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Economist View: China's Growth Slowdown Not a Big Deal

By: Kapitall
Posted: 10/31/2011 9:34:00 PM
Referenced Stocks: CIS;XIN;CYOU;GAGA;KH;LDK;MX;SIFY;SSRX;XUE

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

China’s economic growth is expected to slow next year to its lowest annual rate in a decade. But according to Reuters most economists see no reason to worry as the China’s economy may be more difficult to slow than anticipated.

Consensus forecast predicts China’s 2012 GDP growth will slow to 8.6%. If so, analysts and economists say the impact on Asia and foreign markets will be noticeable but ultimately manageable. But if the slowdown is greater, then the Asian economy will take a direct hit and negative effects could expand well beyond its borders.

So why should investors not take this possibility too seriously?

“Contrary to what appears to be the dominant view among investors, we don’t see recession anywhere in Asia,” Deutsche Bank’s Asia economist Michael Spencer said to Reuters in a poll on the topic.

The poll surveyed 30 economists, none of whom felt there was sufficient likelihood of growth decline more than 8%, a point that is “seen as the minimum for assuring sufficient job creation to keep up with urban migration.”

And if the growth rate begins to border on worrisome levels, Asia’s policymakers can tweak interest rates and government spending to hedge the risk.

“The impact of a China slowdown is still estimated to be less than that of a U.S. slowdown or recession, but the two are converging and are likely to be comparable within the next decade,” says economist Hak Bin Chua of Bank of America-Merrill Lynch to Reuters.

So, maybe the bears have been too negative on the outlook for Asian companies.

With that in mind, we wanted to identify which Asian stocks have been dragged down by excessive pessimism.

We started with a list of about 190 Asian companies listed on U.S. stock exchanges, with market caps north of $100M.

From this universe we collected price data, and identified the names that have seen the longest losing streaks over the last month (as measured by their performance relative to the S&P 500 index).

Have investors been too negative on the outlook for these companies? Use this list as a starting point for your own analysis.

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1. Changyou.com Limited (CYOU): Develops and operates online games in the People's Republic of China. The stock's average daily alpha vs. the S&P500 index stands at -0.84% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.4).

2. Sify Technologies Limited (SIFY): Provides enterprise and consumer Internet services primarily in India. The stock's average daily alpha vs. the S&P500 index stands at -1.95% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.43).

3. LDK Solar Co., Ltd. (LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. The stock's average daily alpha vs. the S&P500 index stands at -1.21% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.5).

4. China Kanghui Holdings (KH): Develops, manufactures, and markets orthopedic implants and associated instruments. The stock's average daily alpha vs. the S&P500 index stands at -1.41% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.33).

5. MagnaChip Semiconductor (MX): Designs and manufactures analog and mixed-signal semiconductor products for high-volume consumer applications. The stock's average daily alpha vs. the S&P500 index stands at -1.17% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.5).

6. 3SBio Inc. (SSRX): Engages in the research, development, manufacture, and distribution of pharmaceutical products in the People's Republic of China. The stock's average daily alpha vs. the S&P500 index stands at -0.98% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.43).

7. Xueda Education Group (XUE): Xueda Education Group provider of tutoring services for primary and secondary school students in China with a focus on offering personalized tutoring services. The stock's average daily alpha vs. the S&P500 index stands at -1.46% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.33).

8. Le Gaga Holdings Ltd (GAGA): Engages in cultivating, processing, and distributing vegetables. The stock's average daily alpha vs. the S&P500 index stands at -1.3% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

9. Camelot Information Systems Inc. (CIS): Provides enterprise application services and financial industry information technology (IT) services in the People's Republic of China. The stock's average daily alpha vs. the S&P500 index stands at -1.69% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

10. Xinyuan Real Estate Co., Ltd. (XIN): Engages in residential real estate development in China. The stock's average daily alpha vs. the S&P500 index stands at -0.89% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.4).