Invest in substance, not form
Picture this: a conglomerate that has stakes in Club Med, Cirque du Soleil, Thomas Cook and Wolverhampton Wanderers Football Club.
You might have thought that this is a European company.
But no. It is Fosun International, a Chinese conglomerate that is listed in Hong Kong under the ticker 656.
Besides these European names, Fosun has investments that span many industries - banking, entertainment, fashion, F&B, hospitals, real estate, tourism and more.
Some well known names include Tsingtao Brewery, Cainiao, Fosun Pharmaceuticals and Secret Recipe.
Fosun isn't the only Chinese company that bought up stakes in western companies.
HNA Group invested in Hilton Worldwide, Deutsche Bank, Virgin Australia and many other travel-related companies.
Anbang bought many hotels such as Waldorf Astoria New York, Westin St. Francis San Francisco and JW Marriott Essex House.
Wanda Group invested in AMC Theatres and Legendary Pictures.
The expansions for some of these Chinese companies were so aggressive that the Chinese Government introduced measures to bar state-owned banks from lending to firms for their foreign investment forays.
It has not turned out well for these companies as they took on too much debt to fund the acquisitions.
Anbang has been dissolved and liquidated. HNA Group debt had to be restructured. Wanda has been shedding assets to raise liquidity.
Yesterday, Bloomberg reported that China authorities have told banks to check their financial exposure to Fosun. The stock tanked 7% to a 10-year low.
Fosun refuted the incident.
Fosun's debt-to-equity is high at 217% and it has been paring stakes in its affiliated companies such as Fosun Tourism and Fosun Pharma, causing more confidence issues.
The track record of these aggressive and debt-laden Chinese companies has not been good. It is thus better to avoid their stocks and bonds no matter how cheap they look.
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