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from Global Investing:

Value or growth? The dichotomy of emerging market shares

Investors in emerging markets are facing a tough choice. Should one buy cheap shares in the hope that poor corporate governance and profitability will improve some day? Or is it better to close one's eyes and buy into expensively valued companies that sell mobile telephones, holidays and handbags -- all the things high-spending emerging market consumers hanker after?

At the moment, investors are plumping for the latter, growth-at-any price investment strategy. Result: a lopsided emerging equity index in which consumer discretionary shares are up more than 5 percent this year, energy shares have lost 7 percent while MSCI's benchmark emerging equity index is down 3 percent.

All markets have their share of cheap and expensive. But the dichotomy in emerging markets is especially stark. Analysis by Bank of America/Merrill Lynch of the biggest 100 emerging market companies revealed last week that the 20 most expensive stocks in this bucket are trading 11 times book value and 31 times earnings (both on trailing basis) while forward earnings-per-share (EPS) is seen at almost 30 percent. The top-20 companies all belong to the private sector and most are in the consumer-facing industries.  This year they have gained more than 50 percent.

Meanwhile the bottom 20 companies in the top-100 are mostly state owned enterprises and they come from the "old economy" -- banks, energy and materials. They are also cheap, trading less than 1 time book value and around 8 times trailing earnings. BofA/ML equity strategist Ajay Kapur writes:

from Breakingviews:

Dividend reform won’t fix China SOE money-go-round

By John Foley

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

China’s elaborate money-go-round starts and ends with its cash-hoarding state-owned enterprises. So a plan to make them pay bigger dividends sounds promising. Still, if the goal is to return cash to the people, there is a long way to go.

from Breakingviews:

SOEs could be China’s economic vampire squid

By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

State-owned enterprises are China’s economic version of the giant vampire squid. The 20,253 industrial companies owned and controlled by the government soak up capital, and pay little out. Their costs are low and their bosses powerful. If China’s new leaders are serious about making households wealthy, they need to make these industrial giants behave more like normal companies.

from Global Investing:

Can Eastern Europe “sweat” it?

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Interesting to see that Poland wants to squeeze out more income from its state-owned enterprise (SOE) sector in the face of slowing economic growth and financing pressures.

Warsaw wants to double next year's dividends from stakes in firms ranging from copper mines to utility providers to banks.

from Financial Regulatory Forum:

Banks uneasy over report China state companies assert right to default on derivatives trades

By Eadie Chen and Chen Aizhu
BEIJING, Aug 31 (Reuters) - A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

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