Even with the Hong Kong stock market at record highs, it still looks like a bargain to some:
The Hang Seng index, dominated by Chinese companies, traded at 19.2
times earnings last week, the highest valuation since March 2004, after
a 41 percent rally for the benchmark index since mid-August. That does
not faze Mark Mobius, a manager at Templeton, or Hayes Miller, of
Baring, because stocks in Shanghai are three times as expensive. Based
on cash flow, Hong Kong is the least expensive among the world's 20
biggest markets, data compiled by Bloomberg show.
"It's crazy to have that kind of a discount," said Mobius, who is
buying Hong Kong-listed shares of Chinese energy companies, banks and
materials producers. "The only way to describe it is obscene."
You've probably also seen several reports the past couple of days about Mobius being bullish on PetroChina, despite Warren Buffett selling more of his position.
I don't think we should make much of that. I even saw one headline on the web something like: "Buffett versus Mobius." Or vice versa. Either way, it's a journalist in search of a hook for a story. Buffett is a disciplined investor and he's locking in profits from his investment. It doesn't mean his views of the company are all that different from those of Mobius.
They could be, but I think it's much more a function of price appreciation for the Wizard of Omaha. If (when?) the Chinese bubble pops, and PetroChina's stock price were to plunge, and Buffett believes the company's prospects remain intact, he's likely to add to his position.
But what do I know? I haven't gotten any phone calls from folksy-types in Omaha lately. Or from men with shaved heads in Singapore, for that matter. ;-)
For what it's worth, the newbie in me (who has been mostly wrong this year, and paying with it in real life) says that Hong Kong is overvalued and Buffett is actually selling because of overvaluation. I don't know about measuring by cash flow but shady accounting often materializes near a top.
I am just guessing but note that these days Buffett is a long-term buy&hold-type investor. Selling wouldn't come easy for him. If he were selling, I suspect it's because he doesn't believe the future prospects justify the price.
Having said all that, I don't know if anyone else is influenced by GaveKal but they think Hong Kong will do well, not because things are undervalued, but because Chinese capital may be channelled to Hong Kong by the government (in trying to combat the bubble in China).
Posted by: Sivaram Velauthapillai | October 16, 2007 at 01:57 PM
Do you think Buffett is learning from his experience with Coke here? I think he admitted at one point that he probably should have sold some stock in the '90s when it got very high...but he's so used to holding on with the long term investments.
Posted by: David | October 16, 2007 at 02:06 PM
I think the Mobius fallacy is that because Hong Kong trades at a discount to China it is therefore cheap.
If China is a great big bubble however, then Hong Kong can trade at a discount and still be dangerously expensive.
The run-up in Hong Kong has been fueled by expectations that China will ease its capital controls and let the two markets equalise. David Webb - http://www.webb-site.com/articles/incredibubble.htm
- has a good summary of whether this is likely to happen...
Posted by: Robin | October 17, 2007 at 12:42 PM