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China's Bubble seems Ready To Burst .
We really don't know how fast China's economy is growing. And, very likely neither do the Chinese.
The Chinese Communists wisely decided that 6 billion people were too many to watch or devise a central
economic plan for. Quite possibly China has averaged an annual growth rate well over 7.5% per year since
1978. Some say its average annual GDP growth rate was as high as 9.4% until 2002. What is clear is that
China is building modern plants and using high tech. It is investing in solar powered cells and alternative
energy. Most of its publicly traded enterprises are run by men under 45. When I took an Economic Development
class in college, no one imagined a sustained growth rate this fast, except in a dismal command economy.
"Floyd Norris at the NYT points out that, of the top 20 most valuable companies in the whole world as
measured by market cap, 41 percent are Chinese, surpassing the 38 percent represented by American
companies. Contrast that to 1999 when U.S. companies represented 77 percent of the top 20. And in 1989,
it was Japan that dominated with 73 percent of the list. Maybe the China bubble wont pop until China hits at
least 70 percent and a Chinese Internet company is on the list. Or maybe it will deflate over time as more
Chinese stocks become available to investors, who are currently fighting over a limited supply of shares."
( http://www.techcrunch.com/2007/10/22/the-china-bubble/ )
There's been lot of money to make in key Chinese stocks. Usually telephone stocks are the first
investors buy in an emerging markets. You can see how well CHL (below) and CHA have done. Look also
below at the spectacular rise in China Life (LFC). This is a company that gets money in from people who
need to protect their family from the loss of a bread-winner and in return gets lots of money to invest in
Chinese stocks. So long as the Chinese want life insurance and the stock market rises, all is well. But
if either the Chinese market crashes or the Chinese stop buying insurance, as happens in a recession,
then LFC will get hit doubly.hard. LFC has risen 700% since 2004.
-------------------------- China Life 2004-2007 ---------------------------
TigerSoft Picked Up on LFC's massive insider buying in 2005 and recommended it.
See more information about our Insider-Watch system on the main website - www.tigersoft.com
------------------------------- LFC - 2005-2006 -------------------------------------------------
China Outlook Now
People have been calling for a top in the Chinese markets for years: Here's one from April 2004 Another.
See the warning by The Motley Fools in 2005. Last year and again this year, Greenspan has commented:
the rally in Chinese stocks is "clearly unsustainable" and "there's going to be a dramatic contraction at some point."
The PE of 50 for Chinese stocks is very dangerous. The Chinese have little publicly provided social
safety net, somewhat like Americans, and have no other choice but to try to get rich by speculating. Most
have no experience with bear markets. And so they recklessly have bid prices up higher and higher. Foreign
speculators have sought the incredible gains, too. But they will not stay in these investments if the Chinese
charts start to look ugly. A violation of the head and shoulders' pattern's neckline would likely start a
rush to the exits. Until then, hot money will keep pushing these stocks higher and higher. Keep in mind,
"the higher the diving board, the bigger the splash."
2008 Summer Olympics.
Since writing this, I received a note from Marc LeClerc in Canada. He says we
should consider the role of the Chinese government in supporting the Chinese markets and, in particular, we must
expect that they will do whatever is necessary to avoid a Chinese stock market crash before or at the time
of the Summer Olympics in China in 2008. My response is that I would only wait to go short until there is
a price support failure. We should also try to short the weakest of the Chinese ADRs below, rather than
pick on those stocks that have the most upwards momentum. Below is one of the weakest of the Chinese
stocks as flagged by the Tiger Power Ranker.
-------------------------------- CNTF - China TechFaith Wireless -------------------------------
----------------------------------------- China Mobile 2003-2007 ----------------------------------------
China Looks Like The DJI in 1929
For all this, when we look at a TigerSoft composite chart of the 63 Chinese stocks, ADRs and ETFs,
that have been traded publicly for a year by Westerners, we see heavy red distribution, "insider selling"
for most of the last year, despite the big gains. The chart weights each stock by using the annual
value of shares traded. When this is done, Tiger's China chart looks unmistakably like the TigerSoft
Dow Jones chart for 1929. This means bad times likely lie ahead. When the price support lines shown
on the chart break down, and I think they will soon, a savage bear market could hit. That would have
ripple effects everywhere. Given how far Chinese stocks have risen in such a short time, we would normally
expect a violent decline. But the Chinese government will likely support the market with its big reserves.
----------------------------------------- CHINA 2007 -------------------------------------------------
Come back here every few days. We will bring this chart up to date regularly. Send us
your email address and we will email you back breaking news about this story.
------------------------------------ DJIA 1929 ----------------------------------------------------------------
There is supporting evidence for this outlook. The China Fund (NYSE: CHN), for instance, now
trades at a discount of more than 20% despite having year-to-date asset returns of nearly 80%. The fund
hasn't seen discounts this wide since 2002. "Such large discounts strongly suggest that investors think the
huge gains these funds have enjoyed are unsustainable, spelling the end of a long bull market in emerging
markets " ( http://www.fool.com/investing/mutual-funds/2007/11/09/big-bargain ) "This is absolutely the most
overvalued investment market in the world now," said James Oberweis, whose $14 million Oberweis Mid-Cap
Fund (NASDAQ:OBMDX - News) has a 5.5% weighting in China. "But I don't know that it's at the extreme
of a bubble. I'd say it's about 50% overvalued." ( http://biz.yahoo.com/ibd/071113/funds.html?.v=1 ) "China's
A shares have a P-E of about 50 to 55". These are traded mainly by Chinese people. There is no shorting
or futures arbitrage."
U.S. investors can play China several ways. They can buy leading Chinese ADRs which trade on U.S.
exchanges. Se the list below. These include Baidu.com (NasdaqGS:BIDU - News), China Medical
(NasdaqGS:CMED - News), Ctrip.com (NasdaqGS:CTRP - News) and China Mobile (NYSE:CHL - News).
Americans can also invest via mutual funds or exchange traded funds. The bulk of their China holdings are
H shares. If you trade foreign securities directly, remember that H shares are priced below A shares. You can
also in U.S. or other non-Chinese firms doing business in China. "Gaming is very popular in China," said Thomas
Marsico, whose $5.3 billion Marsico Focus Fund (NASDAQ:MFOCX - News) has at least 7.5% of its money
indirectly at work in China. "In the long run that should benefit companies like Las Vegas Sands (NYSE:LVS -
News), which has hotels and casinos in Macau."
Profiting from A Break in Chinese Stocks
For those that want to short Chinese stocks, consider EXP. ProShares launched an exchange
traded fund (ETF) that moves opposite of an index that trades shares of Chinese companies trading on
the Hong Kong stock exchange. The Ultrashort FTSE/Xinhua China 25 Index (FXP) seeks results that
correspond twice (200%) the inverse of the daily performance of the FTSE/Xinhua China 25 Index.
It has only been in existence for about two weeks. It is wildly swinging between 70 and 94.
FXP has most of its sector exposure in financials, followed by energy and communications. Leaders
include China Mobile (NYSE: CHL), the largest mobile phone operator in China; China Life (NYSE: LFC),
the world's second-largest insurer by market cap; and Petrochina (NYSE: PTR), the first company ever
valued at a market cap of more than $1 trillion. " Expect volatility Hong Kong's currency is pegged to the U.S.
dollar, which has helped contribute to a recent pullback by that market in concert with the U.S. downturn.
This fund is designed to be more volatile and riskier than most funds, so an investment in this ETF is only for
those who are comfortable with such variability in returns. The fund has a high expense ratio of 0.95%, but
when you consider that you can short 25 securities in the high-priced China market with one transaction,
that doesn't seem too pricey. " (http://www.fool.com/investing/etf/2007/11/12/double-down-against-china.aspx )
Another way to hedge China: is by buying a put option on iShares FTSE/Xinhua China 25 Index
You can see how fast Chinese stocks have dropped in the past when an earlier miniature
Stocks in Tiger's CHINA Group.
Actions Semiconductor Co., Ltd. (ACTS) - Actions Semiconductor Co.,
Ltd., through its subsidiaries, operates as a fabless semiconductor company in the
People's Republic of China. The company designs, develops, and markets integrated platform
solutions, including system-on-a-chips (SoCs), firmware, software development tools, and
reference designs for manufacturers of portable media players.
Aluminum Corp. of China Ltd. (ACH) - Aluminum Corporation of China Limited, together with its subsidiaries, engages in the production, sale, and research of alumina and primary aluminum in the People's Republic of China.
Acorn International, Inc. (ATV) - Acorn International, Inc., through its subsidiaries, operates as an integrated multi-platform marketing company in the People's Republic of China. It operates two primary sales platforms, TV direct sales platform and nationwide distribution network. The company, through its TV direct sales platform, markets its own proprietary products and services, as well as third-party products and services.
Baidu.com, Inc. (BIDU) - Baidu.com, Inc. provides Chinese language
Internet search services. Its services enable users to find relevant information
online, including Web pages, news, images, and multimedia files through its Web site links
CNOOC Ltd. (CEO) - CNOOC Limited, together with its subsidiaries, engages in the exploration, development, production, and sale crude oil, natural gas, and petroleum products in China.
China Fire & Security Group, Inc. (CFSG) - China Fire & Security Group, Inc., through its subsidiaries, engages in the design, development, manufacture, and sale of various fire safety products for the industrial fire safety market in the People's Republic of China. It also engages in the design and installation of industrial fire safety systems.
China Telecom Corp. Ltd. (CHA) - China Telecom Corporation Limited and its subsidiaries provide wireline telecommunications and broadband services in China. The company provides telecommunications and information services covering voice, data, image, and multimedia in 20 provinces, municipalities, and autonomous regions in China.
Chindex International Inc. (CHDX) - Chindex International, Inc. engages in the provision of healthcare services, as well as in the sale of medical equipment, instrumentation and products. It operates in two divisions, Healthcare Services and Medical Products. Chindex International has operations primarily in the People's Republic of China and Hong Kong. The company was founded in 1981 and is headquartered in Washington, District of Columbia.
CDC Corp. (CHINA) - CDC Corporation provides enterprise software, online games, mobile services and applications, and Internet and media services. The company's Software segment offers enterprise resource planning, customer relationship management, supply chain management, order management systems, human resources and payroll management, and business intelligence products. CDC Corporation is headquartered in Causeway Bay, Hong Kong.
China Mobile Limited (CHL) - China Mobile Limited, through its subsidiaries,
provides mobile telecommunication and related services in Mainland China and Hong Kong.
Its services include local calls, domestic long distance calls, international long
distance calls, intra-provincial roaming, inter-provincial roaming, and international
roaming. The company is based in Central, Hong Kong.
China Mobile Limited is a subsidiary of China Mobile Hong Kong (BVI) Limited.
Chunghwa Telecom Co. Ltd. (CHT) - Chunghwa Telecom Co., Ltd. provides integrated telecommunications services in Taiwan. Its principal services include fixed line services, including local, domestic long distance, and international long distance telephone services; cellular services; and Internet and data services comprising HiNet, its Internet service provider, fiber to the building services, asymmetrical digital subscriber line services, and leased line services.
China Unicom Ltd. (CHU) - China Unicom Limited, an integrated telecommunications operator, offers a range of telecommunications services in China. Its services include GSM and CDMA cellular, international and domestic long distance, and data and Internet services. The company was founded in 2000 and is headquartered in Central, Hong Kong.
China Medical Technologies Inc. (CMED) - China Medical Technologies, Inc. develops, manufactures, and markets medical devices for the treatment of solid cancers and benign tumors in the People's Republic of China.
China Netcom Group Corp. (Hong Kong) Ltd. (CN) - China Netcom Group Corporation (Hong Kong) Limited, together with its subsidiaries, provides broadband communications and fixed-line telecommunications services in China.
China Techfaith Wireless Communication Technology Ltd. (CNTF) - China Techfaith
Wireless Communication Technology Limited operates as a handset design and software
solutions provider in the People's Republic of China.
China Sunergy Co. Ltd. (CSUN) - China Sunergy Co., Ltd. and its subsidiaries engage in the design, development, manufacture, and marketing of solar cells in China. The company manufactures solar cells from silicon wafers utilizing crystalline silicon solar cell technology to convert sunlight directly into electricity through a process, known as the photovoltaic effect.
Ctrip.com International Ltd. (CTRP) - Ctrip.com International, Ltd. and its
subsidiaries provide travel related services including hotel reservation, air-ticketing,
packaged-tour services, as well as Internet advertising and other related services. It
sells air tickets for Chinese airlines, including Air China, China Eastern Airlines, China
Southern Airlines, and Shanghai Airlines, as well as international airlines operating
flights originating from cities in China, such as United Airlines, Northwest Airlines, Air
Canada, DragonAir, and Lufthansa.
New Oriental Education & Technology Group (EDU) - New Oriental Education & Technology Group, Inc. provides private educational services based on the number of program offerings, total student enrollments, and geographic presence in the People's Republic of China. It offers its program, service, and products in six areas: language training; test preparation; primary and secondary school; educational content, software, and other technology development and distribution; online education; and other services and products.
iShares MSCI Hong Kong Index (EWH)
Focus Media Holding Ltd. (FMCN) - Focus Media Holding Limited operates out-of-home advertising network using audiovisual television displays in the People's Republic of China. Its out-of-home advertising network consists of commercial location network, in-store network, poster frame network, mobile handset advertising network, outdoor LED network, and movie theater network.
Greater China Fund Inc. (GCH) - The Greater China Fund, Inc. operates as a nondiversified, closed-end management investment company. The fund primarily invests in the equity securities of companies in the People's Republic of China.
China GrenTech Corp. Ltd. (GRRF) - China GrenTech Corporation Limited and its subsidiaries engage in the manufacture and sale of wireless coverage products and services to telecommunication operators in the People's Republic of China. Its wireless coverage products include indoor coverage products and outdoor coverage products, as well as base station coverage extension products.
Guangshen Railway Co. Ltd. (GSH) - Guangshen Railway Company Limited, together with its subsidiaries, primarily provides railway passenger and freight transportation services between Guangzhou and Shenzhen, as well as certain long-distance passenger transportation services.
SPDR S&P China (GXC) - The investment seeks to replicate as closely as
possible, before fees and expenses, the total return performance of an equity index based
upon the Chinese equity market. The fund invests at least 90% of assets in the securities
that comprise the index. Top 10 Holdings: Bank of China 3988.HK, China Comstruction Bank,
China Life 2628.HK - 6.79%, China
Mobile 0941.HK - 12.91% of
assets, China Shenua - 1088.HK, CNOOC -
0883.HK, Indi & Commrcl Bnak of
CHina, PETROCHINA - 0857.HK -
6.42% of assets, PINH AN - 2318.HK,
Huaneng Power International Inc. (HNP) - Huaneng Power International, Inc. and
its subsidiaries develop, construct, operate, and manage thermal power plants in China. It
engages in the development, construction, operation, and management of power plants in
Liaoning, Hebei, Shanxi, Shandong, Henan, Fujian, Jiangsu, Zhejiang, Guangdong, Jiangxi,
Gansu, and Hunan provinces, as well as in Shanghai and Chongqing municipalities.
JA Solar Holdings Co., Ltd. (JASO) - A Solar Holdings Co., Ltd., through its subsidiaries, designs, manufactures, and sells solar cells primarily in the People's Republic of China. The company offers monocrystalline solar cells. It sells its products primarily through a team of sales and marketing personnel to solar module manufacturers, who assemble and integrate its solar cells into modules and systems that convert sunlight into electricity.
51job Inc. (JOBS) - 51job, Inc. provides integrated human resource services to employers and job seekers in China. It offers recruitment related advertising services, including print advertising, online recruitment, and executive search services; and other human resource related services, such as training and business process outsourcing.
China Finance Online Co. Ltd. (JRJC) - China Finance Online Co. Limited, through its subsidiaries, engages in selling online financial services analyzing financial and listed company information in the People's Republic of China.
Jinpan International Ltd. (JST) - Jinpan International Limited, an investment holding company, engages in the design, manufacture, and sale of cast resin transformers for voltage distribution equipments in the People's Republic of China.
Linktone Ltd. (LTON) - Linktone, Ltd. provides telecom media, entertainment, and communication services to mobile and fixed phone users in the People's Republic of China. It engages in the development, aggregation, marketing, and distribution of consumer telecom applications for access by users.
Kongzhong Corp. (KONG) - KongZhong Corporation, through its subsidiaries, provides wireless interactive entertainment, media and community services to mobile phone users in the People's Republic of China. It also specializes in the development, marketing, and distribution of consumer wireless value-added services.
China Life Insurance Co. Ltd. (LFC) - China Life Insurance Company Limited
provides annuity products and life insurance to individuals and groups in China. The
company offers products and services, such as individual and group life insurance,
accident, and health insurance. It distributes its products through its direct sales
representatives; agents; intermediaries; and commercial banks, postal savings, and
cooperative saving institutions. The company was founded in 1949 and is headquartered in
Beijing, China. China Life Insurance Company Limited is a subsidiary of China Life
Insurance (Group) Company.
Mindray Medical International Ltd. (MR) - Mindray Medical International Limited, through its subsidiary, Shenzhen Mindray Bio-Medical Electronics Co., Ltd., engages in the development, manufacture, and marketing of medical devices. It operates through three segments: Patient Monitoring Devices, Diagnostic Laboratory Instruments, and Ultrasound Imaging Systems.
The9 Limited (NCTY) - he9 Limited, through its subsidiaries, engages in the development and operation of online games, and Internet and Web site related businesses in the People's Republic of China. It has licenses to operate various massively multiplayer online role playing games.
Ninetowns Internet Technology Group Company Limited (NINE) - Ninetowns Internet Technology Group Company Limited, through its subsidiaries, provides enterprise solutions to streamline the import/export process in the People's Republic of China (PRC).
Netease.com Inc. (NTES) - NetEase.com, Inc., through its subsidiaries, operates an interactive online and wireless community in China. It provides Chinese language content and services through its online games, wireless value-added services, and Internet portals.
PacificNet, Inc. (PACT) - PacificNet, Inc. provides gaming and mobile game technology, e-commerce, and customer relationship management (CRM) in China. Its gaming products are designed for Chinese and Asian gamers with focus on integrating localized Chinese and Asian themes and content, advanced graphics, digital sound effects, and popular domestic music, with secondary bonus games and jackpots. The company's gaming products include: multi-player electronic table games, such as Baccarat, Sicbo, Fish-Prawn-Crab, and Roulette machines, as well as server-based games with multiple client betting stations; slot machines; bingo and keno machines; video lottery terminals; amusement with prizes machines; gaming cabinet and client/server system designs; online i-gaming software design; and multimedia entertainment kiosks. PacificNet's gaming clients include hotels, casinos, and gaming operators in Macau, Asia, and Europe, while its e-commerce and CRM clients include various telecom companies, banks, insurance, travel, marketing and business services companies, and telecom consumers in Greater China. The company was founded in 1987 and is headquartered in Beijing, the People's Republic of China.
PowerShares Gldn Dragon Halter USX China (PGJ) - The investment seeks results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Halter USX China index(SM). The fund normally invests at least 80% of total assets in equity securities of companies deriving a majority of their revenues from the People's Republic of China. It may invest at least 90% of total assets in equity securities that comprise the China Index. The fund seeks to match the performance of the China Index. Top holdings are: ACH, LFC, CHL, CN, CHA, CHU. CEO, HNP, PTR and Sinopec. (4.5% to 5.99% of assets each).
PetroChina Co. Ltd. (PTR) - PetroChina Company Limited, together with its subsidiaries, engages in petroleum and natural gas related activities in the People's Republic of China. It operates in four segments: Exploration and Production, Refining and Marketing, Chemicals and Marketing, and Natural Gas and Pipeline.
Sinopec Shanghai Petrochemical Co. Ltd. (SHI) - Sinopec Shanghai Petrochemical Company Limited engages in processing crude oil into synthetic fibers, resins and plastics, intermediate petrochemical products, and petroleum products primarily in the People's Republic of China.
Sina Corp. (SINA) - SINA Corporation operates as an online media company
and information services provider in the People's Republic of China. It provides
region-focused online portals, MVAS, search and directory, interest-based and
community-building channels, free and premium email, blog services, audio and video
streaming, online games, classified listings, fee-based services, e-commerce, and
enterprise e-solutions. "In most cases, investors would expect the mixture of
three tantalizing ingredients -- wireless, China, and advertising -- to result in hockey
stick stock charts. But in the case of several companies providing wireless
value-added services (WVAS) in China, the recipe is causing more cases of indigestion,
with many stocks down 50% or more so far this year. China's WVAS market is made up of
companies such as KongZhong (Nasdaq: KONG), Linktone,
and Hurray! Holdings (Nasdaq: HRAY), which
offer wireless access to content such as games, music, and messaging applications.
But these players are increasingly moving to diversify away from purely wireless offerings
in light of a rapidly changing marketplace. "While many competitors have already
turned in retreat, KongZhong believes that the wireless Internet holds great potential and
is still in its early stages in China. The company recently reported earnings that were
largely in line with expectations, commenting that WVAS revenues were flat on a sequential
basis. With leading wireless operator China Mobile (NYSE:
CHL) making up 75% of these
revenues, the company was feeling the negative impact of new
policies China Mobile put in place that favor its own embedded offerings.
KongZhong is working to develop a wireless advertising business line to make up for an
uncertain future in the wireless services segments. The company has so far had
success courting customers such as Nike (NYSE: NKE), BMW, and
Blackberry maker Research In Motion (Nasdaq: RIMM). Competitor Hurray! has
taken a different tack in light of dismal performance, however, choosing to merge with
private Chinese media content and production company Enlight Media. This move will broaden
the combined company away from its wireless focus and make it a cross-platform media
Shanda Interactive Entertainment Ltd. (SNDA) - Shanda Interactive Entertainment Limited, through its subsidiaries, engages in the development and operation of online games in China.
China Petroleum & Chemical Corp. (SNP) - China Petroleum & Chemical Corporation, through its subsidiaries, operates as an integrated oil and gas, and chemical company in the People's Republic of China and Hong Kong. Its oil and gas operations include exploring for, developing, and producing crude oil and natural gas; transporting crude oil, natural gas, and products by pipelines; refining crude oil into finished petroleum products; and marketing crude oil, natural gas, and refined petroleum products.
Sohu.com Inc. (SOHU) Sohu.com, Inc. provides a range of online
products and services to consumers and businesses in the People's Republic of
China. Its products and services to businesses include brand advertising and sponsored
Suntech Power Holdings Co. Ltd. (STP) - Suntech Power Holdings Co., Ltd., through its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic (PV) cells and modules. It also provides PV system integration services in China.
Telestone Technologies Corp. (TSTC) - Telestone Technologies Corporation
provides wireless communications coverage solutions in Vietnam,
Indonesia, Malaysia, Thailand, and India. Its wireless coverage solutions include research
and development, and application of wireless communications technology.
Vimicro International Corp. (VIMC) - Vimicro International Corporation, through its subsidiaries, engages in the design, development, and marketing of mixed-signal semiconductor products and solutions for the consumer electronics and communications markets in the People's Republic of China.
Qiao Xing Universal Telephone Inc. (XING) - Qiao Xing Universal Telephone, Inc., together with its subsidiaries, engages in the manufacture and distribution of telecommunications products primarily in the People's Republic China. It primarily manufactures mobile phone handsets under CECT and COSUN brands.
Yanzhou Coal Mining Co. Ltd. (YZC) - Yanzhou Coal Mining Company Limited engages in underground coal mining, preparation and processing, sales, and railway transportation of coal. It has interests in Xinglongzhuang, Baodian, Nantun, Dongtan, Jining II, and Jining III coal mines.
China Southern Airlines Co. Ltd. (ZNH) - China Southern Airlines Company Limited, together with its subsidiaries, engages in the airline operations in the People's Republic of China, Hong Kong and Macau regions, and internationally. It provides domestic and international passenger, cargo, and mail airline services.
iShares FTSE/Xinhua China 25 Index (FXI) - The investment seeks investment
results that correspond generally to the price and yield performance, before fees and
expenses, of the FTSE/Xinhua China 25 index. The fund generally invests at least 90% of
assets in the securities of the index or in ADRs, GDRs or EDRs representing securities in