as part of our
The past two years have been volatile for investors in virtually
every market, but they have been particularly unkind to investors
in China. Chinese stocks, as measured by the
iShares FTSE China 25 Index ETF (NYSE:
spent most of 2011 and 2012 in a downtrend, though in the past two
months they have shown signs of life.
Should investors take this rally seriously? Or is it yet
another fake out destined to burn them?
Right now, the upside potential in China far outweighs the
downside. China is a buy.
You're probably raising your eyebrow right now, but hear me
out. China is one of the cheapest markets in the world right
now. Chinese stocks trade for just 7 times earnings, less
than half the valuation of American stocks as measured by the
S&P 500. And at the same time, sentiment towards China is
downright horrid. It's hard to find anyone who is actually
on China these days. A Google search for "China" and "hard
landing" returned over 3 million hits.
I know, I know. You can't take Chinese earnings seriously
because they cook their books. Fair enough. I actually
agree that you have to take most Chinese data releases with a grain
of salt. But many of FXI's core holdings-such as
China Mobile (NYSE:$ CHL),
the largest mobile phone company in the world by subscribers-trade
in the United States as ADRs and meet international reporting
standards. And when they are priced as cheaply as they are
today, there is certainly margin for error if earnings reports are
a little on the aggressive side.
Furthermore, the macro picture in China-which was never nearly
as bad as the media hysteria would have suggested-appears to be
stabilizing. The China Manufacturing Purchasing Managers
Index improved in November-the first improvement in 13 months-and
profit among Chinese industrial companies rose 21% last month.
China is still far too dependent on capital spending and
exports; for the country to have anything resembling a balanced
economy it needs to see the consumer sector playing a more
prominent role. But for now, I am comfortable investing in
Buy FXI at market. But use a stop loss or a trailing stop
to protect yourself in the even that investors get spooked again
and send shares lower. While I am bullish on China at this
time, a Eurozone "blow up" or a turn for the worse here in the U.S.
could spill over into the Chinese market. A 15-20% trailing
stop should be sufficient for now.
If investors "rediscover" China, we could see 50-100% gains over
the next 12-24 months if recent history is any guide.
Sizemore Capital has no positions in the stocks mentioned.
This article first appeared on TraderPlanet.
The post It's Time to Buy China appeared first on Sizemore