China Equities

[ArranP]

The price/earnings of shares for China companies listed on the Shanghai Composite Exchange have quadrupled, and this is indicates correction is due!

Would this correction be to the share listed on the Shanghai Composite Exchange only, or is the share price for these China companies listed on the Hang Seng Exchange likely to drop also inline with correction on the Shanghai Composite Exchange ?

[backflip]

The Shanghai stock market underwent significant corrections 3 times in the past 15 years. When they occurred, what happened to the Hang Seng index? When a China equity is listed, what is the price in relation to the mainland China (is the stock priced higher, the same, or lower)? What is the relative size differences in the 2 bourses? All of that information is available, and you can extrapolate - rather than guess - the effect.

[LaoPo]

The price/earnings of shares for China companies listed on the Shanghai Composite Exchange have quadrupled, and this is indicates correction is due!

Would this correction be to the share listed on the Shanghai Composite Exchange only, or is the share price for these China companies listed on the Hang Seng Exchange likely to drop also inline with correction on the Shanghai Composite Exchange ?

The type of shares, as well as the share markets, in China -Shanghai and Shenzhen- and Hong Kong, are a bit complicated.

This is a link which explains the A - B - H and N shares on the different markets. Maybe it can help a little.

The problem is that there is a big, sometimes even huge, difference in price between 'A' and 'B' shares, although they represent the same companies. The average price-difference is about 50% (!); sometimes lower sometimes even larger.

http://www.learnmoney.co.uk/advice/advice-43.html

It's hard to say whether the Hong Kong listed companies will suffer as well if the mainland Chinese markets drop but some sectors could be effected; how much is the question. But if the mainland sneezes it could storm in Hong Kong.

Personally I'm not too afraid of a major correction since the China markets went up some 150% in 2006 and around 40-50% this year. Even with a correction of 30-40% it would still leave the economy (and listed companies) intact.

Back to your question if the HK market will drop as well....possibly and likely but not for a long period I guess.

But, stockmarkets.......who knows for sure....

LaoPo

[highchol]

for risks associated with investing in china read.... riding bareback in short time bars.

[ArranP]

The price/earnings of shares for China companies listed on the Shanghai Composite Exchange have quadrupled, and this is indicates correction is due!

Would this correction be to the share listed on the Shanghai Composite Exchange only, or is the share price for these China companies listed on the Hang Seng Exchange likely to drop also inline with correction on the Shanghai Composite Exchange ?

The type of shares, as well as the share markets, in China -Shanghai and Shenzhen- and Hong Kong, are a bit complicated.

This is a link which explains the A - B - H and N shares on the different markets. Maybe it can help a little.

The problem is that there is a big, sometimes even huge, difference in price between 'A' and 'B' shares, although they represent the same companies. The average price-difference is about 50% (!); sometimes lower sometimes even larger.

http://www.learnmoney.co.uk/advice/advice-43.html

It's hard to say whether the Hong Kong listed companies will suffer as well if the mainland Chinese markets drop but some sectors could be effected; how much is the question. But if the mainland sneezes it could storm in Hong Kong.

Personally I'm not too afraid of a major correction since the China markets went up some 150% in 2006 and around 40-50% this year. Even with a correction of 30-40% it would still leave the economy (and listed companies) intact.

Back to your question if the HK market will drop as well....possibly and likely but not for a long period I guess.

But, stockmarkets.......who knows for sure....

LaoPo

Thanks LaoPo,

For now I have switched my investments from equity to non-equity funds into uk property, these give a stable 10% return.

At least until the correction has occured, then I can think about my re-entry point into equities for the recovery.

Thanks.

Regards

Arran.

[cmsally]

Does anyone have a good recommendation for online brokers trading Chinese equities. A lot of the online brokers don't seem to offer and the bigger banks have you tied up in funds.

Any recommendations?

[ArranP]

Does anyone have a good recommendation for online brokers trading Chinese equities. A lot of the online brokers don't seem to offer and the bigger banks have you tied up in funds.

Any recommendations?

When dealling with Chinese equities, you would probably need to deal in equities listed on the via the hang seng exchange (hong kong), as the shanghai exchange (beijeng) is off-limits for people other than the chinese themselves.

I don't know but the only offshore broker I know off is Internex maybe they deal on the Hang Seng Exchange ??

But becareful with equities at the moment, I understand the recent change in bond yields may signify a sell-off is soon due in equities, which in-turn would cause a correction ie. a dip to occur.

This is only my observation, and as a novice investor my be totally incorrect.

[expatwannabe]

...and the bigger banks have you tied up in funds.

You have to be insistent with them. I use Citibank for my IRA. They tried to sell me on their managed portfolio of mutual funds but I told them no way - I want to manage it myself. And I'm much happier for it.

[Gary A]

The stock markets are actually a very simple thing. You buy low and sell high. Buying when the market is topped out is not a very good way to make money. There are many things to look at but one of the main things is how much money the company is making compared to the price of the stock. Earnings per share and the price of the stock should be an important consideration. I have made money and I have lost money, mostly lost. You quickly find out that there are many day traders and other professionals who make a lot of money from the not so savvy investors like me. Anyone who tells you that something is a sure thing is certainly naive or just a liar.

[expatwannabe]

Anyone who tells you that something is a sure thing is certainly naive or just a liar.

Hmm .. good advice there for most. Because most people don't know how to choose a stock. And if they invest in something worthwhile, they often get too emotional about day-to-day swings to hold until it pays off.

But by and large I agree with your sentiments. There are no certitudes. Still, with investors like Warren Buffett around, you have to know that some approaches work.

EW

[Gary A]

Anyone who tells you that something is a sure thing is certainly naive or just a liar.

Hmm .. good advice there for most. Because most people don't know how to choose a stock. And if they invest in something worthwhile, they often get too emotional about day-to-day swings to hold until it pays off.

But by and large I agree with your sentiments. There are no certitudes. Still, with investors like Warren Buffett around, you have to know that some approaches work.

EW

I have a savvy friend who has made around $200,000 dollars this year buying and selling Apple Computer. He has studied that particular stock for years. He knows the trends and often trades day to day. So, YES, it can be done. The point being that you have to know what you are doing and it has become obvious that I DON'T.

I bought what I thought was a very safe ETF closed end Pimco fund. (PTY) It pays a dividend of between 8 and 9 percent. I bought it for $17.24 and it is now $14.92. WHY? It is now paying 8.9 percent and pays dividends monthly. As long as I keep it and it keeps paying the dividend I have lost nothing. BUT, the fact of the matter is that someone knows something. I would guess that the dividend is going to be cut. From the information that is available to me the fund still looks great.

[expatwannabe]

I bought what I thought was a very safe ETF closed end Pimco fund. (PTY) It pays a dividend of between 8 and 9 percent. I bought it for $17.24 and it is now $14.92. WHY? It is now paying 8.9 percent and pays dividends monthly. As long as I keep it and it keeps paying the dividend I have lost nothing. BUT, the fact of the matter is that someone knows something. I would guess that the dividend is going to be cut. From the information that is available to me the fund still looks great.

Why do you think "someone knows something?" Just because the price fell to $14.92?

The mere fact that 30-year treasury bond yields increase will cause stock prices to fall. That's because all investments compete with each other, and if treasuries (which are risk-free) are paying more, investors demand more from stocks (because they're not risk-free). Here's how the math might work in your case:

1) 30-year bonds go from 5% to 5.25% (a 5% increase)

2) PIMCO was paying 8.5%, but must pay 5% more to compete with 30-year bonds

3) 8.5% increased by 5% = 8.925%

4) PIMCO's price drops to $14.92 so that its dividend is approximately 8.9%

Nothing need be wrong with your fund, my friend. But since it's a big dividend payer, it will react to the current yield on 30-year treasuries.

[PeaceBlondie]

My best friend is playing in the Shanghai market big time, compared to most Chinese investors. He sent his mother $10,000 a few weeks ago, and she walked in and bought more Chinese stocks. He believes he can beat his fellow Chinese at the game, because he's smarter than the crowd. I keep telling him to get out with his profits, but he's still playing. I'll tell him the 'riding bareback' analogy; he'll get a kick out of that.

[Gary A]

I bought what I thought was a very safe ETF closed end Pimco fund. (PTY) It pays a dividend of between 8 and 9 percent. I bought it for $17.24 and it is now $14.92. WHY? It is now paying 8.9 percent and pays dividends monthly. As long as I keep it and it keeps paying the dividend I have lost nothing. BUT, the fact of the matter is that someone knows something. I would guess that the dividend is going to be cut. From the information that is available to me the fund still looks great.

Why do you think "someone knows something?" Just because the price fell to $14.92?

The mere fact that 30-year treasury bond yields increase will cause stock prices to fall. That's because all investments compete with each other, and if treasuries (which are risk-free) are paying more, investors demand more from stocks (because they're not risk-free). Here's how the math might work in your case:

1) 30-year bonds go from 5% to 5.25% (a 5% increase)

2) PIMCO was paying 8.5%, but must pay 5% more to compete with 30-year bonds

3) 8.5% increased by 5% = 8.925%

4) PIMCO's price drops to $14.92 so that its dividend is approximately 8.9%

Nothing need be wrong with your fund, my friend. But since it's a big dividend payer, it will react to the current yield on 30-year treasuries.

I also have PFN and CWF and their share prices have held up well. Their dividends are about the same. Why was it only PTY that dropped?

[expatwannabe]

I also have PFN and CWF and their share prices have held up well. Their dividends are about the same. Why was it only PTY that dropped?

I honestly don't know. But I'll tell you this - the market is grossly inefficient. As a mutual fund investor, you're not supposed to know that. Sorry for spoiling the secret. Some stocks or funds will rise while others will fall for no obvious reason. My advice is to ignore these fluctuations unless some real, material news comes to light.

I have a B.S. in Finance, and I'll tell you that when I took Finance 101, our teacher drilled into us the "efficient market theory" (EMT), which says that stocks are always valued fairly. It took a few years, some other classes, and some learning on my own to discover that the EMT is faulty. (it's also been debunked in court cases, of all places). If it had been true, Warren Buffett wouldn't have been able to earn a 23.6% average return over the past 40 years - beating the market average many times over.

There is a saying about the stock market that it is "a voting machine in the short term, and a weighing machine in the long term." You understand, right? Day traders value stocks based on opinions of inflation indexes, consumer sentiment, interest rates, economic expansion, wars, etc. And these traders have lightning-fast trading reflexes and lightning-fast access to information that makes it really impossible for you or me to best them at their game.

But in the long run, you and I have a significant advantage. What is it? We can choose those stocks with the best long-term prospects irrespective of what they'll do over the short-term. That's very powerful if you think about it. Mutual fund managers are in constant competition to beat each other, because if they don't, their customers will leave and they'll lose their big fancy jobs! As a result, they must focus on short-term, quarter-to-quarter results. Day traders are essentially the same. But investors like you and I can look through the stock market selectively and find stocks that are temporarily out of favor or selling at a discount. In the long run, if you purchase a portfolio of those undervalued stocks, you will outperform the vast majority of investors. And for clarification, I'm not talking about the "Dogs of the Dow." I'm talking about good companies selling at good prices that are just not "favorites" for some reason.

Anyway, I look at your situation this way: What was your goal for investing? Were you doing it for the dividends, the growth, or a combination of the two? Because I'd say the funds you're in right now are really dividend funds that were not meant to appreciate very much. If you want something that's going to grow, you should consider switching to a growth fund, an equity fund, or individual stocks.

A few individual stocks I own right now are: MRH, QSII, and FMD These are all selling at considerable discounts to their long-term potential. They also pay dividends.

Anyway, best of luck. Do what you can that still allows you to sleep well at night.

EW

Edited June 13, 2007 by expatwannabe

[Gary A]

I got out of the stock market because I couldn't sleep nights. I have one stock that has been VERY good to me over the years. Credo Petroleum (CRED). It's very good solid little company that is profitable and debt free. Fortunately I have always bought and sold it at the right times.

I put a lot of the money I took from the stock market into what I considered safe funds that were paying decent dividends, mostly ETF closed end funds. Then I got greedy and bought a canroy called Enterra Energy. (ENT). Right after I bought it they cut the dividend in half. I paid over $8 and sold it for $5.40 because I was afraid they will cut the dividend again then it will go to nothing. No more Canadian oil funds for me. Hopefully the ETF's will continue to pay the dividends and if so, I'll hold them for a long time. I didn't plan on the share prices going up but I didn't think they would drop either.

[expatwannabe]

I got out of the stock market because I couldn't sleep nights. I have one stock that has been VERY good to me over the years. Credo Petroleum (CRED). It's very good solid little company that is profitable and debt free. Fortunately I have always bought and sold it at the right times.

I put a lot of the money I took from the stock market into what I considered safe funds that were paying decent dividends, mostly ETF closed end funds. Then I got greedy and bought a canroy called Enterra Energy. (ENT). Right after I bought it they cut the dividend in half. I paid over $8 and sold it for $5.40 because I was afraid they will cut the dividend again then it will go to nothing. No more Canadian oil funds for me. Hopefully the ETF's will continue to pay the dividends and if so, I'll hold them for a long time. I didn't plan on the share prices going up but I didn't think they would drop either.

So it sounds like you're interested in the dividends more than anything. And since the stock market has kept you from sleeping, it's a good idea that you stay in mutual funds. You're doing the right thing for your risk tolerance level.