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Show me the money: Chinese A share

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There are lots of talk about Chinese A shares market these days, both because of the big drop lately, and because of the in-action of the goverment. You can read the two Chinese articles (one supports inaction, another cries for goverment action), if you know Chinese. I don’t want to get into the debate of “moral hazard”, which is also a heated topic in the US right now. I am trying to explain why the Chinese A shares are still expensive, from value investing point of view.

Let me use two blue chip stocks as example, the 600030 (Citic Securities) and 600036 (China Merchants Bank). Both released 2007 results and declared the dividend. I rounded some of the numbers for simplicity (without distorting the results).

600030: dividend payout ratio (dividend/earning per share) 0.50/4.00 = 12.5%, the company pays 12.5% of the earnings to the shareholders, leave the rest for re-investing.

dividend policy pic
(source: www.iamgold.com)