October 18, 2007
Overvalued Here, Overvalued There, Overvalued Everywhere
Chinese Shares in U.S. Rise Most in 6 Years on Arbitrage Study
“The USX China Index, which tracks U.S.-traded shares of 74 mainland companies, jumped 8.3 percent, the biggest advance since April 2001 … China Petroleum, also known as Sinopec, soared 16 percent on the New York Stock Exchange. The stock traded at 18 times estimated earnings, compared with a multiple of 36 in Shanghai. The company’s unit Sinopec Shanghai Petrochemical Co. jumped 17 percent … Other companies with multiple listings also rose. Aluminum Corporation of China surged 13 percent, Guangshen Railway Co. rallied 14 percent, Yanzhou Coal Mining Co. jumped 14 percent China Life Insurance Co. increased 12 percent.
Companies on the CSI 300 index trade at an average 56 times reported earnings, compared with 34 times for the USX China Index.”
The quickest way the discrepancy will disappear is when Mainland stock markets fall between 40 and 60 percent, but my manicurist is going to make sure that doesn’t happen. Exxon, BP, Chevron all trade around 10 to 13 times earnings … what kind of nitwit thinks that SNP at 18 times is cheap or will move towards the insane “captive capital” valuations on the Mainland?
No wonder Buffett sold his entire PTR stake… as he famously said: “in financial markets: Be fearful when others are greedy, and be greedy when others are fearful.”
October 18th, 2007 at 10:44 am
Frankly I’m surprised at Buffett’s decision to sell his stake in Petrochina. Dividends alone give him 20%+ per year based on his entries.
October 18th, 2007 at 10:54 am
Brian: How do you figure that? (I’m slow.) There’s also the political angle to consider (Sudan stuff) but I think he just recognizes a stupid valuation when he sees (sells) one.
October 18th, 2007 at 11:22 am
If I remember correctly Buffett bought the bulk of his shares at the IPO price somewhere around $1.5. It now yields $0.358 in dividends.
October 18th, 2007 at 12:25 pm
so much for waiting for that pullback. …
October 18th, 2007 at 3:53 pm
Heya, what happened to daily Unusual Suspect & Random Observations posts? Just in case you were wondering, it is being missed :-)
October 18th, 2007 at 3:57 pm
eyal: I got sick of writing them and once again I’m making an effort to alienate my remaining dozen readers.
October 18th, 2007 at 9:06 pm
Speaking of which, what happened to the daily evacuation? That would be a great name for a blog, by the way.
October 18th, 2007 at 11:30 pm
You have a manicurist?!
October 19th, 2007 at 5:40 am
@bjk: Isn’t Niederhoffer’s site at DailyEvacuation.com? I stopped recording bowel movements awhile ago but you can review about 25 of them here.
@John: Yes, like Tony Soprano, I occasionally have my nails done.
October 19th, 2007 at 8:32 am
I have been bravely avoiding the China bubble about %60 ago. Today, my Proshares financial ultrashort awarded me 2. I wish there was a China short fund…..eventually.
October 19th, 2007 at 8:42 am
I’ve had this argument before; when you think something is an overvalued moonshot worth shorting eventually, there are three options, and two of them mark you as an utter fool. Disclosure, this is coming from an utter fool:
1. Short it now (fool).
2. Avoid it (fool).
3. Go long it with a loose trailing stop, and when (and ONLY when) that trailing stop is hit, THEN maybe possibly consider shorting it. Just remember that 9% down day in FXI from the wayback machine … what looks like a trend break may just be a buyable dip.
October 19th, 2007 at 4:03 pm
Re: WB & PC.
The little I understand is he didn’t see a link with moral issues re: Sudan. Heard him say that in some soundbite.
His favoured hold time is forever and he has shown he isn’t scared of large draw downs in his holdings with things like Coca Cola and the like, so if he still believed in the China oil theme… I’m confused.
Is it really that over-valued that it’s a must sell for WB? Or maybe there is an idea that oil companies might not be the great investments they appear to be going into a post peak oil future. I really respect his big picture views and think they are mostly spot on like his recent buying of rail stocks.
Anyway I have made a note to do some more digging as it’s an interesting subject I think.
I picked the Yen for WB’s currency play, so am interested to read that I was wrong about that.
October 19th, 2007 at 6:07 pm
Andrew: RE the Yen, it will be a while but Buffet is onto something. With their rates so low, they have no where to go but up.
October 19th, 2007 at 6:46 pm
Andrew: He said the sale was “100%” a price issue (nothing political about it) … I picked an Asian currency as well (though not the yen), but the real is another “obvious” choice (in hindsight of course). ;-)