China vs. The World!
Investors seem to accept the Chinese government's involvement in business, but have a very different view of government in the rest of the world.
By Vitaliy N. Katsenelson
This paragraph, taken out of a SoGen’s research report, sums up an intriguing dichotomy: the very different ways investors look at China and the rest of the world.
Trading on a lowly 0.5x book value, Lloyds (LYG 5.23 ↑2.75%) is clearly unloved, presumably because prospective investors aren’t sure how safe its loan book is and are understandably concerned that an increasingly unpredictable UK government owns a 43% stake. Who, after all, wants to own an asset which the government reserves the right to commandeer for its own ends and which has an opaque loan book?
Well, quite a few people it seems, judging by the situation on the other side of the Eurasian plate. Industrial and Commercial Bank of China, for example, is sitting pretty on around 3.5x book value and a forward PE of 14.7x. Yet as far as I can see, it”s 74% owned by the Chinese government and, so far at least, has been subject to far more political interference than anything seen at the semi-nationalised UK banks.
Investors have a healthy distrust, and rightly so, of governments running banks in the US and UK, but are very comfortable with the Chinese government wheeling and dealing with Chinese banks.
Vitaliy N. Katsenelson, CFA, is a portfolio manager/director of research at Investment Management Associates in Denver, Colo. He is the author of “Active Value Investing: Making Money in Range-Bound Markets” (Wiley 2007). To receive Vitaliy’s future articles by email, click here.
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