Lombardi Publishing was originally established in 1986 as an investment newsletter publisher offering stock market guidance and analysis to readers. Today, we publish 25 paid-for investment letters most of which provide stock market guidance. We have been big advocates of Chinese stocks over the years and have investment newsletters solely dedicated to analyzing Chinese stocks that can be purchased on North American stock exchanges. Profit Confidential is our daily free e-letter that goes to all our Lombardi Financial customers and to any investor who wishes to opt-in in to receive it. Written by Lombardi Financial editors who have been offering stock market analysis and guidance for years to Lombardi customers, Profit Confidential provides a macro-picture on where the Chinese economy is headed. We analyze various sectors of the Chinese economy, ultimately analyzing Chinese stocks.
Chinese stocks are a disappointment in 2013 and, at this point, are looking to underperform the U.S. stock market for the fourth consecutive year.
But while China sorts out its growth issues, across the East China Sea, Japan has been on a tear. The massive infusion of liquidity into the Japanese monetary system has driven down the yen and, in the process, is leading to an export-led economic recovery.
The benchmark Nikkei 225 stock market index is up a whopping 36.4% this year, breaking above the 14,000 level for the first time in close to five years.
Take a look at the technical analysis chart below, comparing the movement of the Nikkei 225 index, as indicated by the upward-trending solid green line, and the downward-moving yen.
As the yen weakens, the Japanese stock market rises, Japanese goods become cheaper to buy from foreigners, and this drives up sales of the many Japanese multinationals.
Chart courtesy of www.StockCharts.com
At the same time, the Shanghai Stock Exchange (SSE) Composite Index is down 1.5% and is struggling to convince the world that not all Chinese companies are deceitful. (Read my take in “China in a Holding Pattern, but There Are Opportunities Inside the Great Wall.”)
The chart below shows the movement of the Nikkei 225 stock market, as shown in the candlestick formation, versus the SSE Composite Index, as indicated by the green line.
You’ll notice the outperformance of the Shanghai stock market from 1990 to around 2008, and then the current rally by the Nikkei.
Chart courtesy of www.StockCharts.com
I must admit I was caught off guard by the strength … Read More
It has been quite some time since I looked at Chinese stocks. The reality is that since the meltdown in Chinese reverse-merger stocks in 2011 and 2012, there has been an apprehension to buying Chinese stocks as reflected by the comparative performances.
In 2013 so far, the key U.S. stock indices represented some of the top performers on the world stage. The 11.3% return by the Dow Jones Industrial Average is second to the Nikkei 225 in Japan, which has advanced a surprising 10.3% as of the close of March 28. While Japanese stocks have done well, I continue to favor other global markets and am wary of Japanese stocks. (Read “Why You Need to Avoid Japan to Save Your Money.”)
China’s Shanghai Composite Index was down 1.5% as of Monday and continues to be a disappointment for investors in Chinese stocks. In fact, the glory days when investors could have made money simply by buying Chinese stocks are long gone.
The Bloomberg China-US Equity Index, comprising the top-55 Chinese stocks trading on U.S. exchanges, is down 11.5% this year and 7.2% year-to-date. These are poor metrics, but an interesting thing we are seeing is a pickup in speculative buying in Chinese stocks that underwent reverse mergers. After a major sell-off, there is some renewed buying. The Bloomberg Chinese Reverse Mergers Index is up a surprising 10.98% this year. While the rally is encouraging, I would still be extremely careful when looking at this group.
When the U.S. equities market crashes, most foreign stocks do as well. But when it comes to capital appreciation, the correlation ends. Domestic Chinese stocks experienced a small resurgence lately, but they are still well down from their peak in 2007. China is still very much an emerging market, but several other emerging markets are doing much better. These economies are experiencing growth in domestic demand and are also selling a lot of product to their neighbors, China and Japan.
Thailand (the second largest economy in Southeast Asia) is actually an emerging market that is a better play than China itself. And, of course, you have lots of options as an investor if considering having some exposure to the region.
The iShares MSCI Thailand Capped Invstbl Mkt exchange-traded fund (ETF), symbol THD, has been on a tear lately, representing the broader stock market in Thailand. This ETF has about a billion dollars in net assets and is up approximately 38% year-to-date. Way better than China.
Things are really happening in Thailand. According to Thomson Reuters, this emerging market experienced 2012 fourth-quarter GDP growth of 3.6%, with strong domestic demand and an 18.2% increase in exports. Private consumption grew 12.2% during the quarter and both the government and central bank expect a solid increase in global trade this year.
Another emerging market experiencing a big increase in both domestic demand and exports to China is the Philippines. Pull up the iShares MSCI Philippines Invstbl Mkt Idx ETF, symbol EPHE, and you’ll see a huge spike over the last year. According to Bloomberg, that country’s 2012 fourth-quarter GDP grew 6.8% on … Read More
Some of the most attractive opportunities right now in this stock market are in U.S.-listed Chinese stocks. If you like the buy low/sell high strategy, you have lots of choice among Chinese stocks—many of these companies are bouncing off their 52-week and all-time lows.
Of course, there’s a reason why so many Chinese stocks have been dumped on the stock market: business conditions worsened, and investors lost confidence in the entire group. Aside from the largest companies, institutional investors have abandoned smaller Chinese stocks. Naturally, this is a good place to be bottom-fishing in the stock market.
One company that I think is a standout turnaround opportunity is China Ceramics Co., Ltd. (NASDAQ/CCCL). This company makes ceramic tiles in China and sells them to the residential and commercial markets. Only about seven percent of the company’s products are exported overseas, and the company’s management recently signed a deal to become a strategic supplier to China’s largest real estate contractor. Here is China Ceramics’ stock chart:
Chart courtesy of www.StockCharts.com
On the stock market, China Ceramics has performed like most Chinese stocks—it’s been going down for the last two years, right along with the “engineered” slowdown in the Chinese real estate market. According to the company, its 2012 third-quarter revenues fell to $62.1 million, down from $63.4 million. Average selling prices, however, grew by 14%. Earnings in the third quarter of 2012 were $11.7 million, down from $11.8 million in the comparative quarter. Management previously forecasted a slowdown in business and a reduction in its backlog, which will result in a substantial decline in fourth-quarter revenues.
Like a lot of … Read More
Over the years, I’ve seen a lot of wacky things in the stock market, from spectacular capital gains to equally spectacular wealth destruction (often from the same companies). Even the best companies on the stock market that offer rising dividends can crash. Remember the dot-coms? Those stocks shot straight upward in value for no other reason than they were just going up. Most became “dot-bombs.” Then there were the outright frauds—a lot of them, from gold miners to big-name companies to Chinese stocks (most with a big seal of approval from auditors). I know a person that was so scared, so outright certain that the financial world was going to end in 2008, that she just couldn’t take it anymore. She sold every security she owned for cash. She still won’t touch the stock market.
My grandmother also hated the stock market. She thought it was too risky. Of course, living through World War II and the Great Depression influenced her views. For her, nothing counted as much as cash. After the war, times were tough, but they slowly got better. She and my grandfather worked hard, and they saved their money—or rather they didn’t spend. Even in retirement, with no mortgage, she wouldn’t buy fresh bread—too expensive. She just didn’t spend; she saved, because that was her investment philosophy.
Nowadays, cash is still king, but it doesn’t pay any returns. I’m sure there are plenty of seniors who would love to have more of their savings allocated to cash, but artificially low interest rates can’t even beat inflation. A lot of people who are either saving for retirement … Read More
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