Looking for Value in a Bear Market — It’s Certainly Out There

There have been some decent trades lately in the equity market. The action isn’t great, but there’s been some good price action related to earnings news from U.S.-listed Chinese stocks.

This is a group that’s worth watching now, because there is value in this sector. With a lot of these companies, those that are profitable have a tendency to be highly profitable and valuations for a number of these businesses are attractive. The trading action is nowhere near as robust as was the case a few years ago. But, despite all the headlines about China, there remains significant growth in that economy for businesses to exploit.

If you want to do yourself a favor, put together a list of all the U.S.-listed Chinese stocks that recently hit new 52-week lows. I guarantee you’ll find some attractive businesses in that list. The thing with this group is that the trading action is event-driven. This is especially the case now, because domestic Chinese equities are in the doldrums. You can’t know when some big corporate development is going to happen, but you do know when earnings are going to be reported. Trading U.S.-listed Chinese stocks around earning news is a good strategy for speculators. The returns might be modest, but these stocks can also gap up nicely as well. Don’t forget; it is a bear market for stocks.

Right now, there’s really no point in being an equity investor, with the exception of gold stocks. I think you’re better off as a near-term trader, playing the news. There’s just too much that can go wrong with the economic data. Just look at the news from the Fed. Sentiment in this market is changing on a dime.

Now that second-quarter earnings season is over, all the equity market has left to trade on is global economic news. While it never used to be this way, China’s economic reports are affecting domestic equities. I still have a tough time dealing with this reality considering how fundamentally different the U.S and Chinese economies are. But, if that’s the way the market wants it, then there’s no point in ignoring it.

No doubt, equity investors are desperate for growth and they are willing to look anywhere to find it. There is growth in the mining business and there is growth in China. The key, of course, is always the risks.