When I requested annual reports from HSBC and Charles Schwab, the employees took awhile to understand what I was asking. Evidently brokerage clients in Hong Kong do not read financial statements. One man even admitted that “Chinese people don’t look at the price paid; they buy whatever has been going up.” The investment environment is analogous to that of America in 1929. (Incidentally the margin requirement is also 10%.)

If the public deals with securities in such an amateurish fashion, can disciples of Ben Graham achieve superior results? As I write this the Hang Seng Index (Hong Kong’s most widely recognized stock index) is at record levels, so undervaluation is less common than usual. Yet I have found a few stodgy companies selling far below their earning power values and asset values, conservatively estimated. My cousin is perusing the stock lists for special situations that I may post here.

Alas, the mere existence of undervaluation does not mean that Ben Graham’s method can be used profitably in Hong Kong. I will have to analyze historical data to be sure—my findings will be published later. No doubt this analysis will cover hundreds of individual issues, their valuation metrics and their performance over a period of several years.

Here are some important points:

(1) To open a brokerage account, you must have a Hong Kong ID card and residential address proof (bank statement, cable bill, etc.).
(2) There is no capital gains tax.
(3) While assets such as real estate are reported at cost in America, they are reported at “fair value” in Hong Kong. Thus figures are arbitrary and subject to the manipulation of management. Do not place undue reliance on reported asset values.
(4) American accounting firms audit the great majority of Hong Kong companies.
(5) Many businesses are closely held, so activism is not common.
(6) The most information-abundant resource is www.hkex.com.hk.

Investing in Korea

An officer at Kookmin bank told me that it would be most efficient to open a brokerage account in South Korea. It is possible to trade Korean shares through Hong Kong brokers; however there are additional costs. The South Korean stock market is very undervalued relative to stock markets of other developed countries. This is probably due to the threat of North Korea’s nuclear weapons testing.

Investing in Japan

I did not meet anyone in Japan able to comprehend English.