is included in long-term returns.
The embarrassing thing, is that EVEN WHEN you start counting from that biased peak, the Shanghai Composite STILL generates similar returns to the S&P500. LOL, with a bunch of cherry picking “analysts”, picking the most absurd time frame, they still can barely make the math show US beats…
So let’s do this on NASDAQ; peak is March 10 2000, according to AnalystForum this is a valid time to start our analysis…
1993 was not a significant peak (in hindsight) so it is pretty fair to start there. SSE reached that again in 1997, les than 4 years.
Oct 2007 would be a true peak and an unfair comparison, like you make for NASDAQ in 2000.
There is a proverb in India - “maybe even the blind will see one day, but someone who has deliberately shut their eyes will never see.” Not very snappy in English but fits your posts on this thread to a T.
You people have serious issues with basic thinking skills.
Huskie, you and MLA are the ones who proposed using peak year as starting point, not me. That “logic” is flawed. Run the same using any US market from its peak and see the result. Amazing you defend your error instead of admitting you were wrong, in my office you’d be fired for that.
Naren, Jan 1993 in CN equities is 520% market cap to GDP , as I have alreay said (I don’t have P/E data but probably 100X+). Also valuations in 1997 are nothing like 1993. Again, if you came into my office a second time, after already being corrected, and said bad data again, you’d be fired. Once might be a mistake, twice is incompetence. link
The fact is inception 1991 started from a valuation of 90% market cap to GDP, that is a fair starting point, and today’s ending point of 88% is not a bubble either and thus fair time to take a measurement. The most unfair (which of course you people “randomly” selected) would be the 1993 days. CFA code of ethics???
I would say it is hard to believe you people work in the industry, but given the underperformance, it makes sense.
How much has Beijing pumped into its market? Peking University economist Christopher Balding has added up the bailout and stimulus measures announced since the Chinese equity panic in late June. They total $1.3T, or more than 10% of GDP. To put that in perspective, America’s Troubled Asset Relief Program was originally authorized to spend $700B. And that was a response to a systemic financial crisis in an economy some 70% bigger than China’s. Shanghai +2.3%; Shenzhen +2.7%; Chinext +3.9%.
Stocks
The first major float by a Chinese company since the stock market rout last month was met with a lukewarm reception today, as shares of China Railway Signal & Communication closed the day near their HK$6.30 IPO price. Typically, investors would chase new offerings higher, but since June, China-related shares have faced a souring of sentiment. With IPOs still banned in the mainland, many are wondering if more Chinese companies will list in Hong Kong.
perhaps a different name? PureCHINA, PureTRADER, PureReturns?
alpha is a measurement of past performance, and even though we say past performance is not indicative of future results. it typically is. successful people often remain succesful until the day they die. success is not a singular action or choice. its a habit or a way of life.
America innovates, china imitates. We are Sharpe-R. GET IT!
With large numbers of baby boomers retiring, would this chart be similar for the US, or no? Are we still allowing enough immigration to keep us on the upswing?
US is not a dire because of immigration. As disclosure, I am not a China bear whatsoever. The two situations in Japan in the 90s and China now are very different, particularly becuase there are $1B people in China that are basically not participating in the modern economy right now.
interesting convo here and people getting fired up.
I am not sure about all this risk adjusted returns. I agree with PureAlpha…return is return right? I mean these days hedge funds market themselves as steady return generators by using risk adjusted measures because well most funds fail to beat simple index funds.
Steady or not bottom line I want the most money in my bank account at the end of the day.
Also looking at SSE and SP in total returns for 10 year period I see,
SSE: 272.36%
SP: 112.25%
This is total return from bbg terminal. So what is the argument again?
Stuff like B-shares and H-shares are crap, that stuff is packed into ETFs like FXI. That’s old school. We want A-shares, because that’s what the 100,000,000 Chinese investors buy. No hedge on the RMB, dead stable, govies will defend to the death as it needs to become a reserve currency. If you’ve got the balls for SH, a little RMB ain’t nuffin.