Billions of Opportunties to Profit
The Chinese are making lots of headlines in the U.S. And not for just ripping off our intellectual property. Or for their investment in Blackstone.
Their shoddy manufacturing practices seem to be endemic to the region. And now they are sending us tires that experience tread separation, resulting in blowouts.
But Chinese tires are not the only thing on the verge of unraveling. The Chinese stock market is an accident waiting to happen. The anecdotes certainly top anything seen here circa 1999:
Zhang Shibao covers 12 Chinese stocks and recommends investors buy all of them, even after they’ve more than tripled on average in the past year.
``We are still in the middle of the bull market and the uptrend is irreversible,’’ said Zhang, a steel analyst at China Merchants Securities Co. in Shenzhen. Bloomberg
Zhang is frothing at the mouth. Maybe he is the Henry Blodget of China.
Zhang has eight ``strong buy’’ and four ``buy’’ recommendations on the dozen iron and steel stocks he covers. They have gained an average 218 percent over the past 12 months and are up 97 percent this year, according to Bloomberg calculations.
Shares of Shanxi Taigang Stainless Steel Co., China’s biggest maker of the corrosion-resistant metal, have leapt 355 percent over the past year, while Wuhan Iron & Steel Co., the nation’s third-biggest steelmaker by market value, have almost quadrupled. Nine of 10 analysts who cover Shanxi Tiagang rate it a buy, while 10 of 18 recommend buying Wuhan Iron & Steel, according to Bloomberg data. Zhang has ``strong buy’’ ratings on both stocks.
Sell calls make up 10.3 percent of all ratings, the lowest proportion on record, and hold ratings comprise 22.2 percent of the 12,301 recommendations on Chinese stocks tracked by Bloomberg.
The combination of inexperienced retail investors and wild eyed optimism should make for a rich alpha seeking environment. But there is one small problem. They don’t allow you to short stocks.
And while there are dozens of suckers born every minute in China, not everyone is so naive. The pickings are easy for some pro’s:
James Liu, who manages a $441 million China equity fund at Singapore-based APS Asset Management, said he sees overly-bullish calls on Chinese stocks as a sign that the strongest gains are over. He now uses them as a contrarian signal, avoiding shares with a lot of buy recommendations.
His APS China A Share Fund is the second best-performing hedge fund in the world for the past 12 months, with a total return of 139 percent. APS relies on its own team of 10 investment analysts for research: seven in Shanghai and three in Dongguan, close to the factories in the Pearl River Delta manufacturing belt. APS plans to set up a third office in Beijing this year.
``I prefer to dig for my own gold,’’ Liu said.
If you think the domestic market is too picked over consider heading to China, Wall Street’s own version of the wild west.
Just make sure you ride there on Goodyears.
What Bubble? China’s Analysts More Bullish Than Ever
Bloomberg
Accident Raises Safety Concerns On Chinese Tires
WSJ
--------------------------------------------------------------------------------------------------------------
The content contained i represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned
Comments:
Next entry: Blackstone Cracks Deal Print
Previous entry: iPhone Mania: Pushing Your Buttons
