Chinese stocks traded on US exchanges are undervalued and mispriced, said Benjamin Wey, president at New York Global Group, a middle market advisory firm specializing in businesses in China.
Wey said many of these companies are trading at a significant discount in the US compared to their shares listed in Hong Kong and Mainland China. He said some companies are trading 5 times their earnings in the US while their shares in China are trading at 50 times the earnings.
Many of these Chinese stocks will benefit from the country’s economic growth and the appreciation of the yuan, so it doesn’t make sense for them to trade at such low multiples in the US, he said.
The reasons for this huge discount include the lack of understanding about China’s macroeconomy and the underlying sectors, many of which will continue to do well despite concerns of rising inflation.
Lastly, some Western investors don’t trust the accuracy in the accounting of Chinese companies. Wey said a lot of that is due to the Rino International (OTC:RINO) accounting fraud. However, it’s unfair to characterize all US-traded Chinese companies as untrustworthy, he said.
Many US institution investors have never been to China before and don’t put in the time to study and understand the country’s businesses. Thus, they continue in their misunderstandings, said Wey.
The market place is often inefficient.
The lack of information and the presence of doubt are certainly two ways for mispricing to occur.
Wey thinks cheaply-traded US-listed Chinese companies fall into this category.
He recommends that US investors to do their homework and perhaps buy some of them.
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