tag:blogger.com,1999:blog-6798074091942701235.post5862699999398812864..comments2024-03-27T11:08:31.557-04:00Comments on Can Turtles Fly?: Investors starting to shun Chinese real estate bondsSivaram Vhttp://www.blogger.com/profile/06361276466660862882noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-6798074091942701235.post-58220006165177312602010-06-05T16:13:52.000-04:002010-06-05T16:13:52.000-04:00Capital will leave China if it were open. After al...Capital will leave China if it were open. After all, a Chinese person would rather invest in cheaper, identical, H shares than the expensive A shares. So this does indicate that the reminbi would decline if the markets were open.<br /><br />Having said that, I think the factors that drive currencies are too numerous and this scenario (identical shares being overvalued in China) may only be a minor factor. Although I'm not expecting it, I can visualize a scenario where China devalues its currency if there is a major bust. This, of course, would run counter to the consensus expectation.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-75760264403185771312010-06-05T07:58:41.000-04:002010-06-05T07:58:41.000-04:00It occurs to me that the price difference between ...It occurs to me that the price difference between A-shares and H-shares is another piece of evidence that the Yuan is undervalued compared to the Hong Kong Dollar and other currencies.Parker Bohnnoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-14094775359338383282010-06-02T12:42:22.000-04:002010-06-02T12:42:22.000-04:00Yep... that has always been the case. Shares liste...Yep... that has always been the case. Shares listed on the mainland have historically been ridiculously overvalued compared to Hong Kong. In fact, at one point a few years ago, there were several companies who were trading at market caps close to $1 trillion if you used the mainland exchange prices.<br /><br />Somtimes the capital controls work the other way. I remember a few years ago when valuations in locally-listed Indian shares being cheaper than the NYSE-listed ADRs (India has capital controls although not as strict as China's). Similarly, locally listed Brazilian shares were cheaper than equivalent shares listed on NYSE (Brazil doesn't have capital controls but still isn't easy for many investors to access.)Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-86674438266701944052010-06-01T21:11:00.000-04:002010-06-01T21:11:00.000-04:00There seems to be a big difference in valuations b...There seems to be a big difference in valuations between A-shares (only listed in China) and B-shares and H-shares (which are available to global investors, and appear to have more reasonable valuations).<br /><br />For instance, the Shanghai index looks like its down about 25% from its peak last year, but China ETFs that we have access are all down less from their peaks. For instance, GXC is down about 15%, FXI is down about 17%, PGJ is down 14%, and YAO is down 14%.<br /><br />Keep in mind, CNY is pegged to USD, so this performance difference reflects a different asset mix, and not exchange rate effects.<br /><br />Anyone thinking about investing in (or shorting) China will definitely have to consider the impact of their capital controls.Parker Bohnnoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-82054602807115110642010-06-01T16:00:05.000-04:002010-06-01T16:00:05.000-04:00Yep... many of those real estate companies, not to...Yep... many of those real estate companies, not to mention the whole Chinese market, started correcting last year. Even if the real estate companies never fell, I'm not sure how safe it's to short them. The market may be pricing in bearish scenarios already. Almost everyone, including people with a neutral stance, pretty much accept the possibility of real estate companies getting hit if real estate tanks. So the bearish side may not be so great with real estate companies.<br /><br />Another idea I was contemplating was Chinese banks. But the risk is that the government may "bail them out" (although shareholders may get killed anyway.)Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-6650212125518549442010-06-01T11:20:35.000-04:002010-06-01T11:20:35.000-04:00Yeah, I've been thinking about shorting China ...Yeah, I've been thinking about shorting China a while now. Didnt realise stocks of these Chinese property development companies were fully tradable and listed in Hong Kong until today. Seems they all went down 20-50% or so in May so it's a bit frustrating having missed that downturn. As you say, it could very well be temporary risk aversion and the stocks and bonds might rally in a month. Feels a bit risky to short now.Martinnoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-40680146483740978422010-06-01T09:37:55.000-04:002010-06-01T09:37:55.000-04:00I'm not doubting the bubble; I'm doubting ...I'm not doubting the bubble; I'm doubting that it has burst.<br /><br />I hate trying to call a top based on short-term price movements (in thise case, from the bond market.) Just because investors are selling off Chinese real estate bonds all of a sudden doesn't necessarily mean the bubble has burst. For all I know, it could be a temporary risk aversion (due to general sell-off across the board) and the real estate bonds could rally in a month.Sivaram Velauthapillainoreply@blogger.comtag:blogger.com,1999:blog-6798074091942701235.post-41981249298082883412010-06-01T04:26:28.000-04:002010-06-01T04:26:28.000-04:00Why are you not so sure? Not that I disagree, ju...Why are you not so sure? Not that I disagree, just curious about you reasoning.Martinnoreply@blogger.com