Is China Uninvestable?
Just read this article and have long been wary of Chinese stocks. Companies like PDD, BYD, Shein (expected IPO), HNHPF (Foxconn), JD, XIACF (Xiaomi) are all great on paper, but with the way the government curtails any criticism of the economy and seemingly backstops the market every time it looks like things are going south, I'm not sure if we can rely on any of the numbers. The article states "The country’s economy is being dragged down by a property meltdown that has wiped out $18 trillion in household wealth, a buildup of debt that is approaching 300% of GDP, and severe industrial overcapacity that risks a deflationary spiral"
China is the next big market, which is a very contrarian view. You have to skip the large caps which could be targets of US sanctions. If you don’t live in the US or the west it’s abit less bothersome.
China already has the 2nd highest GDP, there is literally only one larger market
how does that relate to how investable it is ? what
My comment was in response to the above poster who said China is “the next big market”
GDP is a crappy way of measuring the investableness of public markets.
For example, China has been the second largest economy for a while yet if you invested five to ten ago you would just got screwed. There’s still a lot of fraud and shitty companies in China, but that’s about to change with greater regulations and China wanting to be a safe haven for capital.
Only thing won’t blow up from China is grenade.
better question to ask first, renminbi devaluation when?
Exactly. Look at what happened to Japan’s stock market when the JPY went from 100 to 150. The Japanese stock market literally hit levels not seen in decades (yes, the plural form of the word decade)!!
Also geopolitical risk - see BIOSECURE Act announcements and overlay it with WuXi's stock price, lol
Not relevant to the question but some random thoughts -
Among the six names you mentioned, Xiaomi is exceptional and BYD Auto is quite solid. Would not personally consider the other four as GREAT investments due to business growth potential, but worth considering.
Non-Chinese may be surprised to find out that Xiaomi's CEO, Lei Jun, is a household name and has a very positive public image that is still rising. Whilst most successful entrepreneurs are commonly perceived as "evil capitalists" in the nation.
The big Chinese stocks have never really reflected the value or profits of the company for some reason. It's worth asking what exactly are you buying with a Chinese stock, I'm not sure it's a direct share of equity and future cashflows in the same sense as an American firm.
Probably the most nuanced thing I've read since the new years.
Just want to say, you're easily one of the most intelligent on this forum. At this point, I think I've read every comment you've posted!
Glad to hear it! I think the below poster said it best though, a Chinese stock represents the future cashflows discounted for the probability of the CCP shutting them down, especially the big firms on the CCP's radar.
Until the communists die off so the government doesn't get a mandated piece of companies started there or they make it possible to actually take your money out of the country, effectively, yes.
Probably. Can gamble in the PA or with family office money. Hard to do at an institution unless it's the specific mandate.
IMO China is a "Black Diamond or Investment Pros" only type market:
1.) plot the chart of all the record breaking GDP growth years and profits/equity market valuations...unlike say the US there is a distinct breakdown in higher GDP growth leading to higher firm profits/equity valuations (reasons are cited by others above)
2.) in almost all countries owning an equity/share represents partial ownership in a corporation whereas in China would argue you are only ever "renting at the pleasure of the government"
3.) geopolitical risk creates some nasty downside cases- see Russian equities
That said you can certainly make $$$ if you time it well i.e. before stimulative policies are rolled out and if you have a better feel for what a "normalized" P/E range...i.e. would argue a 14 P/E would be quite expensive for there given all the aforementioned even if "cheap" vs. the US
Traceable yes, investable idk. Trade actions & punishing each others rich seems likely to escalate
Bridgewater’s dedicated China fund just returned 36% last year, after posting nine up years out of the last ten. So yeah you can make money investing in china.
Aside from all the good points raised, Chinese market is regulatory driven. And there’s a much higher percentage of retail investor in the market vs anywhere else in the world.
This thread should answer your question - when the more negative the consensus, the better the risk / reward.
Just cause sentiment is negative doesn’t mean it’s oversold. When the general bilateral & trade posture shifts negative, stocks don’t always mean revert - see Venezuela, Russia etc.
Main issues:
(1) you don’t really have any enforceable claim on the cash or assets, which was fine historically, but increasing instances of intervention should widen discount
(2) they can and do fake their numbers, not infrequently - will you be able to vet that? Or even get the necessary access?
(3) USGov sanctions / blacklists (they don’t really have to be nefarious to get on here, it’s bargaining chip)
These issues are daunting to me, I don’t think I could build the necessary conviction to trade it, but I imagine there are plenty with the interest and capability
China ADR investor here for many years... I wouldn't go as far as saying that China is uninvestable, but it requires a different framework than before. Since 2021, there has been an outflow of sticky global LO money from the Chinese market because of a combination of structural economic headwinds + increased geopolitical and regulatory risks under Xi. Gone are the days when investors could make "easy money" from holding large-cap quality compounders like Tencent / Moutai for years. The market has gotten much faster with opportunistic HFs / retail increasingly dominating the flow (China saw a huge rally in October with the stimulus announcement but gave back most of its gains since the "tourist money" was playing for instant gratification.) Single-stock narratives could change very quickly. Here are just some examples of this:
(1). PDD was the most crowded long in late 2023 on the back of Temu/globalization but was one of the worst performers in large-cap internet in 2024 due to margin concerns, domestic E-Commerce competition, and Tariff risks. The stock is at 7x P/E for 20%+ growth—there is no valuation floor when the stock is in the wrong narrative.
(2). Meituan doubled in 2024 after a horrendous 2023 due to stabilizing local services competition vs. TikTok and margin inflection. But the stock lagged the market a ton in the last few weeks due to renewed TikTok competition, widening losses from Saudi food delivery expansion, and the IR talking down Q4 domestic food delivery volume.
(3). Every China investor that I spoke to was skeptical about the Xiaomi's EV plan before their launch and their competitive edge in smartphone / home appliance. Now, it is the most crowded long and trading at a massive premium.
I could go on and on but the point is for the savvy investors, there is still huge amount of L/S alpha to be made catching those inflections in China equities but it is a very different game than before.
OP here, thanks for the thoughtful response. Wishing you plenty of alpha in 2025.
If you want to be junior in the cap stack to the Chinese Communist Party in every investment, then go ahead
It's a tricky situation for investors. As others have pointed out, you have the world's second largest GDP, but risks are abound. Geopolitical risks, yes. What's more, the A-share market is filled with retail traders and some short-sighted, non-quantitative institutional money that trade very frequently with the intention of increasing their AUM instead of beating their "presumed high-watermark". However, you also have some very good traders like DeepSeek who is the poster child of a quant fund manager.
Trading rules is also something you need to think about. Overall, there's a longer time horizon from a trade order to its settlement in A-share trading compared to that of the U.S.
Bridgewater bought a lot of gold last year. I'm sure they also bought something else, but gold had a good year in 2024. I know that because I bought it myself around March, 2024. With a bit of leverage, not sure if that's something Bridgewater does, you can easily achieve a 20%+ return, even 25%.
If you can invest in the U.S. equity market like dear Warren and get good numbers, why take a much higher risk to dig gold in a volatile market? Your returns would probably be the same. I believe it's better to forfeit this kind of effort.
FOMO is the problem.
There are definitely great companies in Greater China, but when it comes to their stocks it's a different story. partly because of how much hate China gets and information asymmetry.
Per your comment I assume you live / have lived in China, so wondering if you feel the CCP govt. makes it harder to invest abroad (e.g. in US equities)? If so how?
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