Below is a Bloomberg stock screen of Chinese companies listed on the Singapore Stock Exchange. These companies are known as the S-Chips. The stocks listed in the table have Wall Street analyst estimates for 2010. While the market caps are relatively low, they would be much higher if the stocks were revalued to PE multiples of even half of those seen around the world.
We do not recommend buying all or any of these shares, but we do suggest that each stock be valued both on its own merits and relative to other equities trading around the world. Some of these companies are struggling (such as Caterpillar in the US which is trading at 20X earnings), but, on the other hand, some are amazing growth stories.
One of the reasons that the S-Chips are so cheap relative to other equities around the world is that in the past a few of them were associated with scandal. We argue that it is impossible for all of the S-Chips to be fraudulent and encourage investors to analyze them because they may be some of the world's greatest stock values. For example, China Sports is trading at net cash and 2.6X earnings compared to its much larger competitor Li Ning that trades in Hong Kong at 20X earnings. Could the consumer environment for shoes and sporting apparel be so different for these two companies? Maybe, but it is definitely worth the effort to figure it out.
Source: Bloomberg July 22, 2009