The Financial Post reports in its Tuesday edition that most global investors dismiss China as "uninvestable," even though it is the world's second largest market. A Financial Times of London, in a look ahead to 2025, says bear case is hard to argue against: No country with a shrinking population and a heavy burden of debt has ever been able to grow at even half Beijing's target rate of 5 per cent. Still, any contrarian has to be curious.
There are now about 250 companies in China with a market cap of more than $1-billion and a free cash flow yield above 10 per cent -- roughly 100 more than in the United States and 60 more than in Europe (all figures U.S.). Yet sentiment is as bearish on China as it is bullish on America.
Compare their leading electric car companies, BYD Auto Co. and Tesla Inc. Both generate similar revenues and offer a similar return on equity, but sales volume is growing twice as fast at BYD, which is rapidly expanding its share of the global market.
Yet BYD stock sells at a price-to-earnings ratio of 15, compared with around 120 for Tesla. Its market cap is just over $100-billion; Tesla's is more than $1.2-trillion. In the coming year, investors may come to see China as investable again.
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