Trust dividend income history, not the analysts, when buying Chinese stocks (CHL, CISG & HNP)
Chinese stocks with a solid dividend corporate structure and payment history such as China Mobile Limited ( CHL , quote ), Cninusure Inc ( CISG , quote ) and Huaneng Power International ( HNP , quote ) are particularly attractive for investors due to the lack of balanced analyst coverage for the sector.
According to an article The Wall Street Journal by Kate O'Keefe, "Seldom Heard on China: Sell," analyst coverage on Chinese stocks does not result in many "Sell" recommendations.
From O'Keefe's Wall Street Journal article, "In bullishness reminiscent of the technology bubble of the 1990s, analysts who work for investment banks based around the world rate nearly every Chinese stock they cover as a 'buy.' While these analysts generally are a bullish lot, they are far more positive on Chinese banks, tech companies, retailers and the like than they are on companies based elsewhere."
Analyst coverage overall is questionable, not just for Chinese stocks. As an example, over the past two years as Bank of America fell from almost $20 a share to around $5, there were around 20 analyst recommendations and not a single "sell."
In her Wall Street Journal article, O'Keefe points out there 19.2 buy recommendations for every sell for a Chinese stock. For an American stock, it is 10.5, and the rest of the Asian-Pacific region, it is 7.3.
Every portfolio should contain Chinese stocks. As Jesper Medgen, manager of two Asian income mutual funds, noted in an interview with AAII Journal, none of the Chinese stocks found to be fraudulent happened to pay dividends.
Stocks such as China Mobile (CHL), Cninsure Inc (CISG) and Huaneng Power International (HNP) with a solid dividend structure are worthy of consideration.