Chinese Equities Experience Big Turnaround—Why it Might Not Last

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Chinese Equities Experience Big Turnaround Why
it Might Not Last
By- Mitchell Clark
http//www.profitconfidential.com
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• One sector of the stock market that we all know
  has been hammered is Chinese stocks. A large
  portion of all U.S.-listed Chinese stocks have
  dropped significantly in value due to a lack of
  confidence in their corporate reporting. Also
  occurring in the broader stock market has been a
  drop in the share value of well-known,
  respectable Chinese stocks, mirroring the trading
  action in the domestic Chinese equity market.
• Since the beginning of October, however, theres
  been a marked turnaround in Chinese stocks,
  especially those listed on Chinese stock
  exchanges. The Hang Seng Index, which is the main
  stock market index in Hong Kong, dropped to a low
  of around 16,000 early in October, then smartly
  reversed to its current level of around 19,500.
  By any account, this is an impressive turnaround,
  and the strength in Chinese stocks is due to
  expectations for monetary easing in China.
• 
  

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• Right now, the U.S. stock market needs all the
  help it can get and any positive news on the
  Chinese economy would be very helpful. Smaller
  Chinese stocks trading on American stock
  exchanges typically take quite a while to report
  their quarterly earnings and many beaten-down
  positions will be reporting throughout November.
  There is an opportunity in this stock market for
  some bottom feeding in Chinese equities. Stock
  market conditions seemingly cant get much worse
  for this group and there is good value out there.
• Of course, a number of previously listed Chinese
  stocks were outright frauds in terms of their
  operations and financial results. Many of these
  companies listed by acquiring shell companies and
  renaming them. Its an easier way for a company
  to get a U.S. stock market listing. In this
  market, Id only consider the well-known Chinese
  stocks that have strong followings from the
  investment community and Id focus on value.

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• Right now, I think its fair to conclude that
  stock market speculators would rather own gold
  over Chinese stocks. The resource trade is
  holding up despite all the risks out there and,
  while some Chinese stocks offer very low
  price-to-earnings ratios, the confidence issue
  isnt going away anytime soon.
• Chinese stocks were some fantastic wealth
  creators. Then they were fantastic wealth
  destroyers (unless you were short). Its fair to
  say that Chinese stocks operate in a kind of Wild
  West environment, which lacks oversight and
  reporting regulations. The stock market knows
  that there are great growth stories out there
  but, in todays environment, all investors seem
  to want is safety and stability (see Growth
  Momentum in a Market Like This? You Bet!). I
  dont blame investors, considering all thats
  transpired. Were in an environment of great
  unknowns and this uncertainty is holding the Main
  Street economy back. Are we any closer to more
  certainty in the stock market? Right now, Id
  have to say no.

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