The accounting research firm, GMT Research

Lisa Mangkornkarn

The accounting research firm

GMT Research

GMT Research provides independent insight into markets, sectors and companies throughout Asia. Our unique method of mining a comprehensive collection of corporate financial statements for key data allows us to evaluate the financial health of a company, sectors and the market at large. We also investigate the application of accounting standards by companies and sectors, shedding light on the quality of reported profits. Armed with this information, we help investment professionals navigate the financial landscape.

Thematic (Sector/Industry)

China Real estate / Thematic (Sector/Industry)

Zhuzhou CRRC Times Electric Co., Ltd. (3898 HK)

If you think things are bad now, just wait until the slowdown really begins. China produces <a href="https://en.wikipedia.org/wiki/List_of_countries_by_cement_production" target="_blank">60% of the world’s cement</a> but only commands <a href="https://www.quandl.com/collections/economics/gdp-as-share-of-world-gdp-at-ppp-by-country" target="_blank">16% of the world’s GDP </a>and <a href="http://www.worldometers.info/world-population/population-by-country/" target="_blank">19% of its population</a>. Just think what a simple reversion to mean would mean for supply chains around the world for this and other commodities. Meanwhile, its stock market is the most expensive in the world on 3.5x price to book. Most stock markets fall to below book value every five to seven years in times of a recession. That means there’s potentially more than 80% downside for Chinese equities.Warren Buffett famously said that “it is only when the tide goes out do you discover who’s been swimming naked”. China’s policy makers are desperately trying to stop the tide from going out, with the banking system issuing RMB3.42trn (US$524bn) of net new credit in January – a record high. That equates to Taiwan’s entire GDP…in just 31 days. In other words, China’s swimming in credit. The banks can probably continue printing money for longer than most of us expect but it is simply making the situation worse with leverage rising across the economy. When the tide finally goes out, they’ll be quite a lot of people swimming naked; after all, China’s economy is now one of the most over-leveraged in the world.

If you think things are bad now, just wait until the slowdown really begins. China produces 60% of the world’s cement but only commands 16% of the world’s GDP and 19% of its population. Just think what a simple reversion to mean would mean for supply chains around the world for this and other commodities. Meanwhile, its stock market is the most expensive in the world on 3.5x price to book. Most stock markets fall to below book value every five to seven years in times of a recession. That means there’s potentially more than 80% downside for Chinese equities.Warren Buffett famously said that “it is only when the tide goes out do you discover who’s been swimming naked”. China’s policy makers are desperately trying to stop the tide from going out, with the banking system issuing RMB3.42trn (US$524bn) of net new credit in January – a record high. That equates to Taiwan’s entire GDP…in just 31 days. In other words, China’s swimming in credit. The banks can probably continue printing money for longer than most of us expect but it is simply making the situation worse with leverage rising across the economy. When the tide finally goes out, they’ll be quite a lot of people swimming naked; after all, China’s economy is now one of the most over-leveraged in the world.

Dalian Wanda Commercial Properties (1567411D HK)

Shanghai Electric Group Company (601727 CH)

Haitong Securities Co Ltd (A) (600837 CH)

China Railway Construction Corp (1186 HK)

China Communications Construction (1800 HK)

Shanghai Pudong Development Bank Co. (600000 CH)

Cssc Offshore & Marine Engg Group (317 HK)

Shanghai International Airport (600009 CH)

Poly Real Estate Group Co., Ltd (600048 CH)

Metallurgical Corporation Of China Ltd (601618 CH)

Shanghai Electric Group Company (2727 HK)

Xinjiang Goldwind Science & Technology (2208 HK)

China Merchants Property Develpmt (200024 CH)

Metallurgical Corporation of China Ltd (1618 HK)

Shanghai Lujiazui Finance & Trade Zone (600663 CH)

China Merchants Securities Co Ltd (A) (600999 CH)

China Pacific Insurance (Group) Co., (601601 CH)

Shanghai International Port Group (600018 CH)

Beijing Originwater Technology Co,Ltd. (300070 CH)

China Merchants Securities Co Ltd (H) (6099 HK)

The China Series: If You Think Things Are Bad Now...