Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘chinese stocks’

Why China Catches My Eye as a Top Opportunity Right Now

By for Profit Confidential

My Top Three Foreign Investment OpportunitiesA few years ago, investors couldn’t get enough of Chinese stocks. This led to numerous frauds committed by crooks in China that has since tarnished the reputation and reliability of all Chinese companies, whether they’re legitimate or not, despite their operating in one of the top growth areas in the world.

While I’m not focused on Chinese stocks at this moment due to better trading opportunities in the domestic stock market, I monitor the country and remain convinced it’s still a key place to have some risk capital invested in. When the broader market understands this, I would expect renewed buying in Chinese stocks sometime in the future.

My view is that the country’s current leadership under President Xi Jinping, who assumed power in March 2013, has a vision to create a country of consumers, just like the United States; albeit, I doubt it will come close to what we see here with consumer spending driving 70% of gross domestic product (GDP) growth. In China, consumer spending drives about 30% of GDP so there’s work to do. In the second quarter, retail sales continued at a double-digit growth of 12.4% year-over-year.

The objective to cut the country’s dependence on exports and foreign investment makes sense. With a potential market in excess of one billion people, it’s the right move.

China may not be in the spotlight for investors now, but you cannot ignore the country. With the recent years of underperformance, I see great longer-term upside in Chinese stocks.

The Chinese economy is growing at well below the double-digit growth of the past, but comparatively, the growth is far superior … Read More

How to Profit from China’s Shift in Consumer Spending

By for Profit Confidential

China's Consumers Eager Spend; How  Profit from RiseChina is facing some growth issues, but so are the majority of the countries in the Western Hemisphere.

The country’s new government leader, President Xi Jinping, came on board in March 2013 and is planning to change the landscape of China vis-a-vis a new focus on domestic consumption and a reduction in its dependence on exports and foreign demand.

This new plan will take some time to undertake, but if Jinping can mobilize the country’s massive potential consumer base into a spending machine similar to the United States, then we could see a spending revolution emerge behind the Great Wall.

But while investors in Chinese stocks have faced difficult times over the past few years due to fraud, I feel it’s not enough to avoid the country as a growth buying opportunity. (Read “Chinese Stocks Promise Higher Potential Gains?”)

While it may be true that the Chinese economy is stalling and that it may find it difficult to get back to its former double-digit growth, the gross domestic product (GDP) growth of 7.7% in 2013 was good. The Organisation for Economic Co-operation and Development (OECD) predicts the Chinese economy’s GDP growth will slow to 7.4% this year, compared to an earlier estimate of 8.2% in November. The slowing is attributed to the government’s move to control the credit risk and factory capacity in order to prevent a meltdown.

The fact you cannot ignore is the massive population, especially the more than 300 million middle-class consumers looking to spend their newfound wealth.

In April, retail sales grew by 11.9%, which is pretty darn good, given the growth we are … Read More

Chinese Stocks Promise Higher Potential Gains?

By for Profit Confidential

Three Keys to Profiting from China-Based StocksIf you think Chinese stocks are too speculative to consider and buy, then you need to read what I’m going to say over the next few paragraphs.

Yes, it’s true that China-based companies have subjected U.S. capital markets to erroneous results and reporting in the past and that it is likely continuing to some degree, but that does not mean you should bypass Chinese stocks. You just need to be extra careful.

With the recent moves by the U.S. Securities and Exchange Commission (SEC) to force Chinese companies looking to list in the United States to use approved auditors along with other tighter reporting requirements, we have seen the flow of China-based initial public offerings (IPOs) dry up. There were only about two Chinese IPOs setting up shop on U.S. exchanges in 2013; so far, this year has proven to be no different.

Yet the reality is that Chinese IPOs continue to attract frenzy when they list here, perhaps due to the limited issues. The biggest coup was the recent decision by China-based e-commerce giant Alibaba Group Holding Ltd., which decided to list in the United States and bypass Hong Kong. The IPO is estimated to be at around $15.0 billion and will be the largest IPO listing from a Chinese company. The reason for the decision, I believe, is the currently extremely receptive environment for IPOs in America. It’s likely Alibaba will create so much buzz that its share price will explode out of the gate for those lucky enough to own shares.

The reality is that even if you cannot get your hands on Alibaba, which has … Read More

How to Play the Growth in China

By for Profit Confidential

Why Investors Shouldn't Bypass ChinaFor the first time in more than three years, Chinese stocks are beginning to show some promise for growth investors looking for opportunities outside of the United States.

The benchmark Shanghai Composite Index has moved to just above its close of 2013; hence, it’s more or less in line with the S&P 500 and Dow Jones Industrial Average.

Many of you are aware of my continued bullishness for China, as I have talked about this in recent commentaries.

We saw some encouraging estimates on Tuesday. The country’s industrial output is estimated to rise 9.5% this year, which could support gross domestic product (GDP) growth of 7.5%, according to Industry and Information Technology. (Source: “China targets factory output growth of around 9.5 percent in 2014,” Reuters, February 17, 2014.) What’s interesting is that the key areas of growth for this year include telecommunications, along with a big jump in business for software and information technology (IT).

You can play the growth in these areas via Chinese IT services firms, such as iSoftStone Holdings Limited (NYSE/ISS, $5.15, Market Cap: $297 million), a provider of IT services to clients and globally. Services include consulting and solutions, IT services, and business process outsourcing. The company is growing with its headcount increasing 27% to 17,702 in the third quarter compared to the same time in 2012. Broken done, 65.1% of the company’s global sales came from the Greater China area, 21.4% were from the U.S., Europe accounted for 7.3%, and Japan made up 5.8%.

Analysts expect iSoftStone to report revenue growth of 13.6% to $432.81 million in 2013, followed by 17.8% to $510.06 million … Read More

If You Can Take the Risk: My Top Three Chinese Stocks

By for Profit Confidential

Could These High-Risk Stocks Pay OffWe all know about some of the insane valuations with social media and Internet services stocks, such as Twitter, Inc. (NYSE/TWTR), Facebook, Inc. (NASDAQ/FB), and Yelp, Inc. (NYSE/YELP), as I have discussed in these pages before. (Read “Two More Internet Stocks to Watch.”)

These valuations make it extremely risky to buy, as a change in the market perception and valuation could lead to a sell-off in the stock, as was the case for Twitter recently.

Now, if you are willing to assume the risk, there are some more attractive Chinese Internet and social media stocks that offer far better valuations than their American counterparts, but these China-based companies also come with much higher risk.

A look at the valuations of these Chinese stocks really doesn’t tell us much, but based purely on strict metrics and valuations, these Chinese stocks look pretty good—in fact, the prices of these Chinese stocks seem too good to believe. And therein lies the risk: due to the questionable reliability of the financial reporting, auditing, and statements in China, these Chinese stocks carry a lot of risk. Sometimes, it seems as though numbers have been made up to suck in investors and drive the share price higher.

The U.S. Securities and Exchange Commission (SEC), as I said in a previous commentary on China, has been trying to clean up the reporting requirements and offer some potential hope that the numbers being reported are valid. While it’s a good step forward, there’s still no guarantee that crooks will not escape the watch of the SEC.

I was reading how there may be 30 or so … Read More

Investment Opportunities in Depressed Chinese Stocks

By for Profit Confidential

Where to Find New Investment Opportunities in the Emerging MarketsThe Securities and Exchange Commission (SEC) is currently shutting down numerous Chinese shell companies trading on U.S. exchanges, such as the over-the-counter market and the highly speculative Pink Sheets stock exchange.

This is good and is something the SEC needs to continue to pursue and enforce, so domestic investors can regain some lost confidence towards Chinese stocks.

The American appetite for Chinese stocks has been picking up; albeit, it’s nowhere near where it was a few years ago when Chinese stocks were all the rage.

Yet if you think there’s little interest in Chinese stocks, take a look at some of the sizzling debuts of the few Chinese initial public offerings (IPOs) that listed in the U.S. last year.

There are now worries China may be set for a downside slide. I have been hearing how the Chinese economy was set to burst, especially regarding the real estate and financial sectors in China. So far this has yet to happen, but we are continuing to hear continued bearish comments towards China.

It’s true the Chinese economy is stalling and may find it difficult to get back to its former double-digit growth, but with gross domestic product (GDP) growth at 7.7% in 2013 and estimated to rise 8.2% this year, according to the Organisation for Economic Co-operation and Development (OECD), these are not bad numbers. By comparison, the U.S. economy is predicted to grow 2.9% in 2014, according to the OECD. (Read “OECD Predicts China #1 Economy by 2016; Consumer Spending to Soar.”)

A recent showing of contraction in Chinese manufacturing in January was used by the Chinese bears … Read More

Three Profitable U.S. Plays on the Lucrative Chinese Auto Market

By for Profit Confidential

Chinese economyIt’s no secret that China is the biggest market for numerous raw materials, such as cement, steel, coal, copper, and oil, along with end-products, such as vehicles and mobile phones.

The growth of the middle class and wages in the country is the vital attraction for companies to go and set up shop there. Credit Suisse estimates the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current growth rate. Moreover, the government’s strategy to drive domestic consumption will also help to push up the demand for goods and services.

An area in the Chinese economy that I continue to believe has tremendous long-term potential is the auto sector, but the short-term will pose some hurdles due to some buying limits imposed by the government.

The Chinese motor vehicle market is the largest in the world, and it continues to distance itself from the United States. The upward demand for vehicles remains in spite of the government’s efforts to limit vehicle sales in many of China’s largest cities in an attempt to cut pollution.

As a potential market for vehicles, China remains tops. Auto sales surged 16% in November following a 24% jump in October, according to the China Association of Automobile Manufacturers. (Source: China Association of Automobile Manufacturers web site, last accessed December 11, 2013.) About 1.7 million vehicles were sold for an annualized growth of 20.4 million. By comparison, sales of autos increased nine percent in the United States in November to an annualized rate of 16.4 million vehicles, according to … Read More

Nomura Calls for 50% Correction in Global Stock Markets

By for Profit Confidential

Nomura Calls for 50% Correction in Global Stock MarketsI’m getting increasingly nervous about the current stock market and its vulnerability to the downside. We have a fragile economic renewal, weak corporate revenue growth, muted jobs growth, a housing market that’s stalling, an upcoming leadership transition at the Federal Reserve, and the government still needs to hammer out a budget and debt ceiling deal by February. So yes, I’m nervous.

Nomura strategist Bob Janjuah believes global stock markets could fall by 25%–50% in the final three quarters of 2014. (Source: Clinch, M., “Stand by…a hefty drop’s on the way: Nomura’s Janjuah,” CNBC, November 6, 2013.)

While I’m not that bearish, I do believe the chart of the Dow Jones Industrial Average is vulnerable to a six-percent near-term adjustment. (Read “Vulnerable Key Stock Index May Be Signaling Upcoming Buying Opportunity.”) The S&P 500 even looks worse and could see a decline to 800 if the past 15-year pattern pans out. That would be a decline of over 50%, which is what Janjuah is saying.

The chart below shows the current multiyear top and potential decline to the lower support at 800 as reflected by the bottom horizontal line. Also note the declining volume during this most recent multiyear rally, which is considered a negative divergence, based on my technical analysis. I’m not saying the worst is yet to come, but you never know.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

As an investor, you want to make sure you are well aware of the stock market vulnerability.

Given the gains over the past four years, you should look at taking some money off the table. Also look at some of your … Read More

Time to Look at Chinese Stocks Again?

By for Profit Confidential

Time to Look at Chinese StocksThere are still many on Wall Street who frown on Chinese stocks and China. When word was spreading that the country’s real estate market was going to implode, China was a cesspool for capital.

Well, I don’t belong in that group of investors. Many of my readers will recall how I remain bullish on China and Chinese stocks in particular. Just take a look at many of the top-performing stocks over the past few weeks, and you’ll see that there are numerous Chinese small-cap stocks charging up on the charts. The buying has been driven by a move to seek more returns in regions, like China, that have largely not followed U.S. stocks higher.

Take a look at the S&P 500, as shown by the red candlesticks in the chart below, versus the Shanghai Composite Index, as reflected by the green line.

The obvious finding is that the S&P 500 has continued its upward move, while the Shanghai Composite Index has been unable to find any rhythm on the chart, based on my technical analysis.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

In my assessment, the divergence between the two indices has resulted in a buying opportunity for Chinese stocks.

Since making its initial acquisition in a 20% stake of specialty chemicals maker China National BlueStar in 2008 for $600 million, private equity firm The Blackstone Group L.P. (NYSE/BX) has been steadily involved in buying Chinese companies. Blackstone just signed a definitive merger agreement to buy China-based IT services firm Pactera Technology International Ltd. (NASDAQ/PACT) in a $600-million deal. Of course, the Chinese government, via its overseas investment fund, invested $3.0 billion in … Read More

Why Opportunity Abounds Where the Rest of the Market Isn’t Looking

By for Profit Confidential

Opportunity Abounds Where the Rest of the Market Isn’t LookingIf the trend is your friend on Wall Street, it’s also the case that there are opportunities and value among stocks that have been abandoned by investors.

While the financial media tends to prefer doom and gloom, genuine opportunity in the stock market is rarely in the headlines. The focus needn’t be on what is wrong with the world; we already know that. What’s lacking is how you can profit from it.

Precious metals stocks are becoming more and more attractive these days, but I don’t think we’ve seen a bottom yet in gold and silver stocks.

Currently, some of the best risk-capital opportunities in the stock market are U.S.-listed Chinese stocks. It’s a sector that’s pretty much been abandoned by the marketplace.

The reasons why the marketplace is no longer interested in Chinese stocks are obvious, but at the height of disinterest comes the best prices. By the time interest hits and the story is in the newspapers, most of the money has already been made.

One company that’s experiencing a genuine stock market turnaround is China Ceramics Co., Ltd. (CCCL). And it’s doing so ahead of its financial turnaround, which indicates that investor sentiment is warming to the story.

China Ceramics manufactures and sells ceramic tiles to both residential and commercial customers in China. The company stumbled both operationally and on the stock market due to China’s planned real estate restraint. The position then met the same fate as virtually all other U.S.-listed Chinese stocks that imploded on the stock market because of the plethora of accounting frauds.

But the tide is slowly turning for many of these … Read More

Revenues Down for This Aluminum Stock; Trouble for Global Economy Ahead?

By for Profit Confidential

Revenues Down for This Aluminum StockWhile the focus is on the government shutdown and debt ceiling, I’m getting ready for the start of another earnings season, to see if America delivers. Of course, the somewhat muted gross domestic product (GDP) growth has me fully expecting to see a drag in revenues across the broad.

Alcoa Inc. (NYSE/AA) starts the third-quarter earnings season when it reports after the markets close tomorrow. The company is a pretty decent indicator for the global economy, as aluminum is used in a broad assortment of industrial and consumer applications around the world.

The company is forecasted to earn $0.06 per diluted share on revenues of $5.71 billion, down 2.1% year-over-year, according to Thomson Financial. For this reporting year, Alcoa is expected to see revenues contract 2.8%, followed by 2.8% growth in 2014. This essentially means zero growth over two years. In my books, that’s not good; this clearly indicates a global economy that’s in trouble.

I don’t even think traders are expecting some miraculous jump in revenues or earnings in the third-quarter earnings season. Wall Street has already downgraded expectations for the earnings season.

Earnings growth for the third-quarter earnings season is estimated at 3.2%, according to a FactSet report dated September 27. (Source: “Earnings Insight,” FactSet Research Systems Inc. web site, September 27, 2013; last accessed October 4, 2013.) The number is well down from the estimate of 6.5% as of June 30.

The financial sector is expected to report the top growth, while the healthcare sector is projected to report the lowest level of growth in the third-quarter earnings season. Of course, should the U.S. government shutdown … Read More

Your Portfolio Stopped Growing? Here’s Why You Really Need to Think Chinese

By for Profit Confidential

Chinese stocks China is not dead for investments, folks! In my previous article, I talked about the travel sector and the staggering potential for growth in the emerging markets—but this isn’t the only investment opportunity that may be arising in the second-largest economic hub.

Yes, many analysts and mainstream media outlets have been suggesting China is no longer a viable region for investments. I even heard a hedge fund manager say the potential in U.S. stocks is greater than that of China. While I do favor U.S. companies, to overlook China makes absolutely no sense. (Read “Why Chinese Stocks Are Taking Off All of a Sudden.”)

Just take a look at the recent economic numbers. Assuming they are valid, these numbers prove that there are clearly reasons to get excited about shifting some capital to Chinese stocks or multinational companies that derive a major portion of their revenues from China.

The key exports metric has been rising for two straight months. The country reported a healthy 7.2% rise in its exports in August, up from 5.1% in July and -3.1% in June, according to the General Administration of Customs. (Source: Orlik, T. and Kazer, W., “Economy in China Benefits From Stronger U.S. Demand,” Wall Street Journal, September 8, 2013.) This is extremely positive and indicates that demand for the global economy is on the rise.

A strong Chinese economy makes for a stronger global economy.

With the economic renewal, we are seeing a demand for raw materials from China. China imported 526.7 million metric tons of iron ore for the 12 months to August, up 8.1% year-over-year. (Source: “Freight … Read More

Why Chinese Stocks Are Taking Off All of a Sudden

By for Profit Confidential

Chinese stocksThe comparative advance in the Shanghai Composite Index may be subpar and well below the moves in the S&P 500 and Dow Jones Industrial Average, but that doesn’t mean you should ignore Chinese stocks. Recall a few weeks back when I discussed the upward moves in Chinese stocks. (Read “They’re Not Popular, But These Stocks May Offer Opportunity After All.”)

While there are the non-believers who feel that China and Chinese stocks are going down the toilet and that everything with the country was fabricated by the communist government, I simply say—good luck.

Just take a look at the price charts, and you’ll notice a somewhat resurgence in Chinese stocks, especially small-cap stocks, over the past weeks, with many advancing to new 52-week highs.

Now, I’m not saying you should welcome Chinese stocks into your portfolio with open arms, but there’s clearly an increased appetite for risk and bigger potential returns, versus the current flatness in U.S. stocks.

Take a look at China-based Qihoo 360 Technology Co. Ltd. (NYSE/QIHU), a developer of Internet and mobile security solutions to the Chinese market. You can think of Qihoo as the “Norton Antivirus” of China, and with 1.3 billion people, that’s a massive market opportunity. I recommended Qihoo in one of my past publications, and it has been a massive winner, up four-fold from its 52-week low of $20.01.

Based on my technical analysis, the chart of Qihoo below is a beautiful example of a stock in an uptrend. The stock also just recorded a bullish upside trading gap.

QIHOO 360 Technology Co Ltd Chart

Chart courtesy of www.StockCharts.com

What I advise is not to just … Read More

They’re Not Popular, But These Stocks May Offer Opportunity After All

By for Profit Confidential

150813_PC_georgeChinese stocks listed on the Shanghai Composite Index (SCI) are down over seven percent this year, and unless things change, it will be the third year since 2010 that the index moves lower.

These are clearly not the best of times for Chinese stocks, but that doesn’t mean there is not a buying opportunity out there for some Chinese stocks trading on U.S. exchanges.

For instance, just the other day, I discussed the added benefits from small-cap stocks and talked about China-based Phoenix New Media Limited (NYSE/FENG). This stock has had a nice run up this year, surging 129%, including a 14% pop on Monday. While situations like FENG are not the norm with Chinese small-cap stocks this year or in the recent few years, they are also not as rare as you might think.

In the Chinese education space, TAL Education Group (NYSE/XRS) has been one of many Chinese education plays that have sizzled on the charts this year—up 34%.

In China’s often talked about real estate sector, where some have been calling for a bubble to materialize for years now, there have been some excellent Chinese stocks. One of these companies, Xinyuan Real Estate Co., Ltd. (NYSE/XIN), which I highlighted here in February (read “Why the Money May Be with China’s Real Estate”) is up over 70% since.

PC_Aug15_Graph1Chart courtesy of www.StockCharts.com

In the social media space, a stock that looks interesting on the chart is Renren Inc. (NASDAQ/RENN), which is appearing to be forming a bullish cup and handle and could break higher.

PC_Aug15_Graph2Chart courtesy of www.StockCharts.com

Another China-based business to consumer e-commerce play … Read More

Why China May Be Manufacturing Its Economic Numbers

By for Profit Confidential

China May Be Manufacturing Its Economic NumbersI’m longer-term bullish on China, yet at the same time, when I analyze a Chinese company, especially small-cap stocks, I often find myself wondering if the numbers are valid.

We all know what happened with Sino-Forest Corporation or Deer Consumer Products, Inc (OTC/DEER) and how these companies tricked us. Sino-Forest apparently didn’t have much of the forest properties or the revenues it claimed. Hedge fund guru John Paulson lost nearly $500 million from investing in this fabricated company. Deer Consumer Products, on the other hand, really didn’t have much going on at its factories, according to someone who observed the company. (Apparently there were no trucks coming or going, and workers were nowhere to be seen.)

Of course, there were numerous other Chinese stocks, many of which debuted via the hotly contested reverse merger process, that fabricated their numbers. (Read “Chinese Stocks Hindered by Mistrust.”)

The problem is that China is known as the “Wild West” for creative accounting. This is the reason why you see many of the smaller Chinese companies sporting extremely low valuations, as the associated Chinese risk is high and speculative. The trust is simply not there. You are better off with the large Chinese companies, but then the upside potential is low versus small-caps.

Moreover, there’s also the trust we have in the economic numbers coming out of China. There are some who believe key economic data is also creatively managed.

For instance, China reported its Purchasing Managers’ Index (PMI) last Thursday, and it came in at a surprising 50.3 in July, according to the National Bureau of Statistics. Many on the Street … Read More

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