Monthly Archives: February 2012

Anatomy of the Movers in China Small Cap

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Larry Isen’s Emerging China Stocks

Anatomy of a Mover

This past week there was a template for China Small Caps that offers the possibility of providing powerful returns for the contrarian investors who still follow the sector.

Former EmergingChinaStocks.com favorite Gulf Resources (NASDAQ: GURE) traded up like a scalded cat this week thanks to an event outside the company’s activities.

This company came under vicious attack by short sellers in 2011 based on SAIC filings- if you seen my webinar on China fraud, you know those claims have no credibility.

However, when it happened, I didn’t care for way the company responded, leaving some possibility the claims against the company had some elements of truth.

GURE is a resource company specializing in the mining of Bromine- a substance in high demand by Pharmaceutical manufacturers. I thought this company would be an easy winner as the pharmaceutical industry in China is growing rapidly, and demand is increasing for bromine.

In the China small cap world there’s a proverbial Mexican stand off between shorts and longs. Short sellers decimated the sector in 2011 and won many major victories. However, the stocks remaining in the sector seem, for the most part, to be honest companies. Short positions remain very high, but there’s no one left to sell the shares, preventing short sellers from buying back and closing out positions.

Upcoming audited earnings numbers might get these stocks going, but short sellers appear to be far more afraid of losing money when MBOs come into play- management led buy outs.

There is still a lot of money chasing small cap companies in China, but it’s all Private Equity money these days. Many companies will choose to go private with buy outs at much higher levels than where they are trading. Many of these companies will partner with a financier and buy out their public shares. Likely, you’ll see them engage in initial public offerings on a Far East exchange within a couple of years.

Harbin Electric (Formerly HRBN) set the bar with an MBO at $24- short sellers got kill in that one last Fall.

As you can see, GURE had a great week:

At the beginning of this past week, it was disclosed Shandong Ocean Bright Stone Industry Fund Management is exploring the possibility, along the Shandong Haoyuan Industrial group, of executing a roll up strategy on China’s bromine producers with an eye towards privatization of companies in the industry. The plan would be to consolidate the better companies in the group, then eventually take the consolidated company public in China.

Despite GURE making a formal announcement it had not received any written offer or entered into any sort of LOI, the stock traded just great.

As you can see, on the day the “possibility was recognized, GURE traded its highest volume in months and broke above its 200DMA convincingly.

I don’t believe these kinds of events are attracting new money to these stocks. These rallies are the result of short covering. As of 1/31, there were still 2.4 million shares short in GURE. I’m sure there’s been quite a bit of short covering in this name.

I’m looking for an expecting a lot more MBO’s surfacing after year end numbers come out. To make money, we will just have to be there before the action materializes, and stick with the stocks we have.

Next Week- I’ll suggest some specific earnings trades.

If you’d like to know my 3 favorite stocks for 2012, simply sign up for a trial subscription at www.emergingchinastocks.com. My top 3 picks are up 150%, 66%, and 40% from the October lows. All look like they have a lot more room to run.

While you’re there, sign up for my free Webinar on:

How China Companies Commit Fraud

Warmest Regards,

Larry Isen

 

 

 

(NASDAQ: AAPL) Apple Users Ask “Who Is Foxconn?”

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Larry Isen’s Emerging China Stocks

 

In This Post:

  • Apple Users Ask “Who Is Foxconn?”
  • Foxconn manufacturing process draws scrutiny
  • Apple Takes Action With FLA

Apple Users Ask “Who Is Foxconn?”

Apple (NASDAQ: AAPL) is probably just what Wall Street needs to bring retail investors back to the markets. As the company continues to take over the digital wireless and entertainment space with the iPhone, iPad, and the iCloud (which I absolutely love), the stock has finally ripped through the $400 level, but remains undervalued, only trading at about 12x FY 2012 earnings projections. The company is single handedly dragging retail investors back to the stock market, and it’s become one of the greatest stocks of all time to own.

Who Is Foxconn - Apple (NASDAQ: AAPL)

Despite the passing away of founder and tech visionary Steve Jobs last year, everything appears to be perfect in Apple Land. But wait- there is a little bit of dark cloud blocking out the otherwise bright and heavenly light that shines on Apple these days. Consumers are starting to take a hard look at their manufacturing facilities in China, and not liking what they see. Read on McDuff……

Foxconn Manufacturing Practices Draw Scrutiny

Apple’s biggest supplier is China based Foxxcon- an outsourced manufacturer that gets the majority of manufacturing orders from the Apple. Of late, Foxconn has come under fire for working conditions in its Shenzhen and Chengdu manufacturing facilities. Fatal accidents and suicides amongst workers in recent years have brought scrutiny, along with accusations of child labor abuses.

US consumers are starting to take note. The NY Times published and expose article on January 25th entitled “In China, Human Costs Are Built Into an iPad”. The Times chronicled recent explosions and general health care violations taking place at Foxconn manufacturing facilities.

There’s a petition on the web site Change.orgtitled “Apple: Protect Workers Making iPhones in Chinese Factories”- the petition has now garnered over 200,000 signatures. Mark Shields, an Apple customer, started the petition and appealed to the company, suggesting all “Mac People” wanted to hold their heads hi and be proud of the products they use.

Apple Takes Action With FLA

In response to the criticism, Apple joined the FLA- Fair Labor Association, a non-profit organization committed to improving working conditions on a global scale.

This week, the FLA started inspecting Foxconn manufacturing facilities in China. While many critics see this as a publicity stunt by Apple to mitigate the criticism, others see it as a genuine step towards better working conditions associated with Apple products.

The Fair Labor Association (FLA) will conduct “special voluntary audits” at the China based Foxconn’s plants in Shenzhen and Chengdu. In a press release, Apple stated the first inspection commenced this past Monday. Findings will be posted on the organization’s website in March. www.fairlabor.org.

Other critics believe this is simply a transparent effort to rebuild Apple’s image in this area. China Labor Watch’s Li Qiang stated “What Apple should do now is to take action to solve the problems and improve the labor conditions in their supplier factories, not to conduct inspections and put the factories into the media and public’s attention”.

Stand by for more coverage of this controversial issue.

In my view- here’s the best solution- The idiots on both sides of the aisle and in the White House should get together, reduce the corporate income tax rate to 15%, give a tax break for repatriating operations in the US, and bring Apple’s manufacturing back to the US.

But, then again- what do I know?

And, don’t forget to sign up for my free Webinar on:

How China Companies Commit Fraud < < == Register Now!

Warmest Regards,

How To Buy China Stocks

Larry Isen

 

 

Market in China : Big Divergences Make China Stocks Look Higher

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In This Post:

  • Two Big Divergences
  • US China Large Caps Diverging
  • Market In China

Market In China – Two Big Divergences

Despite the fact that the US market is roaring, the Chinese market still looks to be rather Ursine (a fancy Latin work for bearish).

But wait- Is it really still a Bear Market for China stocks, or are the China markets looking up?

The Shanghai A shares- the China equivalent of our S&P 500, still looks pretty darn weak.

Market In China - Shanghai A Shares

Market In China - Shanghai A Shares

There’s been a little bit of resurgence in this index. There’s also a week of trading missing as this market was closed last week for Chinese New Year, and they are just getting underway in China again.

This index is struggling to get through its 50DMA, which would confirm at least a short term up trend is getting underway. It’s not even close to its 200DMA, which would confirm a longer term bullish trend when we see those levels pierced.

The Shanghai A shares were down about 36% in 2011- as I like to say- an absolutely brutal year.

US China Large Caps Diverging the Market in China

The performance of the Shanghai A shares is anemic compared to China stocks trading with US listings.

Let’s start with the Granddaddy of all the ETFs- FXI is the China 25 Index fund- it represents China’s equivalent of the DOW, and contains the 25 largest public companies in China. These are the mega caps owned partially by the government.

Market In China - FXI

Market In China - FXI

The FXI is showing far greater signs of life than the Shanghai A shares, having broken above its 50DMA in January, and well above its 200DMA, suggesting all is well in China Large Cap world.

Here’s the charts of two individual stocks that are still featured by EmergingChinaStocks- check out Baidu (NASDAQ: BIDU) and Sina Corp (NASDAQ: SINA).

Here’s the Google of China:

Market In China - Baidu (NASDAQ: BIDU)

Market In China - Baidu (NASDAQ: BIDU)

BIDU has been on a 25 point tear this year, and on Friday managed to trade above the 200DMA for the first time since November. I suspect the 200DMA will become resistance for a little while, but that stock looks headed to break through that barrier rather easily.

Market In China - Sina Corp (NASDAQ: SINA)

Market In China - Sina Corp (NASDAQ: SINA)

SINA is a little bit more like the Yahoo! of China with a lot of mobile and digital entertainment components.

As you can see, this stock has run up nearly 30 points in the last month, and is gunning for its 200DMA. SINA was one stock short sellers absolutely vilified when it looked like the government might restrict some of their content. It really never happened.

The Shanghai A index is trailing the US large caps at this time. The China stocks are trading as if the investment community is now expecting a “soft landing” scenario in China.

China small caps are not trading as well as their larger brethren yet- but they will catch up as soon as there are some big break outs. Shorts are covering, but still have huge positions, and as these stocks trade up on lighter volumes, short sellers are going struggle with closing out their positions at lower prices.

One of my 3 favorite China stocks rocketed to a level it hasn’t seen since early September on Friday. The two others had a sideways week, but earnings are coming soon.

And, don’t forget to sign up for my free Webinar on:

How China Companies Commit Fraud

 

Warmest Regards,

 

Larry Isen