These past several weeks have been very reminiscent of the internet bubble period, where you could buy shares of anything with the words "tech" or "com" in the name and you were virtually assured double digit gains week over week. Well, now with several Chinese equities, we're seeing day over day double digit gains from many Chinese ADRs. A quick snapshot of some high fliers today include:
BIDU Baidu.com Inc 13%
KONG KongZhong Corp 15%
CTDC China Technology Development Group Corp 45%
JRJC China Finance Online Co Ltd 17%
YGE Yingli Green Energy Holding Co Ltd 13%
CHNR China Natural Resources Inc 75%
CSUN China Sunergy Co Ltd 16%
EJ E House China Holdings Ltd 13%
...and the list goes on. If you ran screens for these stocks for a 1 month check, you'd find that many have more than doubled. Based on valuation and revenue growth, China is still considered to be THE value market of the BRIC four by many prominent investors and economists. However, before long, Vietnam, Columbia, and others could start to draw some of the speculative emerging market funds seeking 50%+ returns per year. Given the massive runup in share prices in recent weeks, it would be prudent to take some money off the table. However, pulling out altogether could result in missing the investment opportunity of a lifetime. A good approach would be to continue to leave the speculative portion of your portfolio in SOLID Chinese stocks. This would entail companies with some history, proven earnings, and you should be able to articulate what this company does. If it's just a hot ticker than ran up 75% yesterday and you're jumping on for the ride, that's not even speculative investing...that's gambling.
Personally, I took 50% off the table in BIDU and FMCN last week following 130%+ returns, as well as some US stocks, but I still have a solid 40% of my taxable trading portfolio in international markets.
Disclosure: In Chinese equities, the author is long CHL (not listed here), FMCN and BIDU.
3 COMMENTS HERE
I have been riding the ETF FXI for about 60 days. I am going to hold on a bit longer and see where it takes me. But then again, I am greedy.
The Chinese companies mentioned all have real earnings, the internet bubble boys didn't, to wit: no real comparison
Several of my statements above support your argument; but there are parallels for sure, undeniably. There are people in the mainland mortgaging their houses and spending their days in pop-up internet lounges trading chinese equities. People in the US are buying stocks that are "hot" without the slightest inkling as to what the company does, how they derive their revenue, or what their future prospects are (i.e. competition, governmental regulation, etc.).
I personally own several Chinese stocks and plenty of emerging market mutual funds in the retirement accounts, so I'm not saying avoid China. What I'm saying is there is a rather risky undertone right now in the world with investors and if the market turns again like we've already seen briefly twice this year, people could see 30-50% wiped off within a couple days for some of these equities. I don't think anyone could argue that there is a preponderance of purely speculative purchasing occurring right now. This would certainly have to bring back memories of some of our old internet darlings.
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