— by Mitchell Clark, B. Comm.
With the substantial recovery in investor sentiment, a lot of stocks are really moving again. The hottest area for individual speculators in the domestic market remains U.S.-listed Chinese stocks, where a handful of stocks are experiencing significant upward momentum right now. Some of these companies include: FUQI International Inc. (NASDAQ/FUQI), China Fire & Security Group, Inc. (NASDAQ/CFSG), Duoyuan Global Water Inc. (NYSE/DGW), China Sky One Medical, Inc. ((NASDAQ/CSKI), and A-Power Energy Generation Systems, Ltd. (NASDAQ/APWR).
These fast-growing companies are still relatively small, but I bet if you owned a basket of them, you’d make out great over the next two years.
Like most sectors of the stock market, U.S.-listed Chinese stocks tend to move as a group and they can be highly volatile. This is what makes them so attractive to speculators. I say “speculators” because most people who buy and sell stocks on a regular basis are doing so to make money from the markets, not invest their existing wealth in a business for the long term. People aren’t investing in these kinds of stocks; they’re speculating on them.
For a while, even the most promising U.S.-listed Chinese stocks lost their allure among speculators. The financial crisis took the wind out of this group and, even in their recovery, there remains a risk premium associated with these companies. This just makes sense. Don’t forget we’re talking about pure-play businesses that operate in China under a fixed exchange rate with the U.S. dollar. Anything can happen to these businesses at any time. That’s why, if you want to be speculating in these kinds of stocks, it pays to own a basket of them and it really pays to employ strong risk-management tactics with any positions.
I’d like to single out FUQI International in this column, particularly because this story is a great example of a huge moneymaker that sat in the doldrums for quite a while, because the right sentiment just wasn’t present. When that sentiment changed, this growing company saw its stock price jump fivefold in just four months.
Last November, I wrote about FUQI International in this column saying, “…in a marketplace that’s gyrating on fear and uncertainty, it’s great to find a company out there whose business is doing great. The stock market isn’t much interested in growth stocks right now; it’s still in confidence crisis mode. What this creates, however, are real values in the marketplace — values that I have no doubt will one day pay off.”
Quarter after quarter, this company came out with great numbers, but the sentiment just wasn’t there in the broader market for the stock to move. Finally, after reporting great first-quarter numbers in May, investor sentiment improved just enough that a new batch of traders began to took a look at the story. The stock has appreciated some 500% ever since.
I think a story like this is really important for people who like to speculate in stocks. It serves to illustrate that you can own the absolute best business in the world, but the stock market might not be interested. Without question, timing is everything in the equity speculation business. Only when the right story and the right marketplace come together can you make big money from the stock market. It doesn’t happen very often, but this story proves that it does happen every once in a while.