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Zecco.com » General Investing » ETF & Mutual Fund Investing » Bargain China (OR NOT)
Last post 03-21-2008, 8:38 PM by aquaswim47. 7 replies.
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  •  02-19-2008, 12:12 AM 23802

    Bargain China (OR NOT)

    Reply Quote
    At what price does FXI need to fall to in order to be a bargain? It's currently priced at $149.88 per share.

    0) It is attractive even at a higher price
    1) It has fallen enough
    2) $120
    3) $100
    4) $80
    5) $75
    6) $70
    7) $65
    8) $60
    9) $50
    10) There isn't a low enough price

    My vote is for choice #6, (a PEG of 2.18) but I believe that China will fall to between $60 and $80. The PE ratio of China is just too high even for a 9% grower. I think it's 50, but I am not sure. That means in two years, if the price stayed the same, that it would have a PE of around 42. Assume continued 9% growth.

    Example:
    Currently                                              1 year                                       2 years
    Price per share = $250                     $250                                          $250
    EPS =                      $5                       $5.45                                     $5.9405
    PE                           50.0                    45.87                                         42.08
    PEG =                     5.56                    5.10                                           4.68

    PEG = 3.0 --> Falls to $96 per share
    PEG = 2.5 --> Falls to $80.29 per share (pretty reasonable)
    PEG = 2.0 --> Falls to $64.23 per share
    PEG = 1.75 --> Falls to $56.21 per share (probably the most likely scenario by 2010).
    PEG = 1.5 --> Falls to $48.18 per share
    PEG = 1.25 --> $40.15 per share (not likely)
    PEG = 1.0 --> $32.12 per share


    Aqua

  •  02-19-2008, 12:35 AM 23803 in reply to 23802

    Re: Bargain China

    Reply Quote
    That is a great question and I wish I knew the answer.  My best guess is #2 (a 20% fall from current levels).

    That is assuming they manage the transition from rapid growth/inflation with undervalued currency to moderate growth/inflation with appropriately valued currency without any major shocks.  That is obviously a huge *if* and if there are big shocks then of course the answer could easily be somewhere between #6-#10.  But in that scenario I don't think the US escapes unscathed either.

    Since the world economy is so intertwined these days I don't think the developed world can afford for the China experiment to fail, and so my preference is to (skeptically) believe the hype.  Of course I wouldn't be buying FXI until it shows some sign of recovery ;)

  •  02-19-2008, 1:04 AM 23806 in reply to 23803

    Re: Bargain China

    Reply Quote
    Very intriguing take. I think you have a good valid point. I think the US had much to benefit from the global economy and it is important that it integrates well. I do think that China will have a marked impact on the US and Japan, but that they might break free.
    Aqua

  •  03-06-2008, 9:37 PM 24764 in reply to 23806

    Re: Bargain China

    Reply Quote
    Reuters article posted today made me recall this post... I'm sure zecco will cut off the URL of the full article (http://www.chinapost.com.tw/ but look it up on Google news.  According to this, BlackRock would go back to China when P/E drops from 14x (current) to 12x.  FXI is running at 17.5-18x.  Maybe it gives a little insight into what others are thinking...

    HONG KONG -- BlackRock Inc. is underweight Chinese and Indian shares, but is keenly awaiting a further drop in valuations to buy back into the former high-flying markets, a senior Asia executive said Tuesday.

    For now, the US$1.36 trillion U.S. money manager is overweight smaller Asia markets like Thailand, Indonesia, the Philippines and Malaysia, where domestically focused companies make up a large part of the market, said Nick Scott, the firm's chief investment officer for Asian equities.

    "Where we are now in our thinking is we're going to start taking money out of these markets that have outperformed this year, namely the Malaysias and Indonesias, and rotate back into individual stocks that have oversold; probably India, probably China," he told Reuters in an interview.

    "They're markets we would instinctively like to be overweight at the moment. It's just not the right time."

    The China Enterprises Index of Hong Kong-listed mainland companies trades at about 14 times 12-month forward earnings, while India's 30-share BSE index trades at more than 16 times according to Reuters data.

    Scott, who overseas about US$4.5 billion from Hong Kong, warned earnings estimates in general are still too high and will have to be scaled back in many cases. Using the firm's own calculations, he said he would be keen to buy into Indian stocks at about 14 times 2008 earnings and Chinese shares at 12 times.

  •  03-06-2008, 10:49 PM 24770 in reply to 24764

    Re: Bargain China

    Reply Quote
    Well for me, there are two factors that I'll consider:

    1) The first one is I want the valuation of China to be reasonable if not cheap.
    2) Time, I probably will wait a minimum of 2 years before I hit China since I want the global growth story to be a moot issue and no longer believed to be true. Then and only then will I pull the trigger on China.

    I think the US and Japanese market will rise, while Europe will fall. It looks like Japan is finally realized as an ultimate value play and the Chinese collapse is no longer going to bring it down further.

    On the other hand, I'm highly bullish on emerging markets (especially those Asia ones), Russia, and Brazil. Indonesia is probably the most risky of the SE Asia countries; it has similar risk to an African country as an emerging market at least for the time being. There's nothing that beats diversification.


    Aqua

  •  03-10-2008, 12:25 PM 24924 in reply to 24770

    Re: Bargain China

    Reply Quote
    An interesting question is whether there will be a recession in Japan or not.  Surely that would dampen returns from Japan.

    A second interesting question will be the exchange rate.  If you expect Europe to fall AND expect the dollar to improve, that's a double-whammy (just as US investors have received a double-benefit in recent years from the converse scenario).

  •  03-21-2008, 5:21 AM 25475 in reply to 24924

    Re: Bargain China

    Reply Quote

    China Shanghai A Share index has fallen down over 40% from its highest level. Is the price of FXI more reasonable? or we should wait for the sign of the economic recovery? 

  •  03-21-2008, 8:38 PM 25507 in reply to 25475

    Re: Bargain China

    Reply Quote
    Pull the trigger at $75! That's where I'll be buying it. $85 is tempting but $75 seems a tad bit safer.
    Aqua
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