4 ms·

Even if the prices of the assets themselves are manipulated, if you have a buy-and-hold mentality and invest in companies with strong earnings, I think it's sti

Even if the prices of the assets themselves are manipulated, if you have a buy-and-hold mentality and invest in companies with strong earnings, I think it's still rational to invest. If you think the price of an asset is maybe 100% higher than it should be, but it has a current P/E ratio of 20, it's theoretically better than making no investment at all if you hold it for 10 years (not accounting for tax or how the earnings are distributed, and assuming constant real earnings). If all the stocks available to you are like that, and your only other non-shady investment options are an already terribly inflated housing market, I think it's still rational. There's also no guarantee that the bubble will even pop in 10 years. The best case scenario for overvalued equities is that they deflate at a rate somewhat lower than real growth - in that case, you see yoy growth in the traded price of the asset while the asset prices move towards more reasonable prices.

gruez 7y ago
>If all the stocks available to you are like that, and your only other non-shady investment options or an already terribly inflated housing market They don't have access to developed market (ex china) ETFs?
- seanmcdirmid 7y ago
  Not when they are spending RMB. Since the RMB isn’t fully convertible, this is a hard barrier for many.
- opportune 7y ago
  China has some sort of capital control system (meaning, it is hard to move money out of China legally), someone can probably explain it much better than me. I am guessing it is enforced by the fact that the Chinese and non-Chinese banking systems are not very well linked, so anybody trying to move large amounts of CNY out of the country will show up on someone's radar. I know a lot of Chinese people use casinos as a way to make their money "go dark" so they can move cash out / exchange their cash for things they don't want their government to know about
  - chii 7y ago
    i can imagine that exporting goods is also a good way to "launder" money. Purchase manufactured goods and ship 'em overseas, and receive US dollars in return, in a non-chinese bank account.
    - cantrevealname 7y ago
      > Purchase manufactured goods and ship 'em overseas, and receive US dollars in return, in a non-chinese bank account That is such a great way to defeat currency controls that I wonder what the Chinese government--or any government with currency controls--could do about it. It seems like you could move infinite money out of a country that way with almost no risk. It's not smuggling. If it's done legally, you'd declare your sales and pay tax on your profits, but still end up with a pile of cash outside of your home country. Off the top of my head, I suppose they could crack down on it by: * cutting off all trade (obviously a stupid thing to do) * making it illegal for their citizens to have foreign bank accounts * require that all exports go through government-controlled agencies who would ensure that payments don't end up in foreign bank accounts * requiring all payments received in a foreign country to be repatriated back to the home country What does China (or any government with currency controls) do?
      - chii 7y ago
        i believe that the last 2 points are what is required by the chinese gov't (iirc). But if you're operation is small, i m not sure if there's enough checks and you can slip thru! And you could make a deal with the overseas buyer to give you half the money on one account, and the other half under the table/off the books. Then repatriation becomes just another cost of doing business.
      - ethbro 7y ago
        You could just audit the hell out of people who consistently lose money (e.g. expenditures without any declared income). If someone's doing that for multiple years, they deserve a microscope.
      - adinobro 7y ago
nradov 7y ago
But that's the rub. How can you tell which companies actually have strong earnings? Anecdotal evidence suggests that mainland Chinese companies frequently falsify financial reports, and auditing standards are weak.
- barry-cotter 7y ago
  If you are going to invest in Chinese companies at least do the bare minimum of ensuring that accounts are signed off on by the Hong Kong offices of the Big 4 accounting firms. The mainland offices are not equivalent.

gruez 7y ago

>If all the stocks available to you are like that, and your only other non-shady investment options or an already terribly inflated housing market They don't have access to developed market (ex china) ETFs?

seanmcdirmid 7y ago
Not when they are spending RMB. Since the RMB isn’t fully convertible, this is a hard barrier for many.
opportune 7y ago
China has some sort of capital control system (meaning, it is hard to move money out of China legally), someone can probably explain it much better than me. I am guessing it is enforced by the fact that the Chinese and non-Chinese banking systems are not very well linked, so anybody trying to move large amounts of CNY out of the country will show up on someone's radar. I know a lot of Chinese people use casinos as a way to make their money "go dark" so they can move cash out / exchange their cash for things they don't want their government to know about
- chii 7y ago
  i can imagine that exporting goods is also a good way to "launder" money. Purchase manufactured goods and ship 'em overseas, and receive US dollars in return, in a non-chinese bank account.
  - cantrevealname 7y ago
    > Purchase manufactured goods and ship 'em overseas, and receive US dollars in return, in a non-chinese bank account That is such a great way to defeat currency controls that I wonder what the Chinese government--or any government with currency controls--could do about it. It seems like you could move infinite money out of a country that way with almost no risk. It's not smuggling. If it's done legally, you'd declare your sales and pay tax on your profits, but still end up with a pile of cash outside of your home country. Off the top of my head, I suppose they could crack down on it by: * cutting off all trade (obviously a stupid thing to do) * making it illegal for their citizens to have foreign bank accounts * require that all exports go through government-controlled agencies who would ensure that payments don't end up in foreign bank accounts * requiring all payments received in a foreign country to be repatriated back to the home country What does China (or any government with currency controls) do?
    - chii 7y ago
      i believe that the last 2 points are what is required by the chinese gov't (iirc). But if you're operation is small, i m not sure if there's enough checks and you can slip thru! And you could make a deal with the overseas buyer to give you half the money on one account, and the other half under the table/off the books. Then repatriation becomes just another cost of doing business.
    - ethbro 7y ago
      You could just audit the hell out of people who consistently lose money (e.g. expenditures without any declared income). If someone's doing that for multiple years, they deserve a microscope.
    - adinobro 7y ago

nradov 7y ago

But that's the rub. How can you tell which companies actually have strong earnings? Anecdotal evidence suggests that mainland Chinese companies frequently falsify financial reports, and auditing standards are weak.

barry-cotter 7y ago
If you are going to invest in Chinese companies at least do the bare minimum of ensuring that accounts are signed off on by the Hong Kong offices of the Big 4 accounting firms. The mainland offices are not equivalent.