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Is China Entering “Buy” Territory?
Jim Trippon, of the China Stock Digest, says that investors better start scaling into China now, or risk missing the biggest economic opportunity of our lifetime. Quality growth stocks can be bought for price earnings multiples under 11, and often for 4-5 times, compared to an average 13 multiple for the S&P 500. You are already investing indirectly in the Middle Kingdom whether you realize it or not. Just take a stroll through Wal-Mart (WMT).
Jim has been publishing his widely followed China Stock Digest for six years, running a full time group of analysts out of offices in Shanghai, Hong Kong, and Houston. Financial markets in China are still primitive, with no options or futures, short selling, international accounts, arbitrage, spotty disclosure, and tough currency restrictions. Individuals account for up to 70% of turnover, compared to only 10%-20% in the US, which can lead to higher highs and lower lows in share prices.
Jim overcomes many of these obstacles through buying US GAAP audited, Sarbanes-Oxley compliant, American listed ADR’s, or Hong Kong listed “H” shares. Although these shares correlate highly with the US equity markets, a stock picking strategy focused on undervalued names will outperform over time with reduced volatility. This eliminates to need to reach for returns by taking on inordinate risk. Jim won’t touch a company unless he sees a “3-5 bagger” in it.
Recent moves by Chinese authorities to remove restraints from the renminbi, or Yuan (CYB), give investors a potential double play. Rising share prices fueled by the steroids of an appreciating currency can create a “J” curve effect for profits, much like I saw in Japan during the eighties.
Trippon blithely dismisses claims by naysayers, like Jim Chanos of Kynikos Associates, that a real estate induced crash in China is imminent (see my piece at http://www.madhedgefundtrader.com/december_17__2009.html ). Buyers in the mainland cities are required to put down deposits of 30-40% which they are unlikely to walk away from. This enabled the Mandarins in Beijing to spend their $500 billion reflationary budget last year on infrastructure instead of bank bailouts. If only they’d thought of that in the US!
A GDP growth rate of 9% last year compared to an American economy that shrank, also tends to bail out a multitude of sins. If you need more reasons to invest in the Middle Kingdom, please read “How China’s Economy is Already Bigger than the US at http://www.madhedgefundtrader.com/july-12-2010.html .
Jim posts a model Chinese portfolio on his website for subscribers, and revealed a few of his favorite names. China Mobile (CHL) has a domestic monopoly, with more cell phone customers than the entire US population, and is still clocking impressive growth. Huge swaths of the country are leapfrogging land lines and going straight to mobile. PetroChina (PTR) will make a killing from the upwardly mobile, exponentially growing car market. China Medical Technologies (CMED) and Mindray Medical International (MR) will benefit from the extension of health services into the country’s rural hinterlands.
Trippon admits to being an out of the closet scripophilist, and includes in his collection share certificates for the Titanic and the original Standard Oil Trust and bonds from the Revolutionary War. I confessed my own orientation in this direction, and admitted my holdings of shares in the Trans Siberian Railway, bonds for the construction of the Golden Gate Bridge, and a collection of Japanese wartime occupation currency from throughout Asia.
Jim started out his career as a CPA with Price Waterhouse, advising the pension programs of companies like Exxon and Shell Oil. He then struck out on his own to found one of the most widely read investment newsletter families in the US. They include the ETF Profit Report, the Dividend Genius, and the top rated China Stock Digest. Jim has published two books, Stay Rich Forever: Retirement Planning Secrets of Millionaires and How They Can Work for You, and Becoming Your Own China Stock Guru: The Ultimate Investor’s Guide to Profiting From China’s Economic Boom. To learn more about Jim, you can visit him at his website at http://www.chinastockdigest.com/ .
To listen to my interview with Jim Trippon on Hedge Fund Radio in full, please go to my radio archives by clicking here at http://www.madhedgefundtrader.com/july-19-2010-jim-trippon.html , and click on the “PLAY” arrow. Or you can download it to your IPod or your pc for free .
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two and a half years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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OK, I'm Japanese.
I've lived through the Japanese real estate bubble, and so did you.
Then, we survived this subprime real estate bubble without having a eternal trip to Aokigahara.
Right now, I am seeing very similar bubbly things happening in china that happened in Japan a long time ago
such as vacant mansions and bridges to nowhere.
I do believe that chinese stocks cheap right now and they will do great in the long run.
But I am doubtful that this is the "biggest economic opportunity of our lifetime."
Nido aru koto wa sando aru
(Japanese proverb: Something that happened twice will occur once more)
I feel much better that Sarbanes Oxley is on the case. That did wonders for Lehman, AIG, Citi, Wachovia, WAMU, FNM, FRE, Merrill and IndyMac. Bang the monkey.
This a buy opportunity - just like a 3-wheeled Pinto..
Is China Entering “Bye-Bye” Territory?Thank you DavidRicardo. Anyone who doesn't know that the down payments are borrowed - from loan sharks, no less - has no business calling themselves a China expert. The decline in prices has already started, for Dog's sake. Who is this guy, Bernanke's doppleganger - "The real estate market is in a pause, and the subprime loan problems will be contained."
Chinese solars baby!!!!!!!!!
I've been debating a short on China for a while, you just made it easy. MHFT is long, I'm going short. Thanks!
And by the way, here's my plan. Tell me what think:
Mexicans are now too expensive, and, as always when they get too expensive, ornery. So we have the Chinese trash make our sneakers until THEY get ornery (heavens! how's that ornery thingy workin' out for ya?), then we move on to urbanize and enslave Africa (we're baaaaaaaack!). By the time THEY get ornery (heavens! aGAIN!!), the Mexicans are so hungry (cannibalism, like the Aztecs) we have them make our sneakers again.
Rinse and repeat. I learned how to do this at Dartmouth. I wanna be President and steal Chelsea (though she's hella homely) from that fencepost she's marrying.
I think JFK,Jr.'s still alive.
Sound like a plan?
LOL. This cracks me up. Thanks for the humor!
"Buyers in the mainland cities are required to put down deposits of 30-40% which they are unlikely to walk away from."
Silly boy. This amount is borrowed.
Next?
Confucius say, no look under covers stink bad.
http://globaleconomicanalysis.blogspot.com/2010/07/implosion-of-china-fa...
Implosion of the China "Fabric City" FrenzyHere is an interesting translation of a Chinese article regarding textile work and vacant cities in China. My "China Friend" who wants to remain anonymous writes ...
Once again, US perception of China vs. what is really happening in China is far off the mark.
MHFT, even for you, this is an pathetic commercial post.
I just didn't know China swung that way. Honey, I am always the last chick to get the news.
On a day with the manu index at -21 and stocks going for the Sea of Tranquility you can not expect any seriousness from me. (as if ever)
How do you know what true P/E is? do you mean you can trust those numbers given by Chicom?
AOB is my favorite stock right now. This company has raised $200 million through publich offerings and has retained earnings, since 2002, of nearly $200 million and the market cap is only $195 million. It has nearly $400 million in equity and can be bought for less than $200 million.
It's an algo prop job on many Chinese names in my judgement.
Short covering in AOB has been substantial too. I wish I could tell who was short/manipulating AOB.
Anyhoot, love AOB and am very long Chinese TCM company as China builds high speed rail, nuclear power plants, sees substantial increases in earnings power, and no Western compnay can come close to competing with Chinese TCM.
This is a no brainer in my judgement.
I'll wait for them to not be a Third World hellhole.
Translation:
Not at all.
"Financial markets in China are still primitive, with no options or futures, short selling, international accounts, arbitrage, spotty disclosure, and tough currency restrictions. Individuals account for up to 70% of turnover, compared to only 10%-20% in the US, which can lead to higher highs and lower lows in share prices."
Maybe what this means is that China has learned from the mistakes of the US market and that investing should be investing and not a crooked casino and that a market should be a market instead of a controlled con-game.
Still, I will pass as well. 2/3 of Chinese companies are unprofitable. The goal of a Chinese businessman is to go public before he runs out of cash in his unprofitable business ... and with costs rising in China, there being more unrest and lending starting to tighten ... the future looks more uncertain than the past.
Your observations are spot on.
Value Trap Trip
Depending upon who is speaking, China is either the opportunity of a lifetime or another bubble waiting to pop.
I'll wait with Number 156
DavidC
If you really believe in China's growth potential then buy commodities. China won't continue to have "robust growth" without buying a bunch of commodities.
If I am already invested indirectly why would I buy it directly?
...They were massively overvalued last week. Did I miss the crash?
There isn't a valid "E" in P/E. Earnings are made up on the spot by the gov't or corrupt company individuals. The earnings can't be trusted.
You still use P/E ratios to make equity investment decisions? Why?
Nah. I think I will sit that one out.
Exactly. I give China a 50% chance of seriously imploding...and I've done business there for 25 years.