Category Archives: all out of China for today

Anatomy of the Movers in China Small Cap

Posted on by

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

 

 

 

9.1% is the number- that’s GDP growth in China in Q3

Posted on by

9.1% is the number- that’s GDP growth in China in Q3. It’s the lowest in 2 years, but that certainly doesn’t seem too bad to me in light of all that’s going on around the globe. Chinese exports were hurt by the slow down in Europe, but retail sales within China grew about 17%- that’s impressive.

One would think the markets would respond positively to this news- not so. Many news services are reporting 9.1% was a disappointing number. However, that’s not why those markets were down. With inflation being the primary enemy of the Chinese economy, a little cooling off of GDP is not the worst thing in the world.

It was news out of Germany that dampened the world’s appetite for risk and equities. German Chancellor Angela Merkel’s chief spokesman said EU leaders won’t provide a quick ending to the debt crisis at an Oct 23 summit. Last week, the market had been optimistic the EU would begin to deal with this problem. The Germans killed the optimism, and down stocks went. It seems all global equities markets are being held hostage to the EU banking crisis.

The Shanghai A shares sold off rather harshly overnight- down 2.35%- the B shares identical at 2.35%- leaving China markets still very deeply in Bear Market territory- down about 20% on the year.

There has been rumors abounding suggesting the Chinese are ready to step in a help with an EU bailout. The rumors say they are just waiting for the enormity of the problem to be defined. This was reported in the UK’s Sunday Times.

We’ll see.

 

 

Very Little News on China Today

Posted on by

Not much news out of China today of any substance. China markets followed the US markets up in overnight trading, with the Shangahai A shares rebounding .97%, and the B shares up .69%.

In order for the China markets to resume a Bovine trend vs the current dominating Ursine theme, we’re going to need to see evidence of a “Soft Landing” in their economy. China has been increasing interest rates and increasing bank reserves requirements, making it harder to get financing.

This is supposed to slow the economy, and slow inflation. There have been some early signs inflation is moderating. The market can’t seem to decide if China is going to flip to a recession thanks to the Global Slowdown, or continue struggling with inflation. Once China achieve the “Goldilocks” state- low inflation and slow but steady growth, the Chinese markets will return to their former Bovine status.

Many of the China large caps I follow in this publication are rebounding very nicely today. At this rate, we’ll be back to making money in these stocks in short order.

In overnight news, CNBC reports:

  • Despite the high dissatisfaction levels with inflation, wages in the cities for white collar workers are rising faster than inflation, and women are still shopping. However, they are becoming more price sensitive. Women are buying things they can wear and use everyday, and avoiding items that only get used occasionally.
  • Despite the belief that China exports will be slowing, there’s no evidence from the August numbers for Industrial Profits. Chinese industrial profits rose 28.2% in August for the first 8 months of the year. Net income was about $500 billion. At the end of July, the increase was pegged at 28.3- so profit growth slowed for the year by a factor of 1/10th of 1%. Large industrial producers are warning about slow downs, so the market is pricing a major retraction from those numbers.

That’s all out of China for today.