Saturday, September 28, 2013

"The High Price of Digging Up Dirt in China"

In Barron's:

"China stocks generally haven't done well in the past couple of years, and the flow of Chinese initial public offerings in the U.S. has virtually stopped -- just one company came public here in 2013. Chinese executives were understandably dismayed when American investors turned a cold shoulder, yet Beijing also seems to have taken umbrage. An editorial last year by the state-run news agency Xinhua growled that critiques of Chinese firms by U.S. short sellers were malicious acts seeking to 'poison reputations of Chinese start-ups for profit' and fueling foreign prejudices against Chinese business."
Chinese equities have no margin of safety.

A Chinese company can have its legitimate critics arrested. There is no way to know whether the third parties an investor relies upon for verification (auditors, researchers) are free of undue influence including threats by the government.

There is an epidemic of fraudulent Chinese companies listed in foreign markets, but the country of China is itself a fraud. It has the appearance of institutions: courts, markets, etc., but really everything is decided behind the scenes in a totalitarian fashion.

I would take Russian equities over Chinese any day.


Stagflationary Mark said...

I would take Russian equities over Chinese any day.

I hear that. And unlike Jim Rogers, I would sooner go "to Denmark to learn Danish' or something". ;)

(Your post inspired one of my own.)

Anonymous said...

China is an odious cesspit of corruption.

CP said...

Indeed, there is no more "wretched hive of scum and villainy".

Stagflationary Mark said...

Indeed, there is no more "wretched hive of scum and villainy".

Chinese Stocks: Episode IV - A New Hope

Chinese Official: Let me see your balance sheet.

Chinese Businessman: [with a small wave of some cash] You don't need to see my balance sheet.

Chinese Official: We don't need to see your balance sheet.

Chinese Businessman: These aren't the stocks you're looking for.

Chinese Official: These aren't the stocks we're looking for.

Chinese Businessman: We can go about our business.

Chinese Official: You can go about your business.

Brian said...

Bill Browder would disagree:

Anonymous said...

I pray that the Chinese will have a revolution so that they can bring an end to millennia of tyranny.