An interesting reminder

An interesting reminder.

In Wall Street Breakfast today I just happened to read about a $40 billion Hong Kong company that has gone to being worth about $1 billion almost over night. (That’s down about 97.5%)

First, in May, the Hong Kong authorities started an investigation and the value dropped $19 billion (about 50%) in 20 minutes and trading was halted (trading has never re-opened).

http://seekingalpha.com/news/2547506-hanergy-under-sfc-inves…

Here’s a Bloomberg article in June

http://www.bloomberg.com/news/articles/2015-06-18/hanergy-in…

And here’s a news article today about the founder agreeing to sell 2.5 billion shares at about 3 cents, valuing the entire company at about $1.1 billion dollars. The investigation is still ongoing.

A resumption in trading of Hanergy “seems infinitely far away,” resulting in uncertainties over the assets, said Ronald Wan, CEO of Partners Capital International.

http://seekingalpha.com/news/3005246-hanergy-stake-sale-sugg…

Worth reading if you think it can’t happen to you, or if you think that buying a big Chinese company protects you. Forty billion dollars market cap was pretty big. Remember, if you had money invested in this company you can’t get it out now at any price. Trading is halted, and has been halted since May!

I’ve warned about Chinese companies before and said I’d never invest in one, even Baidu, because of my experience of how in China management essentially runs the company for it’s own benefit and fraud is rampant. (I invested in a basket of 13 little Chinese companies, about half recommended by MF Global Gains as I remember, and 11 had turned out to be fraudulent in one way or another by the time I quit. Also I noted how Alibaba’s CEO decided to give himself a gift of their most promising subsidiary. Yahoo owned 40% of Alibaba at the time but he didn’t even bother to tell Yahoo that he was doing it. If it can happen to a big company like Yahoo, what chance do I have). It’s not seen as dishonesty. It’s really just a cultural difference. It’s seen as natural the the CEO would give priority to the enrichment of himself and his extended family (and friends). Note that I don’t have a clue what happened to this company, or why, but it’s clear that the management wasn’t keeping stockholders informed about what was going on before the investigation was announced. Just a little reminder.

Saul

47 Likes

yes there is risk. Just like there were risk in American corporations like Lehman or Worldcom or Enron etc…

I did pretty well with BAIDU and NTES since the end of 2012. You just have to find the right ones.

tj

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While I not advocating anybody buy Chinese stocks, similar risks can happen everywhere.

I actually felt sorry for some of those that shorted KBIO a few weeks back. Quite a few stories ever having their whole accounts liquidated and still owing their brokers lots of money. Now the CEO has been charged and the shares having traded since 16 Dec.

http://finance.yahoo.com/q?s=KBIO

For those wanting a) a laugh and b) an education on China investment risks, then take a look at the posts over in the Fool.co.uk below where some folks have tracked shady Chinese companies have sought respectability and an opportunity to fleece investors with their AIM listings…

a) A laugh…
http://boards.fool.co.uk/just-to-show-that-these-china-joke-…
and http://www.hkexnews.hk/listedco/listconews/sehk/2015/1228/LT…

b) An education…
http://boards.fool.co.uk/china-companies-on-aim-part-1-13274…
http://boards.fool.co.uk/china-companies-on-aim-part-2-13274…
http://boards.fool.co.uk/china-companies-on-aim-part-3-13275…
http://boards.fool.co.uk/china-companies-on-aim-part-4-13276…
http://boards.fool.co.uk/china-companies-on-aim-part-5-13276…
http://boards.fool.co.uk/china-companies-on-aim-part-6-13277…
http://boards.fool.co.uk/china-companies-on-aim-part-7-13277…
http://boards.fool.co.uk/china-companies-on-aim-part-8-13278…
http://boards.fool.co.uk/china-companies-on-aim-part-9-13279…
http://boards.fool.co.uk/china-companies-on-aim-part-10-conc…

Having shared this, for the purposes of disclosure, I actually am invested in Chinese companies. I have been caught out by fraud, I have made strong multiples of money and I have also seen bone fide companies being taken private for a steal where I have had no material returns/losses. I have also lost money in US companies and seen US companies stiff its clientele (Goldman Sachs) and commit fraud (Madoff etc.), so I do not consider China to be the only source of malpractice.

As a Brit in Singapore, I am taking risks in China but I am taking risks in the US (where I do not live, hardly visit anymore and have little local insight to give me investor intelligence parity let alone advantage - which is where this board becomes so invaluable). I do this because I see risks and rewards investing in 1) a 19th century economy for yield (UK), 2) a 20th century economy for stability and growth (US) and 3) a 21st century economy for the future (China and EM).

Cheers
Ant

10 Likes

I agree with Saul although I avoid other places too, notably where property rights are weak or the free market, always subject to competition and the rule of law, is clearly compromised. There is plenty of money to be made but I am content for others to make it!

It is wrong to draw a moral equivalence between places where these things are suspect, and the real (if far too socialist) attempts at honest regulation in the west and, say, Japan, HK and Singapore.

It is not a skyline of high-rise blocks that define a country which is no longer ‘emerging’ but rules seen to be generally observed.

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Ant:

have you read Niall Ferguson? I like his perspective about how to live with a rising China. You cannot discount it or disregard it. You have to take it on.

China is a rising power and will be a power to reckon with within the end of this century. It is not one like Japan in earlier decades that will rise and stagnate. China is here and it will need more space. It is a reality that the world has to live with. There is no stopping. There will be stumbles but no stopping. We are talking about 20% of humanity.

There are a lot of problems when you look in but I think they will be temporary and they will sort themselves out. It is a bit naive to see China has all good (I don’t think people here will see that side much) or all bad. It is a country in transition.

I guess the perspective on China would be very different in Singapore than it is here in the US.

tj

2 Likes

Ant:

have you read Niall Ferguson? I like his perspective about how to live with a rising China. You cannot discount it or disregard it. You have to take it on.

China is a rising power and will be a power to be reckoned with within the end of this century. It is not one like Japan in earlier decades that will rise and stagnate. China is here and it will need more space. It is a reality that the world has to live with. There is no stopping. There will be stumbles but no stopping. We are talking about 20% of humanity.

There are a lot of problems when you look in but I think they will be temporary and they will sort themselves out. It is a bit naive to see China as all good (I don’t think people here will see that side much) or all bad. It is a country in transition.

I guess the perspective on China would be very different in Singapore than it is here in the US.

tj

Yep - I have TJ. (My degree was in History, Politics and Economics).

There are a lot of varied prognostications on the China phenomenon ranging from a Japan like boom and bust to the emergence of a new global superpower and also whether this will be a peaceful rise or not.

Seeing China from the inside and from within Asia gives me a completely different perspective, (compared to what I held before in England and compared to views expressed in the US). Mind you, my views of the US and Europe since living in Asia have also changed.

China is very high risk but potentially very high reward. I find HK and Singapore and increasingly parts of SE Asia lower risk and still good reward.

LatAm was looking good as well given the events in Argentina and Venezuela except Brazil went and wet the bed.

Ant

1 Like

Ant:

We will always say it is more risky of things that we have never seen before. China is rising and we do not really know what it will become. Its ambitions are clear given its history but we are in a new world and how China will take its place in this world is yet to be seen. Historically China has always been more concerned about protecting the integrity of its ‘motherland’, and have rarely pushed out of its frontiers. But we are in a global world today and China will do what it needs to do.

I think Hong Kong’s importance is already fading a bit as its neighbor up the coast -Shanghai is surpassing it. Singapore is placing itself well- the promotion of biotechs and other areas of techs will help them move into the future, and China will also be an important part of their existence.

I don’t think China will be like Japan. It s like speaking of (the once) Great Britain in the 19th century and early 20th, and comparing it with say Belgium which has also been a prosperous country that experienced the industrial revolution quite early in history.
We need the right historical perspective. We are talking here about a remarkable global shift that will affect us all. We need to be ready for it.

Re. LatAm: I just saw an article that ranks the countries on how happy they are. The happiest are in central and South America.

China is happier than Singapore and the US but not as happy as Brazil which is pretty happy despite their economic woes.

Singapore is a small country with a lot of antagonistic neighbors. That certainly contribute to their unhappiness. I think in some ways their leaning towards China is in some ways to help them with that.

But with all that Singapore is still a bit happier than the US. The US is strangely not very happy apparently. Many Middle Easter countries are happier than the US despite what we hear on the news about what is happening there.

Western and Northern Europe are remarkably happier than the US. The US hate socialism and the French that may contribute to the american unhapiness…and knowing that the French are happier than them…oh lala!
It is to be noted that it is an average. Maybe some of those in the 1% are indeed happier than a poor Vietnamese (Vietnam is one of the happiest country in the world) but their number is so small.

ok we are getting away from talking about investing…well maybe we should raise the following hypothesis: ‘if you invest in the happiest places, you will also be happier’.

tj

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Hi TJ - interesting side conversation. Apparently there’s a strong correlation between wealth and happiness (The Economist covers this from time to time) but there are exceptions…

Brazil and Philippines are still pretty poor but are exceptionally happy whilst Finland and Singapore are very wealthy but relatively unhappy (for different reasons). Obviously Bhutan is the epicenter of happiness though.

Happy new year all!
Ant

Ant:

wealth & happiness are correlated but only to a certain point. It is correlated up to a certain salary or revenue per year. Once you exceed that there is not more correlation between wealth and happiness.

That salary is fairly low. I think it is something like 40 or 50K USD/year.

Human happiness is strongly correlated with the quality of family relationships and friendships.
A continent like Africa is not that happy not so much because it is poor per se but maybe because of unequality, strife, unstability and war.
one of America’s source of unhappiness is the rising un-equality.

tj