Big Trouble in Big China

Valens Research would like to share with you the Litman Letter we released last April 2016, on how Corporate China is actively destroying shareholder value through excessive growth – and why the economy and the stock market will diverge in performance.

This Litman Letter discusses our concerns about value destruction in Corporate China. While much has been said in the press about the problems with Chinese banks, we analyzed the aggregate performance of 850+ publicly-traded Chinese non-financial firms. In our analysis, we adjusted for financial statement reporting distortions to get a clear apples-to-apples comparability over time and around the world.

Sadly, the Adjusted Return on Assets of Corporate China has steadily fallen year-by-year below anyone’s measure of cost of capital. Economic profit is distinctly negative and Corporate China is destroying economic value en masse.

In the file linked below, you will find out how large the scope of this problem is, and how 70% of Chinese non-financial firms are generating a low and falling Adjusted ROA while 80% of firms continue to grow their asset base – a recipe for widespread shareholder value destruction.

We hope you find the article interesting.

Valens' equity and credit research relies on a bedrock of deep fundamental forensic analysis with a coverage of over 4,000 equities and all major corporate credit. That means “cross-capital” equities and credit research are not siloed, but instead are fundamentally aggregated and compared with orthogonal data points.