China Stocks: Big Bargains In Chinese
Stocks
The Dynamic Wealth Report
February 18, 2011
by Robert Morris, Editor
China bashing is the latest fad in financial journalism. Every
day the news carries article after article criticizing the Chinese
economy, Chinese government, Chinese companies, and most of all, Chinese
stocks.
This merciless campaign of negativity has been going on for months now.
It seems like China's economic challenges are bringing the critics out
of the woodwork in droves.
I've noticed a strong surge in anti-China propaganda recently.
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The most virulent attack from a well-known public person happened
earlier this week. The only thing stranger than the comments themselves
was the source... real estate tycoon and reality TV star, Donald Trump.
The Donald stunned viewers of CNN's Piers Morgan Tonight with an
anti-China tirade that would have made Joe McCarthy proud. When asked
about his views on China, Trump said in his usual no-holds barred style:
"I see them as the enemy... they want to take over [the US]
economically. They are not really out-competing. They are cheating..."
The anti-China rhetoric is definitely starting to boil over.
Now, Trump's comments are clearly politically charged... he's
considering a run for president in 2012. But I'm seeing a more subtle
form of China bashing in all kinds of mainstream publications.
The media is having a field day with China.
Numerous articles are predicting a coming collapse for the Chinese
economy. And even more articles are saying the Chinese stock market is a
bubble on the verge of bursting.
I have to say, this is music to my contrarian ears!
All of the negative sentiment about China is creating a terrific
investment opportunity in Chinese stocks.
First off, the Chinese economy is strong and continues growing at a
rapid rate. Last year China's GDP grew by an astonishing 10% (despite
the ongoing global recession). And according to Bloomberg, many
economists estimate China's GDP will grow by 9.5% in 2011.
That's robust growth any way you slice it.
Keep in mind, the Fed is predicting US GDP will grow 3.9% this year. (If we're lucky!)
The Chinese government is slowly but steadily raising interest rates in
order to curb inflation without sending the economy into recession. The
anti-China crowd claims, however, that higher rates will crush economic
growth.
This is plain hogwash.
I think it's much more likely the government's policy of measured
interest rate increases will bring China's high flying economy down for
a soft landing. In other words, I'm expecting a combination of strong
growth and manageable inflation in the second half of 2011.
You can't ask for a better economic backdrop for Chinese stocks!
Speaking of Chinese stocks, I don't see any evidence of a bubble.
A couple of weeks ago Bloomberg Businessweek presented a compelling case
that Chinese stocks are nicely undervalued. The article noted how the
valuations of the MSCI China Index (mainland Chinese stocks) and the
MSCI Hong Kong Index (Chinese stocks traded on Hong Kong exchange) are
the widest they've ever been.
At the time, the MSCI Hong Kong Index was trading at a lofty 17.5 times estimated 2011 earnings. The MSCI China Index was valued at just 11.6
times
projected profits.
Here's the kicker...
The last time Chinese stocks were this cheap compared to Hong Kong's was
in June 2004. Chinese stocks were just two months into what became a 42-month raging bull market.
From that point, Chinese stocks went on an historic upward climb. The
MSCI China Index mushroomed fivefold in value. And the index's P/E grew
from 12.5 times to an astonishing 31 times.
Since the Bloomberg Businessweek article was published, the Shanghai
Index has moved higher by 6%. It's looking more and more like history is
setting up to repeat itself.
If you've been avoiding Chinese stocks, now's the time to establish a
position. The easiest way is to pick up shares of a China ETF.
The one I like the best is iShares FTSE China 25 Index Fund (FXI). This
ETF invests in large cap Chinese growth and value stocks. And it's the
most popular with investors (average daily volume is 9.9 million
shares).
Don't miss your chance to go against the crowd and rack up huge profits
in Chinese stocks. Keep in mind... an opportunity like this one doesn't
happen very often.
***Editor's Note*** For all you penny stock
investors, I've got an exciting new stock recommendation coming out on
Tuesday. It's an old-school tech company trading for about a buck
and a quarter. The back-story of this stock is eerily similar to
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To get the name of this pick, and why I'm so excited about it, you'll
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• Toreador Resources (TRGL) was
upgraded by RBC Capital Markets from Sector Perform to Outperform. And
the price target was bumped from $10 to $19. The oil exploration and
production company has interests in the Paris Basin of France.
• Ticonderoga downgraded Greenhill (GHL) from
Neutral to Sell. Trading around $75 a share, the investment bank is well
above the analyst's $60 price target.
• Collins Stewart rolled out coverage on several medical device
companies. They started DaVita (DVA), Quest
Diagnostics (DGX), Laboratory Corp (LH),
Mednax (MD), and Fresenius Medical
(FMS) each with a Buy rating. The coverage follows the FDA's
implementation of a program for speeding up the approval process for
innovative medical devices.
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