Secular bets on China

[Graham Osborn]

I'm just looking to see if anyone can throw out some secular bets they are making on China.  Over the long term I am bullish on China.  Even if the GDP figures are grossly overstated, China looks much more like the US in which Warren got started, albeit not necessarily at the same point in the credit cycle.

 

Equities: 1B+ ADRs still seem pricey.  Rampant securities fraud.  Gov't has its own agenda for propping up valuations through reduced margin requirements to support equity offerings.  Any stocks people like?

 

Bonds: Concerns overlapping with equities.

 

Currency: How compelling is the yuan/ dollar over the long term, bullish or bearish?

 

Commodities: China's oil consumption has roughly doubled over the past 10 years and continues to grow.  The car-driving population is similar to the US and we use about double the oil here.  OPEC's actual reserves are probably overstated.  Is oil still a compelling secular bet?  What about other commodities?  Do people have favorites here?

[undervalued]

is there an China index fund similar to SPY? I think this is a safer bet than buying stocks outright.

[JBTC]

is there an China index fund similar to SPY? I think this is a safer bet than buying stocks outright.

 

I cannot think of anything more difficult than investing in China. I think there are people who are doing it well, but it takes massive efforts. Good luck to you all.

 

The Chinese stock indices are mostly dominated by state-owned banks, oil companies, and telcos. For the banks at least, the books are so poorly marked that no one believes them. Even though a lot of local people speculate in China's A share market, they wisely avoid the banks and go after the profitless tech startups.

 

So it's quite sad that MSCI says because China has a market of stocks, they have to be in the global indices and the weighting will be lifted over time. This to me is a big problem with passive investing.

 

[Jurgis]

This is a bit OT and a bit dated, but.

 

I recently finished "Country Driving" by Peter Hessler ( http://smile.amazon.com/Country-Driving-Journey-Through-Factory-ebook/dp/B0035D9UX2/ref=sr_1_1?s=books&ie=UTF8&qid=1458704522&sr=1-1&keywords=country+driving ). The third part about Chinese boomtowns and factories is pretty interesting read. Can't say an eye opener, but gives some picture of China business.

 

In terms of China stocks, I'd probably suggest actively managed funds rather than index fund(s). I've held TDF in the past, but at some point it became such a small position that I sold it (never added). Not sure if that's the best pick, especially since Mobius is retiring. Matthews funds might be good, but I haven't looked at them for quite a while now.

[Guest Grey512]

I just own Baidu and leading global consumer stocks (most of the latter derive a big portion of revenues via China).

 

[gjangal]

CTRP, it's a revenue Growth + margin expansion story. Quite a bit of it is already priced in but with qunar consolidation, mid 30s may not be a bad price

[valuefinder0525]

JD

 

If you believe in the Chinese consumer and the superior business model of JD, this is your best 10 year bet.

[Graham Osborn]

I just own Baidu and leading global consumer stocks (most of the latter derive a big portion of revenues via China).

 

Yeah, that may be part of the reason the consumer stocks are still doing backflips while the rest of the market less FANG looks like toast.  Catch-22 since a lot of these stocks (e.g. NKE, CL, KO) are selling at insane premia.  The risk with these big brands in China is the brand may not persist in the same way it does in US/ EU.  Chinese regulators' ability to apply their protectionist doctrines to commodity businesses should not be underestimated.

 

In terms of being a "play on China" one challenge is these didn't really correct with the SSE in a major way.

 

BIDU actually doesn't seem terribly priced if you consider the fact that it is selling at a similar EV/ Rev to GOOGL despite having 1/10th the revenue.  Of course, when you consider GOOGL's TAM across all their offerings vs BIDU that might still be a sensible parallel.  Of course, on EV/ EBITDA basis BIDU is still selling at a significant premium.

 

Thanks for the ideas and keep them coming.  If there was a straightforward answer I wouldn't have asked ;)

[Guest Grey512]

Check out JNJ and LB.

[DavidVY]

Disney is a good bet on China. They just built a huge park in Shanghai.

[Graham Osborn]

I actually considered shorting LB and DIS, but they didn't really look weak enough technically yet.  JNJ will probably correct less that the rest of the healthcare indices but also probably has limited upside at 13x EBITDA.