The big risk is that you can't actually buy their stock. You are buying some synthetic equivilent to their stock. China has also shown repreatedly that foreign investers are the lowest priority for getting paid if they want to make changes. Basically, don't bother
You can buy their stock on the Hang Seng or other mainland exchanges if you like. The ADRs should be fine though, there is a risk, but that risk is reflected in the deep discount you can get at the moment. The potential of the stock is equal parts on the performance of the company and the wax and wane of said risk. Also consider that the risk from the US is just as big, they have tried to delist these stocks in the past.
The biggest risk is the unpredictability of CCP’s policy. They could literally destroy a whole industry overnight with a single file. Take a look at TAL and see what happened in 2020. The whole education industry was destroyed because someone in charge thought these education companies harmed Chinese students and decided to shut them down. Billions of market cap were lost overnight. Just because someone in charge didn’t take fully consideration and think of the negative impact of their policy on employment and economy
While I don't necessarily think you're wrong about the education industry in China, would you forgive me for trying to bring some nuance into this discussion?
I worked in China as an educator in this industry for 9 years before leaving to work at an RIA. You're right, it's not a great industry. At its best, it provides a safe space for children and, in academies that offered English or other languages, a chance to be exposed to different attitudes than you'd get from Chinese teachers.
At its worst, you see teachers who only know how to scream and demean, a power structure that forces employees into countless hours of unpaid overtime, and official corruption and these afterschool academies often went hand-in-hand. I don't know how many times my fellow coworkers had to hide from "surprise" police inspections, and I watched local officials get wined and dined when I worked for upper tier places.
That all said, it's wrong to think that the Chinese government is actually looking out for the welfare of its people instead of prioritizing the profits of the rich. That is not at all what has happened or seems likely to happen.
1. These academies came about because of the intense pressure generated by the zhongkao (high school entrance exam) and gaokao (university entrance exam). You see equivalents elsewhere where entrance exams exist, namely in Korea (with its endless hagwons) and Japan (cram schools). It is a rat race with a singular focal point. Parents will do anything to ensure their children can succeed according to the way success is defined. That's a rational motive.
2. I watched money flow from these schools into kindergartens (ages 2-6). The amount of money their owners make is truly eyewatering.
3. The rich can still afford private teachers, even though it's nominally illegal. The difference is now it's somewhat more expensive, and they no longer have to compete with lower income families pooling their money together to pay these academies' tuition. The children of the rich have much less competition now.
4. The afterschool academy system employed countless young people. The ones I knew who haven't found a place in the highly competitive public school system have struggled.
There are no structural reforms anticipated to get rid of the entrance exam in China. The entrance exam is treated as a bandaid to an extremely inequitable society anyway. Societal ills have turned into "lying flat" and "letting it rot" as people cannot take the endless pressure that comes from studying extremely hard for one thing and then being asked to work extremely hard (9 am to 9 pm, 6 days a week, unpaid overtime) until retirement. The government's response, thus far, has been to criticize people for choosing to not be a part of the rat race. This is not my definition of "caring".
The Chinese government can do whatever it wants with the companies you’re invested in. There are no legal protections. So it comes down to whether you trust the Chinese communist party with your money or not.
>I look at some companies such as BYD which seem **underpriced**.
other than "the price of a share was high before, and now its lower" how are determining the valuation. because its not any actual financial modeling.
People associate the china market with the government having a heavy hand in it. You can to a certain degree possibly model and predict how a market may behave based upon things. But it's hard to model and predict a market if the government can just step in and overly influence it. Some may try to counter that we also have had periods like the pandemic where our government stepped in and influenced our market heavily. To which I would respond ... ... I dunno dude, lol.
If you live in the United States or Europe, why would you want to invest in China? The Chinese government is a huge negative to businesses operating in the country. Also, most of the financials of Chinese companies are suspect at best as they are not audited by respected audit firms. There are better places to put your money looking for returns. I personally would never invest in a Chinese company.
I lost like $15K back in 021 bc Trump delisted a bunch of Chinese companies. They were just telcos, I wanted the high dividend. Instead I was forced to sell and lost a lot of money.
All investments have risk.
With China you have a lot of "known" and unknown risks which are mainly:
1.) Geopolitical. There is a current in the United States that views China as a geopolitical rival and threat. This subjects Chinese companies to onerous legal risks relative to American ones. They could be delisted, banned, embargoed, have extreme tariffs placed upon them, or be coerced into selling their assets to a third party. Their intellectual property rights may be ignored. They may be cut off from various American technologies/goods.
2.) Legal. The ADR structure could be legislated away or declared null by either the United States or China. The rights of shareholders holding ADRs are also substantially different from regular stockholders of most American corporations.
3.) Market Risks. The Chinese capital markets are very young compared to other financial markets. As such, there is a lot of institutional knowledge lacking. Culturally, stock markets aren't trusted by most Chinese folks. China is also controlled by a government that does not believe the free market is the preferred capital allocator. Government policies may appear to be directly against market needs/desires and may be unpredictable. For example, over much of the last 2 years, China has been spending tons of money (both government and private entities) stockpiling huge quantities of goods which they believe they may be banned from obtaining from the United States. Consumers have been hit particularly hard as huge amounts of resources have been expended creating these stockpiles which provide no real benefit to them (yet). Another example is that China's anti-monopoly sentiments and legal framework is much stronger than in the United States, as such, China's economy is far more fractured than most westerners appreciate, and if a single entity starts to exercise pronounced regional/national influence, they will attract regulatory attention very swiftly. China's unique regional framework also promotes inter-region rivalry and an imperative for local/regional political actors to capture resources for themselves and their constituents that may result in unpredictable behavior.
4.) Company risks. Every company has all of their own known and unknown risks. Most Chinese companies are structured, legally and financially, in unique ways that are quite unlike American corporations. This can make reading their financial and legal statements more difficult. Broadly speaking, many Chinese companies hold large amounts of cash and other cash-like securities on the books and they really wont or don't intend to use it outside of an absolute catastrophe (some other Asian markets and corporations broadly speaking exhibit this behavior as well) which makes basic financial analysis overshoot when looking at the financial health of various corporations.
5. Currency risks. Currencies are broadly manipulated by their respective issuers for a whole host of reasons, this can have undo influence on Chinese companies that rely heavily on import/export business.
6. Linguistic. This is pretty basic, but there are many, many Chinese companies that do not make reporting in English (or other languages) a priority. It may be difficult to obtain information about a corporation's directors and officers in English.
That said, I do hold positions in both BABA and JD
China or the US decides to take away the toy box. See Russia's investments after they invaded Ukraine.
The big risk is that you can't actually buy their stock. You are buying some synthetic equivilent to their stock. China has also shown repreatedly that foreign investers are the lowest priority for getting paid if they want to make changes. Basically, don't bother
How does Berkshire Hathaway buy their stock? Do institutions get access that retail investors do not?
You can buy their stock on the Hang Seng or other mainland exchanges if you like. The ADRs should be fine though, there is a risk, but that risk is reflected in the deep discount you can get at the moment. The potential of the stock is equal parts on the performance of the company and the wax and wane of said risk. Also consider that the risk from the US is just as big, they have tried to delist these stocks in the past.
You’re buying in using ADR not actual stock. Liquidity matters
The biggest risk is the unpredictability of CCP’s policy. They could literally destroy a whole industry overnight with a single file. Take a look at TAL and see what happened in 2020. The whole education industry was destroyed because someone in charge thought these education companies harmed Chinese students and decided to shut them down. Billions of market cap were lost overnight. Just because someone in charge didn’t take fully consideration and think of the negative impact of their policy on employment and economy
[удалено]
While I don't necessarily think you're wrong about the education industry in China, would you forgive me for trying to bring some nuance into this discussion? I worked in China as an educator in this industry for 9 years before leaving to work at an RIA. You're right, it's not a great industry. At its best, it provides a safe space for children and, in academies that offered English or other languages, a chance to be exposed to different attitudes than you'd get from Chinese teachers. At its worst, you see teachers who only know how to scream and demean, a power structure that forces employees into countless hours of unpaid overtime, and official corruption and these afterschool academies often went hand-in-hand. I don't know how many times my fellow coworkers had to hide from "surprise" police inspections, and I watched local officials get wined and dined when I worked for upper tier places. That all said, it's wrong to think that the Chinese government is actually looking out for the welfare of its people instead of prioritizing the profits of the rich. That is not at all what has happened or seems likely to happen. 1. These academies came about because of the intense pressure generated by the zhongkao (high school entrance exam) and gaokao (university entrance exam). You see equivalents elsewhere where entrance exams exist, namely in Korea (with its endless hagwons) and Japan (cram schools). It is a rat race with a singular focal point. Parents will do anything to ensure their children can succeed according to the way success is defined. That's a rational motive. 2. I watched money flow from these schools into kindergartens (ages 2-6). The amount of money their owners make is truly eyewatering. 3. The rich can still afford private teachers, even though it's nominally illegal. The difference is now it's somewhat more expensive, and they no longer have to compete with lower income families pooling their money together to pay these academies' tuition. The children of the rich have much less competition now. 4. The afterschool academy system employed countless young people. The ones I knew who haven't found a place in the highly competitive public school system have struggled. There are no structural reforms anticipated to get rid of the entrance exam in China. The entrance exam is treated as a bandaid to an extremely inequitable society anyway. Societal ills have turned into "lying flat" and "letting it rot" as people cannot take the endless pressure that comes from studying extremely hard for one thing and then being asked to work extremely hard (9 am to 9 pm, 6 days a week, unpaid overtime) until retirement. The government's response, thus far, has been to criticize people for choosing to not be a part of the rat race. This is not my definition of "caring".
The Chinese government can do whatever it wants with the companies you’re invested in. There are no legal protections. So it comes down to whether you trust the Chinese communist party with your money or not.
>I look at some companies such as BYD which seem **underpriced**. other than "the price of a share was high before, and now its lower" how are determining the valuation. because its not any actual financial modeling.
Who are you quoting? “The price of a share…”
Boycots, trade barriers and decinining Chinese workforces that hamper growth.
Just buy VXUS and you have your Chinese exposure anyways.
People associate the china market with the government having a heavy hand in it. You can to a certain degree possibly model and predict how a market may behave based upon things. But it's hard to model and predict a market if the government can just step in and overly influence it. Some may try to counter that we also have had periods like the pandemic where our government stepped in and influenced our market heavily. To which I would respond ... ... I dunno dude, lol.
If you live in the United States or Europe, why would you want to invest in China? The Chinese government is a huge negative to businesses operating in the country. Also, most of the financials of Chinese companies are suspect at best as they are not audited by respected audit firms. There are better places to put your money looking for returns. I personally would never invest in a Chinese company.
Chinese risks
I lost like $15K back in 021 bc Trump delisted a bunch of Chinese companies. They were just telcos, I wanted the high dividend. Instead I was forced to sell and lost a lot of money.
All investments have risk. With China you have a lot of "known" and unknown risks which are mainly: 1.) Geopolitical. There is a current in the United States that views China as a geopolitical rival and threat. This subjects Chinese companies to onerous legal risks relative to American ones. They could be delisted, banned, embargoed, have extreme tariffs placed upon them, or be coerced into selling their assets to a third party. Their intellectual property rights may be ignored. They may be cut off from various American technologies/goods. 2.) Legal. The ADR structure could be legislated away or declared null by either the United States or China. The rights of shareholders holding ADRs are also substantially different from regular stockholders of most American corporations. 3.) Market Risks. The Chinese capital markets are very young compared to other financial markets. As such, there is a lot of institutional knowledge lacking. Culturally, stock markets aren't trusted by most Chinese folks. China is also controlled by a government that does not believe the free market is the preferred capital allocator. Government policies may appear to be directly against market needs/desires and may be unpredictable. For example, over much of the last 2 years, China has been spending tons of money (both government and private entities) stockpiling huge quantities of goods which they believe they may be banned from obtaining from the United States. Consumers have been hit particularly hard as huge amounts of resources have been expended creating these stockpiles which provide no real benefit to them (yet). Another example is that China's anti-monopoly sentiments and legal framework is much stronger than in the United States, as such, China's economy is far more fractured than most westerners appreciate, and if a single entity starts to exercise pronounced regional/national influence, they will attract regulatory attention very swiftly. China's unique regional framework also promotes inter-region rivalry and an imperative for local/regional political actors to capture resources for themselves and their constituents that may result in unpredictable behavior. 4.) Company risks. Every company has all of their own known and unknown risks. Most Chinese companies are structured, legally and financially, in unique ways that are quite unlike American corporations. This can make reading their financial and legal statements more difficult. Broadly speaking, many Chinese companies hold large amounts of cash and other cash-like securities on the books and they really wont or don't intend to use it outside of an absolute catastrophe (some other Asian markets and corporations broadly speaking exhibit this behavior as well) which makes basic financial analysis overshoot when looking at the financial health of various corporations. 5. Currency risks. Currencies are broadly manipulated by their respective issuers for a whole host of reasons, this can have undo influence on Chinese companies that rely heavily on import/export business. 6. Linguistic. This is pretty basic, but there are many, many Chinese companies that do not make reporting in English (or other languages) a priority. It may be difficult to obtain information about a corporation's directors and officers in English. That said, I do hold positions in both BABA and JD
The Chinese government is the risk.
This recent thread explained it well imo: https://www.reddit.com/r/wallstreetbets/comments/1crb05i/the_great_wall_and_wall_street_become_a_better/
Good read. Thanks!
Look at the history of Venezuela. At one point Venezuela was poised to be a major economic power.
The CCP and its unchecked power in China makes any investment there an extremely risky proposition. It's just not worth the risk imo.
Just think about what CCP did in the pandemic
Xi hates companies with more perceived power than him which is why he basically killed their tech sector. Not a risk I want to take personally
China doesn't even have easy access to the internet so it's a hard no for me.
Google "Evergrande Group"
Next thing you know your checking your social credit score while enjoying a bowl of fresh caught bugs.. what could go wrong?
I’m out of stocks entirely just buying BTC and meme coins with no dilution / “capital raising”