China ADRs

I’m just taking a second to write a quick note: I think, personally, that the market nervousness for the Chinese ADRs is overblown. While I’m holding individual ADRs like Nio (for the electrification play) and certain other ADRs like CICOY (as part of my ongoing investments in shipping companies, see my earlier post) and TCEHY (an unrelated play), I haven’t taken a “whole China” play until now.

2 year chart for PGJ, Invesco Golden Dragon China

Based on the chart above, it’s clear that 85/sh was “overheated”, but I haven’t attempted to compute an overall “fair value” for the 100 or so companies in this ETF-of-ADRs. Nonetheless, I am placing a small bet here that this will blow over and the ETF will resume its general trend upward above ~70 in the near term, which might be my sell target.

Will it keep going down? There’s a good chance it will. Obviously, this is not a recommendation, just wanted to let you know what I was thinking. Comments welcome.

More info:

China is cracking down on stocks that trade on U.S. exchanges. What it means if you hold them

updated 7/23/2021: It’s clear that any investment is going to involve risk, and that includes picking a bottom. The news today is a crushing blow to the Chinese tutoring stocks (EDU, GOTU)

Another group of U.S.-listed China stocks are plunging as Beijing regulators crack down

Updated chart for PGJ, Invesco Golden Dragon China

I’m planning to buy a little more, “double down”, around 45, if we see those lows.

Updated 9/1: I’ve executed on my “double down”. I thought I’d bring up a longer term chart to highlight the bigger picture. It looks like over long periods of time, the CAGR of PGJ has been around 7–8%:

Long term PGJ, from Schwab. Orange line ~7.5% CAGR, yellow line S&P500.

Updated 12/2/2021, more info: part of the underlying issue is the structure of various ETFs and the type of ADR (or not) that they invest in. PGJ is an index of ADRs, and doesn’t reflect China A shares or HK shares or other corporate forms. This analysis doesn’t get involved in the vagaries of various ADR corporate forms, including VIEs, but for more information, here’s a couple of links to help keep you more informed:

China plans to close loophole letting firms like Didi list overseas

Should investors be concerned about VIEs and ADRs?

Is It Really a Bear Market for China Stocks?

Updated 10Nov2023: It should be obvious by now that “past performance isn’t a guarantee of future results”, and “the market can stay irrational longer than you can stay solvent”, to quote a few aphorisms. But: it is still looking, two years later, that my call was just plain wrong.

18 year history, <5% total annual return, no recovery in 2022 or 2023 seen.

The question remains: is China (or the FDI view of it) on the verge of transforming? Is this a good bet?