China & hk stocks/ etfs

[d5dude]

Interesting Youtube of the mindset of the PRC Chinese in the China market now. Got it from another HWZ thread. I feel it captures perfectly what I have been observing. This was taken 1 day before the reopen where there was widespread expectation market would limit up and just keep going.

Their system is completely not geared up to handle this type of speculation. It looks like there will be significant counter party risk and will not be surprised to see large brokers within China going under.

This guy got new video out, mostly funny stuff about insiders and institutions dumping but also got some interesting info about China's stock market valuations. Looks like this market is no longer "cheap" after a 35% rally, its trading at around S&P500's multiple, but without the growth prospects.

 

[d5dude]

Lolwut? Did you even read my post or the article? That's not how the model works.

https://www.advisorperspectives.com...-accuracy-of-cape-as-a-predictor-of-returns-1

You pulled this from this article?

https://www.advisorperspectives.com...-accuracy-of-cape-as-a-predictor-of-returns-1

I dunno how he got 11% but it doesnt look right to me. A CAPE ratio of 20 implies an earnings yield of 5%, since returns tend to track earnings yield theres no way to get 11% real returns with a 5% earnings yield.

This morningstar article's math looks more legit to me:

https://www.morningstar.com/markets/improving-cape-10

Also extracted from the article is a table from Robert Shiller's 2017 paper:


For example:

• When the CAPE 10 was below 9.6, 10-year-forward real returns averaged 9.8%, well above the historical average of 7.4%. The best 10-year-forward real return was 17.2%. The worst 10-year-forward real return was still a pretty good 4.2%. The range between the best and worst outcomes was a 13-percentage-point difference in real returns.
• When the CAPE 10 was between 16.1 and 17.8 (about its long-term average of 16.9), the 10-year-forward real return averaged 5.4%. The best and worst 10-year-forward real returns were 14.6% and negative 3.8%, respectively. The range between the best and worst outcomes was an 18.4-percentage-point difference in real returns.
• When the CAPE 10 was above 26.4, the real return over the following 10 years averaged just 0.9%—just 0.5 percentage point above the long-term real return on the risk-free benchmark, one-month Treasury bills. The best 10-year-forward real return was 5.8%, and the worst 10-year-forward real return was negative 6.1%. The range between the best and worst outcomes was a difference of 11.9 percentage points in real returns.

 

[econ food]

@crimsontactics
Can chat here.

 

[crimsontactics]

@crimsontactics
Can chat here.

Here too serious liao Bro econ food...

 

[econ food]

This guy got new video out, mostly funny stuff about insiders and institutions dumping but also got some interesting info about China's stock market valuations. Looks like this market is no longer "cheap" after a 35% rally, its trading at around S&P500's multiple, but without the growth prospects.

Wad chu opinion.. sell all china , hk stocks ?

 

[econ food]

Here too serious liao Bro econ food...

They may have good suggestions to u.

 

[crimsontactics]

They may have good suggestions to u.

Their suggestions are better than EDMW Bro econ food...

But moi read read will do...

 

[d5dude]

Wad chu opinion.. sell all china , hk stocks ?

My opinion is stay away unless you like to gamble.

 

[sky1978]

Technically it really depends now if they want to maintain propping up the markets or not.

Let's assume a scenario where their people have already bought a lot of stocks. China cannot afford their stock market going down else risking yet another "property sector" blowout contagion with people losing their assets again. If that happens, their own people will never have the confidence to trust their central government polices again.

If they want to support the markets, then they have to go down the rabbit hole of becoming another USA.

And with the Saturday announcement in mind, I doubt the central government wants to become throwing money into the stock market endlessly. Most likely they will maintain status quo.

In their last announcement, they already detailed the plans to support the market, if investors take time to digest and analyse their measures, they will know that the support is not meant to help every listed company on the market.

This page summarises all the support measures.
https://www.allianzgi.com/en/insights/outlook-and-commentary/pboc-stimulus-plan

If we look at the last two, there are

• Providing new monetary policy tools to support stock market development (eg, allowing securities firms, funds and insurers to borrow liquidity from the central bank via asset pledges).
• Launching a special-purpose relending tool to help banks fund listed companies’ share buybacks.

If institutions like insurers are allowed to pledge assets to buy more things, what sectors will they be going for?

And even if banks want to extend credit to companies for share buybacks, they probably would only lend money to those large and financially strong companies in the A-Share market. If you are in the Chinese market long enough, you will know that many large companies and conglomerates have a common shareholder.

For the past week, investors have been driving up all the Tech stocks where the majority of them are not even listed in the China A-share market. The above two measures will not directly benefit those overseas listed Tech companies unless the Chinese govt is so kind that they allow their China institutions to borrow inside China and then divert the funds out to buy them.

Coming back to the share buybacks, almost all the Tech companies are cash-rich. Their main challenge is how to remit the cash out from China to pay dividends or do further share buybacks.

 

[Misuta]

You pulled this from this article?

https://www.advisorperspectives.com...-accuracy-of-cape-as-a-predictor-of-returns-1

I dunno how he got 11% but it doesnt look right to me. A CAPE ratio of 20 implies an earnings yield of 5%, since returns tend to track earnings yield theres no way to get 11% real returns with a 5% earnings yield.

This morningstar article's math looks more legit to me:

https://www.morningstar.com/markets/improving-cape-10

Also extracted from the article is a table from Robert Shiller's 2017 paper:


For example:

• When the CAPE 10 was below 9.6, 10-year-forward real returns averaged 9.8%, well above the historical average of 7.4%. The best 10-year-forward real return was 17.2%. The worst 10-year-forward real return was still a pretty good 4.2%. The range between the best and worst outcomes was a 13-percentage-point difference in real returns.
• When the CAPE 10 was between 16.1 and 17.8 (about its long-term average of 16.9), the 10-year-forward real return averaged 5.4%. The best and worst 10-year-forward real returns were 14.6% and negative 3.8%, respectively. The range between the best and worst outcomes was an 18.4-percentage-point difference in real returns.
• When the CAPE 10 was above 26.4, the real return over the following 10 years averaged just 0.9%—just 0.5 percentage point above the long-term real return on the risk-free benchmark, one-month Treasury bills. The best 10-year-forward real return was 5.8%, and the worst 10-year-forward real return was negative 6.1%. The range between the best and worst outcomes was a difference of 11.9 percentage points in real returns.

Why are u equating yields to returns? There's EPS growth, so obviously u can't simply use yields for the past 10 years to project returns for the next 10 years.

https://www.gurufocus.com/shiller-PE.php?width=362&height=217

The returns u cited are real returns, which subtracted inflation. If u add 2% inflation to get the nominal returns, it sounds about right.

 

[endlssorrow]

1M65 videos on China now quite useless because we don't need them after the market has rallied by more than 20%. Anyone influenza turning into China bull AFTER the market has rallied are just price followers. Tomorrow when the price drop, they'll turn into a bear.

Ya la those these video no use one la
If so good huat liao
Still waste time on broadcast themselves like god of gamblers

 

[d5dude]

Why are u equating yields to returns? There's EPS growth, so obviously u can't simply use yields for the past 10 years to project returns for the next 10 years.

https://www.gurufocus.com/shiller-PE.php?width=362&height=217

The reciprocal of P/E is earnings yield lah, if you dun want to look at earnings yield that automatically means that P/E becomes irrelevant too. And yes theres future EPS growth/contraction (massive unknown variable), this is also why the CAPE has failed so miserably most of the time, you cant predict future earnings by looking at earnings over the preceding decade.

Just look at the last example in Robert Shiller's 2017 paper:

• When the CAPE 10 was above 26.4, the real return over the following 10 years averaged just 0.9%—just 0.5 percentage point above the long-term real return on the risk-free benchmark, one-month Treasury bills. The best 10-year-forward real return was 5.8%, and the worst 10-year-forward real return was negative 6.1%. The range between the best and worst outcomes was a difference of 11.9 percentage points in real returns.

CAPE 10 was over 26.4 in late 2014, yet the S&P500 has delivered a CAGR (real return) of ~10% in the following decade. That trumps the BEST 10 year forward real return estimate of 5.8% in Shiller's model, and certainly crushes the average of 0.9%.

Valuations are simply a poor market timing tool because future earnings will always be an unknown variable no matter how you backtest.

 

[boringLife-]

981 HK closed flat today vs 688981 up 16.53%

From 9/13 till date
H share up ~74% vs A share (converted to HKD) up 97%

 

[sky1978]

981 HK closed flat today vs 688981 up 16.53%

From 9/13 till date
H share up ~74% vs A share (converted to HKD) up 97%

Have they resolved the issue of how to maintain ASML equipment and make spare parts on their own?

https://www.trendforce.com/news/202...intenance-services-to-china-as-early-as-2025/

 

[DevilPlate]

The reciprocal of P/E is earnings yield lah, if you dun want to look at earnings yield that automatically means that P/E becomes irrelevant too. And yes theres future EPS growth/contraction (massive unknown variable), this is also why the CAPE has failed so miserably most of the time, you cant predict future earnings by looking at earnings over the preceding decade.

Just look at the last example in Robert Shiller's 2017 paper:

• When the CAPE 10 was above 26.4, the real return over the following 10 years averaged just 0.9%—just 0.5 percentage point above the long-term real return on the risk-free benchmark, one-month Treasury bills. The best 10-year-forward real return was 5.8%, and the worst 10-year-forward real return was negative 6.1%. The range between the best and worst outcomes was a difference of 11.9 percentage points in real returns.

CAPE 10 was over 26.4 in late 2014, yet the S&P500 has delivered a CAGR (real return) of ~10% in the following decade. That trumps the BEST 10 year forward real return estimate of 5.8% in Shiller's model, and certainly crushes the average of 0.9%.

Valuations are simply a poor market timing tool because future earnings will always be an unknown variable no matter how you backtest.

Yr last sentence power sia
Thats why simi economist, professor, CFA scholars all cui one lah

 

[Misuta]

The reciprocal of P/E is earnings yield lah, if you dun want to look at earnings yield that automatically means that P/E becomes irrelevant too. And yes theres future EPS growth/contraction (massive unknown variable), this is also why the CAPE has failed so miserably most of the time, you cant predict future earnings by looking at earnings over the preceding decade.

Just look at the last example in Robert Shiller's 2017 paper:

• When the CAPE 10 was above 26.4, the real return over the following 10 years averaged just 0.9%—just 0.5 percentage point above the long-term real return on the risk-free benchmark, one-month Treasury bills. The best 10-year-forward real return was 5.8%, and the worst 10-year-forward real return was negative 6.1%. The range between the best and worst outcomes was a difference of 11.9 percentage points in real returns.

CAPE 10 was over 26.4 in late 2014, yet the S&P500 has delivered a CAGR (real return) of ~10% in the following decade. That trumps the BEST 10 year forward real return estimate of 5.8% in Shiller's model, and certainly crushes the average of 0.9%.

Valuations are simply a poor market timing tool because future earnings will always be an unknown variable no matter how you backtest.

don't think that's how u use CAPE ratio to predict future expected returns lah.

Shiller PE Implied Market Return

If we assume that over the long term, the Shiller PE of the market will reverse to its recent 20-year average of 26.6, the future market return will come from three parts:

1. Contraction or expansion of the Shiller PE to the recent 20-year average
2. Dividends
3. Business growth

The investment return is thus equal to:

Investment Return (%) = Dividend Yield (%) + Business Growth(%) + (Mean_Shiller_PE/Current_Shiller_PE)(1/T)-1

https://www.gurufocus.com/shiller-PE.php?width=362&height=217

or whether they backtest the data and apply monte carlo simulation, idk.

Valuations are simply a poor market timing tool because future earnings will always be an unknown variable no matter how you backtest.

like the article u cited said, it's not really meant to use to time the market, but rather to forecast the expected returns over a probabilistic range based on backtested data. future earnings is an unknown variable, but over a long period of time it should not deviate too much away from historical average. eg; AI may increase EPS growth (like say 10% pa to 13% pa), but can it raise EPS growth to the point where all past models are thrown out of the window, like 30% EPS growth consistently, and the US economy will grow at 4% annually vs 2% currently?

it's like i cannot reliably predict whether it will rain next week of not. but based on historical data, i know it rains on average 4x a month. if it has been already raining for 6x for the past 3 weeks, it is more unlikely to rain next week.

the lesson to take away is that valuation still matters, and there is pretty strong correlation to average future returns. if u believe valuations are a poor predictor of future average returns because some revolutionary tech will be invented and all past models can be thrown out of the window, then i also nothing to say liao.

im not using it to time the market (im still dca-ing into US mkt), but im just cognizant that my future average returns might not be as spectacular based on current valuations.

anyway, i think this is a pretty good read:

https://www.invesco.com/apac/en/ins...osophy-the-shiller-PE-and-SP-500-returns.html

Indeed, the relationship between our CAPE and 1-year forward returns on the S&P 500 index between 1983 and 2022 is practically random. However, this predictive power improves using 10-year forward returns to an R-squared of 0.78 (between 1983 and 2013).

Interestingly, using the longer history of the Shiller P/E – available from 1881 – does not strengthen the relationship: the R-squared falls to 0.11. It seems that this predictive power may be a recent phenomenon. However, if we use the 30-year period before 1983 (starting in 1953), the R-squared jumps to 0.78. If we combine the two periods into 1953-2013 the R-squared drops to 0.42 suggesting that a structural split happened in the mid-1980s, which changed the relationship.

Even a quick glance reveals that valuations seem to have shifted higher in the 1980s: from an average of 15.6x between 1953 and 1983 to 24.2x between 1983 and 2023. What were considered extreme values in the first 100 years of the history of the Shiller P/E reached only in 1929, became more “normal”.

When valuations change, our first suspect is usually the discount rate. Indeed, while 10-year Treasury yields rose from 2.3% in 1954 to around 15% in 1981 following the path of inflation, they declined from that level until our present day during the “Great Moderation” of the 1990s and deleveraging of the post-GFC period.

This implies that, assuming no structural change in the direction of inflation and interest rates, we ought to rely on the post-1983 model to predict long-term returns on the S&P 500 (Figure 4). Not to mention that on the pre-1983 model the current Shiller P/E would be literally “off the charts” (the peak between 1953 and 1983 was 23.9x). Also, at this point, we think the probability of inflation reaccelerating is low over both the short and medium term. Without that, we do not think valuations would revert to pre-1980s levels.

Figure 2 – S&P 500 Shiller P/E and future returns since 1983

Figure 4 – Shiller P/E and S&P 500 10-year annualised forward returns since 1983

 

[aurvandil]

ML thinks that the reason they are doing the annoucement on Saturday is because it will be so overwhelmingly positive that market will rocket up. According to ML, market got good chance to limit up on Monday reopen.

 

[DevilPlate]

don't think that's how u use CAPE ratio to predict future expected returns lah.


https://www.gurufocus.com/shiller-PE.php?width=362&height=217

or whether they backtest the data and apply monte carlo simulation, idk.



like the article u cited said, it's not really meant to use to time the market, but rather to forecast the expected returns over a probabilistic range based on backtested data. future earnings is an unknown variable, but over a long period of time it should not deviate too much away from historical average. eg; AI may increase EPS growth (like say 10% pa to 13% pa), but can it raise EPS growth to the point where all past models are thrown out of the window, like 30% EPS growth consistently, and the US economy will grow at 4% annually vs 2% currently?

it's like i cannot reliably predict whether it will rain next week of not. but based on historical data, i know it rains on average 4x a month. if it has been already raining for 6x for the past 3 weeks, it is more unlikely to rain next week.

the lesson to take away is that valuation still matters, and there is pretty strong correlation to average future returns. if u believe valuations are a poor predictor of future average returns because some revolutionary tech will be invented and all past models can be thrown out of the window, then i also nothing to say liao.

im not using it to time the market (im still dca-ing into US mkt), but im just cognizant that my future average returns might not be as spectacular based on current valuations.

anyway, i think this is a pretty good read:

https://www.invesco.com/apac/en/ins...osophy-the-shiller-PE-and-SP-500-returns.html



Figure 2 – S&P 500 Shiller P/E and future returns since 1983

Figure 4 – Shiller P/E and S&P 500 10-year annualised forward returns since 1983

Itsok…..i know u know can liao.
37x shiller ratio is no joke…..risk reward ratio so unfavourable today.

U been repeating using shiller as a guide to forecast next 10-20years potential upside.
Then suddenly misinterpreted as market timing tool whahaha

 

[DevilPlate]

ML thinks that the reason they are doing the annoucement on Saturday is because it will be so overwhelmingly positive that market will rocket up. According to ML, market got good chance to limit up on Monday reopen.

duno why u keep targeting him….but by promoting his YT here u are actually helping him to gain views

 

[aurvandil]

duno why u keep targeting him….but by promoting his YT here u are actually helping him to gain views

My Chinese vey poor. He is the only youtuber I know who is super bull China market that has content in English.