Say, for example, that the global economy was to do better than expected in 2011. This would mean that Chinese equities would likely accelerate. Currently, the main stock market indices in that country are trading range-bound, seemingly waiting for a catalyst. The stock market over there has sorted itself out after a spectacular run-up in 2007. Equities corrected significantly in 2008, and have since recovered to a current level of about half of the highs set in 2007.
At home, U.S.-listed Chinese shares continue to be in the doldrums, with a lot of enterprises trading for very reasonably valuations. Most of these businesses are small- and mid-cap companies, and this contributes to the apathy. In addition, domestic investors just aren’t interested in equities to the same degree they were before the financial crisis. Most investors are still unwilling to consider gold investments (the spot price of gold just hit another new record high).
Now is an attractive time to be surveying the equity landscape for value, which exists right now in a number of Chinese firms that trade on American stock exchanges in U.S. dollars. It takes courage to consider investing in stocks when they’re down, but the best gains always seem to come to those with the patience to want to buy low and sell high. The alternative, trying to buy high and sell higher, is far less likely to work in this kind of market. It’s still a bear market for stocks as far as I’m concerned.
One of the best trades of late was in a U.S.-listed Chinese stock called China Agritech, Inc. (NASDAQ/CAGC). I’ve written about this business before in this column and this stock is always worth following if you’re an equity speculator.
This business sells fertilizer in China. If you haven’t heard, the fertilizer industry is now experiencing a little frenzy with big takeovers taking place. China Agritech has been in the doldrums lately and the stock’s been trending lower since March. When it finally found a new base for itself after hitting a new monthly low at the end of June, the stock began to reverse, along with better sentiment in the broader market. Then, BHP Billiton Limited (NYSE/BHP) announced its hostile takeover of Potash Corporation of Saskatchewan Inc. (NYSE/POT) for $130.00 a share, and China Agritech really began to accelerate. The stock’s up about 50% since the beginning of July.
In this particular case, a large industry takeover reinvigorated an entire stock market sector. This isn’t predictable, but surveying the equity landscape for stocks making new lows is a very easy way to look for value trades.
Like I said, China Agritech is always worth keeping an eye on, because this stock can really move when the marketplace wants it to. Right now, U.S.-listed Chinese companies are also worth putting on your radar screen due to the value now present in the marketplace.