Thank you for the feedback Adrian! There's a research piece that accompanies this video as well that just went out: www.nanalyze.com/2022/08/dangers-chinese-stocks-warning/ It contains a few additional bits and bobs in addition to what the video covered.
Friend of mine worked in big 4 and she told me it’s normal for companies to put numbers ordered by higher ups. Whatever number we see might not be correct
Yes that's true, and people will say that goes for any company. True, but accounting auditors in the U.S. run a tight ship. Emerging markets are a different animal and China's CCP determines up to 30% of a company's success some say. Who you know goes a long way in China and can certainly allow you to get away with more things.
Yep. Which has led to housing being the only investment path for many creating skyrocketing prices, quality problems from developers fishing for government contracts and of course a faster boom & bust cycle which creates instability in everything. The CCP has made China very unattractive to investors foreign or domestic which is a shame because investment enables growth and gives ordinary people hope they can build for a better future. Remove investment opportunities with difficult legislation and you remove hope for many citizens.
@Cyclops Great points, thank you. Property prices in HK are off the charts and it's just impossible to justify pulling the trigger on a property. Hopefully prices crash because that's a great society to live in - probably one of the safest places on this planet, provided you don't cross paths with some drunk agro weekend millionaire expat ;)
Funny how Munger kept saying don't do stupid things yet he did something quite stupid himself... at least he admitted it prior to passing away R.I.P. love Munger as a whole but his investment in Alibaba that he also admitted was not the brightest move.
It's always easier to identify these mistakes in hindsight. Buffet's investment vehicle can afford a few mistakes every now and then. You will hear lots of compelling stories on both sides of the BABA thesis - bear and bull - but we just can't look past VIE structure risks.
@@Nanalyze also we don't know what type of under the table reasons he buoght in it for. Its a tiny position in comparison to his overall wealth in berkshire.
I think a lot of normal people hear "VIE trade at a 30% discount" and buy thinking at some point the risk will be mitigated and companies will jump up 30% to be valued similarly to their Western counterparts. It's a very silly investment thesis to buy a company based on an event that isn't likely to happen if you know anything about Chinese culture or CCP leadership. China currently has "re-education camps" for anyone they don't like. You don't go from that to working well with the international community overnight. Maybe in 30+ years when all the current senior CCP members are retired or dead a new leader will decide to open China up more to the international community but buying now hoping for this to happen is a fools game.
There are some excellent points Cyclops. When you start comparing BABA to Amazon it appears the former is a total bargain, that is until you start to question why. There is no free lunch, and the risks are very real. Like what you said about the time it will take for China to move from what they are today to working well with the international community, especially considering the saber rattling we've seen lately. Always appreciate hearing your thoughts!
sorry to get off topic but can you share the source at the pic in your conclusion starting at 22:26. my googling (chinese limestone towers karsk, etc ) isn't finding it. btw, good vid.
Travel is never off topic. ;) That's Zhangjiajie National Forest Park. Some people call them the avatar mountains after the movie. China is an incredible country with so many amazing things to see.
Every time I do a deeper dive into foreign companies doing business with/in China, I keep coming back to that scene in the Empire strikes back after Darth Vader tells Lando he has changed their agreement and pray he does not change it again. That is what doing business in/with China has always had the appearance of to me, your crawling in bed with the mob. Maybe if I had gobs of money then a small exposure could be deemed risk worthy, but until then I'll just take my chances with the real Amazon or Tesla
20:16 Interesting! As much as 30% of their profits are from government subsidies. And "It is next to impossible for a business to succeed in China unless it is linked to the government"
Not on topic but I read Jung Chang's biography of Mao and it was also very good. I actually read it while living in a Belgian monastery called Orval. That's a great story in itself but it started because I liked their beer. And it was on a first generation Kindle, the one that was shaped like an alien polygon. None of this is related to Chinese investing.
While none of that may be related to Chinese investing, all of it is far more interesting than Chinese investing. Please be sure to keep an eye out for any future meetups we might have so we can ply you with beer and let you regale us with tales of monastery life.
What are your thoughts on HKD? Was this an intentional fleecing of investors through the ADR/VIE structure? Some crazy stuff, the largest IPO underwriter was a subsidiary of the same parent company, with both being incorporated in Cayman I believe. Definitely the largest 1 week stock gain like, ever probably.
@@Nanalyze Based on my understanding of what happened, I would venture a guess that HKD isn't the work of retail and has something to do with f*ckery related to the issues you discussed in this video. And even if the trading was retail related, the IPO conditions themselves that allowed the run-up to happen on such low volume with little to no borrow availability are quite suspicious at the minimum. I think it's worth looking into, as HKD is a supposed subsidiary of AMTD yet momentarily traded at traded at nearly 100x the mkt cap of AMTD. Is it just a low float stock acting like a cryptocurrency run-up? Or something more nefarious? Certainly the MSM hasn't and may never answer that question
To a certain extent Bloomberg and short sellers such as Hindenburg have highlighted AMTD's past legal issues and fraud/self dealing accusations in China, but there remains no clear explanation as to what exactly happened in this case. Just seems like there is far more to the story than just rampant speculation.
I got burned on a Russia-linked stock (QIWI). They got caught up in anti-Russia trade sanctions. The Nasdaq delisted them, leaving me with worthless shares I could not sell as well as missing out on dividend payments. Certainly bad relations with China could create the same kind of problem with China-linked stocks.
Wow. So a delisting rendered your shares worthless. Sorry to hear that. It's why we don't invest in companies that aren't being traded - like the crowdfunding lot.
Overall agree. Investing in China is inherently risky. Chinese stocks though for the reasons enumerated are cheap and likely undervalued. IMO investment is okay, so long as it's limited to a small percentage of portfolio, and also limited to larger firms with perhaps less risk, such as BILI, JD, and BABA.
Hey Zvi. You're probably correct about the valuations being lower to account for the regulatory risk. At least one academic study showed that's the case. Yes, small exposure to a diversified set of bigger companies is probably the safest way to approach China.
This was the most constructive and thoroughly researched negative position I’ve heard for China. None of your typical fear mongering or unsubstantiated FUD (though he did get a little amped here and there 😂) just data. My position is a more positive one but I always want to hear factually driven counter positions to my own. I learned even more. Thank you. No use of the cliche and hyperbolic “uninvestable”.
Hahhaa.. Good feedback, thank you! Investing in China seems like such a no-brainer, but when you start peeling back the layers, it's a scary venue. In the future, we may look to publish a piece looking at the "safer" way to invest in China which would be H shares.
Some smart person whom I forgot the name once said: "when you have too many laws and senseless laws, your breed corruption" And well I guess being a communist regime doesn't really help their case :P Anyway, thank you for you insight, I sold out of all my remaining chinese stocks somewhere around February, before the war in Ukraine. Even tho Alibaba is looking very tempting right now, I don't think it's worth the risk. I see them as a cheap, risky and shady Amazon, both as a consumer as well as an investor ahah (Also, youtube didn't send me a notification for this video for some reason, I had to go on your channel and saw that I skipped this one)
That's a great thing to assume about corruption. In many countries there are absolutely useless people performing absolutely useless functions that serve to do nothing but decrease efficiencies. Communism sounds good on paper but it is fundamentally flawed and dangerous to mankind as evidenced by multiple examples. We're glad you found our insights useful! Yes, Baba sure looks tempting but is has this whole "too good to be true" feeling about it. RUclips's notification mechanism isn't within our control but thank you very much for sharing. Being aware of an issue goes a long way to figuring it out. Hopefully you get notifications for all coming videos. We can always do some Googling around the problem if need be.
load of bollocks, the little guy has been getting screwed over by the American stock market for decades......and now we should be fearful of chinese stocks, nice try
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Great video, super informative. Thank you!
Thank you for the feedback Adrian! There's a research piece that accompanies this video as well that just went out: www.nanalyze.com/2022/08/dangers-chinese-stocks-warning/ It contains a few additional bits and bobs in addition to what the video covered.
Excellent Video!
Thank you very much for taking the time to leave feedback!
Great video to say the least. Please keep up the good work!
Thank you for the encouragement Chirag! We'll keep it up.
Thanks for going in depth, have just subscribed!
Great to hear, thank you!
Friend of mine worked in big 4 and she told me it’s normal for companies to put numbers ordered by higher ups.
Whatever number we see might not be correct
Yes that's true, and people will say that goes for any company. True, but accounting auditors in the U.S. run a tight ship. Emerging markets are a different animal and China's CCP determines up to 30% of a company's success some say. Who you know goes a long way in China and can certainly allow you to get away with more things.
What is everyone’s thoughts on Nio?
Same Bruce. They use a VIE structure. We really wish they didn't because we find the company compelling too.
Glad the video was insightful Bruce and hopefully it can lead to better investing decisions.
Thank You!
You're quite welcome
As a Hong Kong Citizen,I know lot of young generation dont buy any Chinese stock because of the policy.
Yep. Which has led to housing being the only investment path for many creating skyrocketing prices, quality problems from developers fishing for government contracts and of course a faster boom & bust cycle which creates instability in everything. The CCP has made China very unattractive to investors foreign or domestic which is a shame because investment enables growth and gives ordinary people hope they can build for a better future. Remove investment opportunities with difficult legislation and you remove hope for many citizens.
@Kin Leung Wong Interesting comment, thank you!
@Cyclops Great points, thank you. Property prices in HK are off the charts and it's just impossible to justify pulling the trigger on a property. Hopefully prices crash because that's a great society to live in - probably one of the safest places on this planet, provided you don't cross paths with some drunk agro weekend millionaire expat ;)
It’s cool you have such an international experience
Thanks man! I always wanted to be a cultural anthropologist but there wasn't any money in that. So I worked the system instead. ;) Joe
fascinating .... the video maker is clearly a very knowledgeable guy
You are too kind. Our team of exceptional people make these videos possible.
Funny how Munger kept saying don't do stupid things yet he did something quite stupid himself... at least he admitted it prior to passing away R.I.P. love Munger as a whole but his investment in Alibaba that he also admitted was not the brightest move.
It's always easier to identify these mistakes in hindsight. Buffet's investment vehicle can afford a few mistakes every now and then. You will hear lots of compelling stories on both sides of the BABA thesis - bear and bull - but we just can't look past VIE structure risks.
@@Nanalyze also we don't know what type of under the table reasons he buoght in it for. Its a tiny position in comparison to his overall wealth in berkshire.
@@JD-im4wu Good points!
Merry Christmas
Merry Christmas and Happy Holidays to you too! ✨🎁🎅
Amazing in depth explanation! Liked and Subscribed :)
Really glad to hear! Thank you for taking the time to comment.
I think a lot of normal people hear "VIE trade at a 30% discount" and buy thinking at some point the risk will be mitigated and companies will jump up 30% to be valued similarly to their Western counterparts. It's a very silly investment thesis to buy a company based on an event that isn't likely to happen if you know anything about Chinese culture or CCP leadership. China currently has "re-education camps" for anyone they don't like. You don't go from that to working well with the international community overnight. Maybe in 30+ years when all the current senior CCP members are retired or dead a new leader will decide to open China up more to the international community but buying now hoping for this to happen is a fools game.
There are some excellent points Cyclops. When you start comparing BABA to Amazon it appears the former is a total bargain, that is until you start to question why. There is no free lunch, and the risks are very real. Like what you said about the time it will take for China to move from what they are today to working well with the international community, especially considering the saber rattling we've seen lately. Always appreciate hearing your thoughts!
sorry to get off topic but can you share the source at the pic in your conclusion starting at 22:26. my googling (chinese limestone towers karsk, etc ) isn't finding it. btw, good vid.
Travel is never off topic. ;) That's Zhangjiajie National Forest Park. Some people call them the avatar mountains after the movie. China is an incredible country with so many amazing things to see.
Every time I do a deeper dive into foreign companies doing business with/in China, I keep coming back to that scene in the Empire strikes back after Darth Vader tells Lando he has changed their agreement and pray he does not change it again. That is what doing business in/with China has always had the appearance of to me, your crawling in bed with the mob. Maybe if I had gobs of money then a small exposure could be deemed risk worthy, but until then I'll just take my chances with the real Amazon or Tesla
Great analogy. We're not opposed to some H shares exposure but the thesis needs more due diligence.
20:16 Interesting! As much as 30% of their profits are from government subsidies. And "It is next to impossible for a business to succeed in China unless it is linked to the government"
Not on topic but I read Jung Chang's biography of Mao and it was also very good. I actually read it while living in a Belgian monastery called Orval. That's a great story in itself but it started because I liked their beer. And it was on a first generation Kindle, the one that was shaped like an alien polygon. None of this is related to Chinese investing.
While none of that may be related to Chinese investing, all of it is far more interesting than Chinese investing. Please be sure to keep an eye out for any future meetups we might have so we can ply you with beer and let you regale us with tales of monastery life.
What are your thoughts on HKD? Was this an intentional fleecing of investors through the ADR/VIE structure? Some crazy stuff, the largest IPO underwriter was a subsidiary of the same parent company, with both being incorporated in Cayman I believe. Definitely the largest 1 week stock gain like, ever probably.
Honestly haven't been following that one closely because it's all hype and speculation. Crazy price action though!
@@Nanalyze Based on my understanding of what happened, I would venture a guess that HKD isn't the work of retail and has something to do with f*ckery related to the issues you discussed in this video. And even if the trading was retail related, the IPO conditions themselves that allowed the run-up to happen on such low volume with little to no borrow availability are quite suspicious at the minimum. I think it's worth looking into, as HKD is a supposed subsidiary of AMTD yet momentarily traded at traded at nearly 100x the mkt cap of AMTD. Is it just a low float stock acting like a cryptocurrency run-up? Or something more nefarious? Certainly the MSM hasn't and may never answer that question
To a certain extent Bloomberg and short sellers such as Hindenburg have highlighted AMTD's past legal issues and fraud/self dealing accusations in China, but there remains no clear explanation as to what exactly happened in this case. Just seems like there is far more to the story than just rampant speculation.
Interesting, thank you for pointing that out.
Got it, I'm going all in KWEB
Hard to tell if you're taking the pics here or serious but we have to say it for the audience. Going all in on any stock is a horrible idea.
I got burned on a Russia-linked stock (QIWI). They got caught up in anti-Russia trade sanctions. The Nasdaq delisted them, leaving me with worthless shares I could not sell as well as missing out on dividend payments. Certainly bad relations with China could create the same kind of problem with China-linked stocks.
Wow. So a delisting rendered your shares worthless. Sorry to hear that. It's why we don't invest in companies that aren't being traded - like the crowdfunding lot.
Overall agree. Investing in China is inherently risky.
Chinese stocks though for the reasons enumerated are cheap and likely undervalued.
IMO investment is okay, so long as it's limited to a small percentage of portfolio, and also limited to larger firms with perhaps less risk, such as BILI, JD, and BABA.
Hey Zvi. You're probably correct about the valuations being lower to account for the regulatory risk. At least one academic study showed that's the case. Yes, small exposure to a diversified set of bigger companies is probably the safest way to approach China.
This was the most constructive and thoroughly researched negative position I’ve heard for China. None of your typical fear mongering or unsubstantiated FUD (though he did get a little amped here and there 😂) just data. My position is a more positive one but I always want to hear factually driven counter positions to my own. I learned even more. Thank you. No use of the cliche and hyperbolic “uninvestable”.
Hahhaa.. Good feedback, thank you! Investing in China seems like such a no-brainer, but when you start peeling back the layers, it's a scary venue. In the future, we may look to publish a piece looking at the "safer" way to invest in China which would be H shares.
Scary stuff I wonder why Munger and Pabrai bought it, berkshire even bought BYD
BYD doesn't use a VIE structure
Some smart person whom I forgot the name once said: "when you have too many laws and senseless laws, your breed corruption"
And well I guess being a communist regime doesn't really help their case :P
Anyway, thank you for you insight, I sold out of all my remaining chinese stocks somewhere around February, before the war in Ukraine. Even tho Alibaba is looking very tempting right now, I don't think it's worth the risk. I see them as a cheap, risky and shady Amazon, both as a consumer as well as an investor ahah
(Also, youtube didn't send me a notification for this video for some reason, I had to go on your channel and saw that I skipped this one)
That's a great thing to assume about corruption. In many countries there are absolutely useless people performing absolutely useless functions that serve to do nothing but decrease efficiencies. Communism sounds good on paper but it is fundamentally flawed and dangerous to mankind as evidenced by multiple examples.
We're glad you found our insights useful! Yes, Baba sure looks tempting but is has this whole "too good to be true" feeling about it. RUclips's notification mechanism isn't within our control but thank you very much for sharing. Being aware of an issue goes a long way to figuring it out. Hopefully you get notifications for all coming videos. We can always do some Googling around the problem if need be.
lets be honest every Chinese stock is a risk because they are all subject to whims of winnie the pooh
Shhh... he might be listening. ;)
load of bollocks, the little guy has been getting screwed over by the American stock market for decades......and now we should be fearful of chinese stocks, nice try
Meme stonks much?
CHWRF? 😶🌫🥴
We don't have anything intelligent to say about that one :(