Bank of Japan's yield curve control policy drives the depreciation of the yen

Touzibozhu

The Bank of Japan's yield curve control policy has had a devastating effect on the value of the Japanese yen, driving the currency to a 20-year low against the US dollar.

In its ongoing battle against free-market forces, the Bank of Japan has vowed to keep the money printing press running in order to support Japanese Government Bond (JGB) prices and maintain the 10-year JGB yield at a level not exceeding 0.25%. The relentless buying of JGB with freshly minted yen is one of the main causes of the precipitous fall of the currency.

JXY Yen Index
JXY Yen Index

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Estimating the Intrinsic Value, Return on Investment and Margin of Safety of China Telecom using the Dividend Discount Model

Touzibozhu

Summary

This article looks at the valuation of China Telecom shares trading on the Stock Exchange of Hong Kong (Ticker: 00728.HK). The Dividend Discount Model is used to estimate the share's Intrinsic Value, Expected Return on Investment, and its Margin of Safety.

Introduction

China Telecom is one of the 3 giant state-owned companies which dominate the telecommunications industry in China, the other two being China Mobile and China Unicom. On November 12, 2020, Trump issued Executive Order 13959 prohibiting US investors from owning securities of Chinese companies which have been tagged by the US as being Chinese military companies, including China Telecom. ADRs of China Telecom trading on the New York Stock Exchange were suspended on January 11, 2021 and were subsequently delisted.

Following the US action against its ADRs, China Telecom successfully applied for secondary listing on the Shanghai Stock Exchange and its A-shares began trading in August 2021, raising over 54 billion RMB for the company. The IPO was a resounding success, attracting 20 strategic investors, including Huawei Technologies and Bilibili.

As part of the requirement for its secondary listing on the Shanghai Stock Exchange, China Telecom made some important changes to its dividend policy:

China Telecom announces new Dividend Policy
China Telecom announces new Dividend Policy

Three important points to note here with regards to the new dividend policy.

    • China Telecom to its increase dividend payout ratio for FY2021 to not less than 60%.

    • China Telecom also committed "that within three years after the A Share Offering and Listing, the profit to be distributed by the Company in cash for each year will gradually increase to 70% or above of the profit attributable to equity holders of the Company for that year." (Source: Company announcement 21 June 2021)

    • In contrast to the current policy of annual payouts, dividends shall be paid on an interim basis starting from FY 2022.

The new dividend policy is important in the sense that it increases the frequency of cash flow for investors, and it also serves to reduce the amount of surplus cash held on China Telecom's books and will potentially boost the Return on Equity.

Dividend Discount Model is one of many methods for valuing stocks. The procedure is similar to the Discounted Cash Flow model, with the free cash flow being substituted dividends as the cash flowing to the investor. One advantage of using this method is that dividends data are easily available from the company's financial reports. It is also my preferred valuation method for dividend-paying stocks. The reason being that dividends are tangible income to the investor and it represents the return of investment and return on investment. The cash from dividends allows the investor to reinvest the proceeds into the same stock or into other more attractive stocks to achieve the all important compounding effect.

This article describes the use of the Dividend Discount Model to determine the Intrinsic Value, Expected Return on Investment, and Margin of Safety of China Telecom (00728.HK) shares trading on the Stock Exchange of Hong Kong.

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A Tale of Two Markets - Personal observations on the current state of the US and Hong Kong Equity Markets

Touzibozhu

Summary:

This article is a summarizes some personal observations that I have made regarding the current state of the US and Hong Kong Equity Markets. 2021 has been an eventful year for both US and Hong Kong equities.The S&P 500 has smashed multiple records in 2021, hitting record highs, one after another, culminating in the 52-Week High of 4545.85 on  2nd September 2021. 
In contrast to the superb performance of the S&P 500, the Hang Seng Index peaked early this year, hitting its 52-Week High of 31183.36 on 18th February 2021 and has been on a downward trajectory since then.
Given the stark contrast in the performance of the two stock indices over the past 52 weeks, an inquisitive investor would want to pose the following questions:

    • How does the current valuation of each index compare to historical data?

    • Given the current valuation levels, what will be the Implied Return on Investment for the S&P 500 and the Hang Seng Index?

Introduction

So far this year the US and Hong Kong equity markets have travelled along diverging paths. The US market has moved steadily upwards, drawing strength from the country's economic reopening and recovery from the Covid-19 lockdowns. Consequently, the S&P 500 has climbed a wall of worries, moving from its 52-Week Low of 3233.94 (30th October 2020) to the recent 52-Week High of 4545.85 achieved last month on 2nd September 2021. The S&P 500 closed at 4391.34 on 8th October 2021.
On the other side of the Pacific Ocean, the Hong Kong equity market's performance has been disappointing, to say the least, for the better part of the year. Earlier this year, the Hang Seng Index (HSI) hit its 52-Week High of 31183.36 on 18th February 2021. Since then, the index has followed a declining path to reach a 52-Week  Low of 23681.44 on 5th October 2021.  The Hang Seng Index (HSI) closed at 4391.34 on 8th October 2021.

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