A common fallacy, especially in the past, is to find a US asset in the similar industry and use it as a reference for valuation.
Why this is less useful, especially in rmb assets?
To put it simply,
asset value = earnings power (e.g. EPS) x multiple (e.g. P/E)
Then we look at these two components:
1/ Industry dynamics can be vastly different.
Demand side can be very different – e.g. work from home has never been a thing in China vs. only ~24% of workers don’t WFH in 2022 in the US.
Supply sides can also be very different in terms of entry barriers, the level of competition etc.
There are just too many different things, thus the projection based on a US company’s past is usually not a good reference.
2/ valuation can be vastly different.
Partially, difference in multiple is reflecting terminal growth, etc., therefore it’s similar to the first point, which is about fundamentals.
Additionally, If you think about bond prices – US treasury yield vs. China gov bond yield, they are on two diverging roads.
What’s good though? Assets in China can produce less correlated return vs. US assets, therefore providing additional benefits to a portfolio.