Tag Archives: china stocks

Come On Obama, Get Tough on China Fraud

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Come On Obama: Get Tough

I almost hate to go back and revisit any of the 2011 frauds. I’m hoping that era can become a distant memory, and the well behaved companies and their shareholders get rewarded for their patience.

Come On Obama : Get Tough

Come On Obama : Get Tough

However, when I read a recent article about the fraud committed against US investors by Ming Zhao, the Chairman of disgraced former China stand out Puda Coal (formerly NASDAQ: PUDA), I was horrified at our weak response.

The primary asset of Puda Coal was Shanzi Puda Coal mining. As it turned out, in 2009, Chairman Zhao sold the assets of Shanzi to himself, then turned around and sold Shanzi to a Chinese state owned company- Citic Trust.

After formally transferring the asset and taking the money, Zhao was able to raise $112.8 million from US and Canadian investors based on Shanzi, which the company no longer owned. He managed to fool light weight auditor Moore Stephens- these guys be penalized for failing to protect US investors as well.

When the fraud was uncovered in 2011, Zhao produced a letter from Citic stating they did not own the Shanzi coal mine. As it turned out, the letter was a forgery.

The whistle was blown on this one by anonymous web site Alfred Little. A fund manager was able to confirm the fraud by simply spending $500 to have an investigator look at some government filings in China showing the asset had changed hands.

The NY Times published an article back on February 23rd concerning the charges the SEC filed against the Chairman and CFO of Puda. Click Here to read the article.

Had such a blatant fraud of these massive proportions been perpetrated in the US, those offenders would be looking at long jail terms.

Here’s what I find astonishing- how is the US allowing these guys to walk around free? Now, I know these are Chinese citizens, and I know the Chinese are tough to deal with.

However, it seems to me our government should be doing something to strong arm those Chinese citizens into a one way ticket to the US so they can face trial, or forcing the Chinese government to take criminal action against these guys.

I don’t care how many of our Treasuries they own. If we’re prepared to unseat dictators in the Middle East to assure oil supplies, why are we allowing Chinese to simply steal $112.8 million from US investors, and get away with it?

Surely, there must be something we can offer the Chinese government in exchange for surrendering those offenders to US authorities.

Come on Obama-

Get Tough and show some back bone. This is ridiculous, and you should do something to get those crooks to US soil immediately.

Just throw one of these guys in jail, and make sure everyone in China knows about. The China/US relationship is far more important to China than a couple of thieving coal executives. With the proper leverage, those crooks would be in jail.

Come On Obama- how about protecting American investors!!!

China Markets Shaping Up.

I’ve been saying all along the China small cap sector would not improve dramatically until the China markets themselves made the transition from Ursine to Bovine.

Take a look at the Shanghai “A” Shares in 2012- China’s version of the S&P 500:

There’s a lot to like about this chart, but it’s a little premature to call it a Bull Market in break out mode.

Coming off the December lows, the Shanghai A’s have improved about 17%. As the index is moving up, the volume is increasing, which is a great sign.

A breakout above the November highs of about 2650 (above the blue line) on volume would suggest we have a new Baby Bull coming out of the gates in China, and there will be plenty of room to run.

Renewed enthusiasm for China stocks is being reflected in large cap sector. My personal favorite- Baidu (NASDAQ: BIDU) is back over $140, and eventually headed for $200. Even beleaguered and heavily shorted Sina Corp (NASDAQ: SINA) was up over 10 points this past week, moving from $62 to $74.60 in the last 4 trading days.

At the same time, the China small caps continue their listless, sideways, light volume trading.

I don’t know if this will change after earnings releases. I suspect there are some great trades, but it is yet to be determined if earnings can turn the tide.

It’s going to take a high profile, major short squeeze to bring attention to the undervalued nature of this sector and bring some institutional money back to these stocks.

I really like YONG for an earnings trade. The Yahoo! earnings calender says they will announce on March 12th, but there’s no confirmation on the company web site. The stock is so cheap bad numbers will probably drive it up.

China XD Plastics (NASDAQ: CXDC) is due out Monday according to Yahoo!, but I haven’t been able to find confirmation from the company.

I’ll be keeping my eye on the news flow and the response in the stocks in order to formulate some trading ideas.

Stand by for a much busier two weeks.

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

How China Companies Commit Fraud < < ==

Warmest Regards,

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

Market In China: Short Sellers’ Scam Is Unraveling

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In This Post:

  • MBOs
  • Company Retaliation
  • Offenders Jailed
  • Valuations Absurd

Market in China: China Stocks Pendullum Is Swinging Back

Market in China - China Market ReviewChina small cap stocks are having a great year in the early going, and I suspect it will get better as the quality survivors deliver their 2011 audited numbers. I thought last year’s audits were under the microscope- this year’s audits will be the most thoroughly performed in the history of audits. In light of all the fraud that was disclosed in 2011, the China auditors are on the hot seat, and they know it.

There are several major factors pushes these oversold stocks back up the charts.

The Market in China Is ripe.

MBOs:

First, there’s been a tremendous pick up in MBO activity- Management Led Buyouts. There are many large Private Equity funds prepared to back management teams looking to take their companies private. In an MBO, management teams up with one or more institutional investors and tenders an offer to buy out their shareholders at a premium to where the stock is trading. If the transaction closes, the companies withdraws from the public markets.

Harbin Electric (formerly HRBN) was successful in an MBO at $24 when the stock had traded as low as $7, and short sellers, who had publicly villfied the management, ended up looking foolish.

Several others have succeeded in going private, and it seems about once a week a company announces it has either received a tender offer, or has started down the path of going private.

From the perspective of the CEO of a China based company with a US listing, why not? After all, billions were raised for these companies at far higher valuations. Why not buy yourself back a lot cheaper, and take your company back? Makes sense to me.

Short sellers are getting extremely nervous as tender offers and MBOs come out regularly, and the stocks trade up on the news.

Company Retaliation: Assessing the Market in China

Market In China: Short Sellers' Scam Is UnravelingCompanies are fighting back against highly vocal short sellers with some success. Of recent note is the progress being made by Sivercorp (AMEX: SVM).

Silvercorp is actively pursuing short seller “Alfred Little”. Alfred LIttle attackers have hidden behind for sometime. Through court action, SVM was able to uncover the identities the Alfred Little group of alleged co-conspirators who launched baseless attacks against the company.

With the names of the perpetrators revealed, SVM is not actively pursuing legal action accusing the Alfred LIttle group of spreading “false, defamatory and fraudulent information about Silvercorp on the Internet and in letters to the media and regulators to drive down the price of Silvercorp’s stock to profit from their short positions in the stock.”

Deer Consumer (NASDAQ: DEER) and Focus Media (NASDAQ: FMCN) are actively engaged in law suits against short sellers, and making progress towards uncovering high levels of fraudulent activities (allegedly). The Market in China is Looking up.

Muddy Waters- the largest and most successful short seller in the space, attacked Focus Media. Since the initial drop, the stock has rebounded nicely as the company refuted all the allegations and simply declared it would start paying a cash dividend. That move cast some serious doubts on the Muddy Waters claims. Hereby giving the Market in China room to breathe.

Offenders Jailed in China:

The Chinese are very focused on appearances. They like events and occurances that make them look good, and abhor any media worthy fodder that makes them look bad regardless of what the underlying truth may be.

The high profile collapses in the China Small Cap space in 2011 made China look really bad. Chinese officials are very sensitive to these issues.

It is widely known many of the short sellers hired investigating groups in China to uncover fraud. Several of the attacks on the larger names- specifically China Media Express and SinoForest were so righteous that I felt these short sellers had to have some sort of insider information to dig in as deeply as they did.

Having studied this process, I now believe the investigators for Short Sellers bribed government officials to get their hands on non public disclosure- primarily the VAT filings, which are the equivalent of our tax returns. Discrepancies between the taxes paid and the SEC filings would lead one to a conclusion fraud is being committed.

I also believe much of the information they received was falsfied. It would not be uncommon in China for a government official to accept a bribe to produce information. The official provides falsified documents and then just keeps the money.

Short sellers, who are still deeply stuck in short positions in many of these stocks, might have been acting on false information which was illegally obtained.

I have read some reports of arrests in China of investigators who worked on behalf of short sellers. I don’t have any specifics yet.

Valuations Absurd

With stocks trading as low as 1x to 2x ’12 EPS, high cash balances, short sellers facing legal action, and their investigators being jailed, we are finally seeing the “green shoots” of a resurgent China Small Cap Market.

Particularly distressing for short sellers is the price movement on fairly light volumes. Many of these stocks are beginning to trade up on rather light volumes as there are no sellers left to be found.

In the meantime over $4 billion has moved into Emerging Market mutual funds over the past 30 days- $1 billion flowed in that direction last week alone.

We’re seeing short positions in these stocks unwind as they move up, suggesting shorts have begun covering, but are trapped as small amounts of buying push up prices.

Also, several of the very high profile short sellers have been hinting they are looking at going long some of these stocks. I believe they have simply run out of targets, and the investigators are being arrested.

We appear to be on the front end of a nice rebound in the sector. After last year’s blood bath, the pendullum is finally swinging back.

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

CSNH – China Shandong (OTCBB:CSNH): Special Situation Report

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Twice In the Past Year

I’ve done this twice in the past year. Here’s how it works. I come across a situation in an absurdly underfollowed micro cap stock with great numbers and a really low valuation.

Because of my vast network of contacts, I know the company is going to begin an initiative to bring itself to the attention of hundreds of thousands of investors.

I know thinly traded stocks that have been totally ignored for long periods of time can trade up very rapidly. I believe this will be the next one.

A Story of a Home and aTrain

Have you ever heard the story about the house on Long Island no one could sell? It was listed for years, and the owners kept trying to hire a real estate agent who could find a buyer.

It seems a train passed behind the house twice a day, and it got loud for a couple of minutes each time the train went by.

Real Estate agents kept piling up brush and other obstacles against the back fence, trying to hide the train tracks from potential buyers. No offers ever came in. No one seemed to be interested.

Finally, the owner found an agent with a different approach. He cleared all the brush away from the back fence. When he brought potential buyers to the house, the first thing he did was take them to the backyard and show them the train tracks.

He then explained the train’s noise had driven the price of the home down 10% as compared to other like homes in the area, so if you didn’t mind the noise twice a day, you were getting a bargain.

The house sold in a wee, and the new owners were very happy with the bargain they got.

Here’s the point- Let’s clear away the brush on China Shandong Industries, and find out why it’s such a bargain.

China Shandong (OTC BB: CSNH): As Cheap As It Gets

In my 23 years of investing in small cap stocks, I’m still amazed when I come across a bargain like this.

So, let’s move away the brush and find out why this stock is so cheap. For starters, no one knows about it. The company has never made any effort to reach investors, and it’s been quietly chugging along, growing at a significant pace and making gobs of money.

Secondly, it’s in a boring industry- the company makes furniture. So, let me ask you this- do you find anything boring about these annualized numbers based on the six months ended June 30th?

  • $134 Million in Annual Revenues
  • 70% top line growth
  • 27% gross margins
  • $22 Million in net income
  • $.50 in Earnings Per Share
  • Total Assets of $76.5 million vs Liabilities of $13.4 million

Wall Street tends to overlook companies in industries that don’t have the hot story de jour. Smart investors do not.

Consider the price performance of furniture maker Lazy Boy (LZB) coming out of the 2008 recession.

In early 2009, rather boring furniture maker LZB actually traded below $1 per share, and Wall Street couldn’t have cared less about their story.

If you had the courage and common sense to invest in this one when no one was watching, you netted 1400% on your money in about six months.

It’s also worth noting- in 2009, when this stock made a 1400% move, the company delivered $1.226 billion in revenues and $122 million in net losses. LZB turned around and made $32 million in 2010- but the real money in the stock was made 6 months earlier in 2009.

There’s nothing boring about a 1400% return on your invested capital.

China Shandong (CSNH): Located in the Sweet Spot

As you can see from the map, CSNH is located on the North Eastern coast of China. The company is right on the border of the Shandong and Anhui Provinces. The region is very rich in wood with large quantities of poplar and paulownia easily available.

According to its SEC filings, CSNH owns 19 plants in 4 different industrial parks. Their 1.2 million sq ft of manufacturing space covers 49 acres of property.

From this manufacturing base, CSNH produces over 20,000 different products. Their handcrafted straw and wicker accessories you see pictured below are made in their employee’s homes, while the larger items require hi tech manufacturing, and are mass produced at the 1.2 million square feet of manufacturing.

Their products are carried in stores all over the world including the US, Denmark, Germany, the UK, Spain, Italy, Sweden, Canada, and Taiwan.

IKEA is one of their largest customers along with Restoration Hardware and PotteryBarn. So, next time your wife brings home that 6 bottle wicker wine carrier you see pictured above, it’s likely it was manuctured by CSNH.

CSNH: Ready For The Attention

As I said in the intro, this is my 3rd Special Situation idea in the past year. When I find these, I’m nearly always right.

Last October I found China Electronic Holdings (CEHD) on October 1 at $3.47. The sell recommendation came on December 7 at $6- 73% in 5 weeks. It’s in the archives at EmergingChinaStocks.com. Another boring story- a chain of rural appliance stores. We just made money.

My next Special Situation was China Modern Ag (CMCI). This one only took 4 days before I recommended the sell. It was $1.10 on May 28th, and hit its all time high of $1.60 in early June for a 45% gain in a few days. This boring dairy producer just made us money.

Over the next several weeks, CSNH will reach out to hundreds of thousands of investors for the first time to tell its story, and as blown out and thinly traded as this stock is, I expect it will trade up rather rapidly.

As you can see from the chart, CSNH did a 5 for 1 reverse split back in April. This is the opposite of a forward split. This reduced the number of publicly traded shares 5 for 1, thereby creating a scarcity when buyers come looking for shares.

Fundamentally, according to its SEC filings CSNH achieved $67.1 million in revs in the first 6 months of 2011, and netted $11.8 million.

This equated to Earnings Per Share of $.25 for 6 months, or $.50 on an annualized basis.

If the stock can find its way to a mere 10 multiple, it should trade at $5.00 easily. At the current level in the $.70 to $.80 range, the valuation is simply absurd.

Over the next several weeks I expect volume to materialize and the chart to shape up. As with my other two Special Situations, hundreds of thousands of investors will learn about this stock in the near future.

I could be advising locking in a profit at any time, and will do so with a “Flash Alert” for the subscribers at EmergingChinaStocks.com. You can sign up for free two week tiral by clicking here.

Disclosure: I am long shares of CSNH everywhere from $.40 to about $.68. I’ll notify my subscribers at EmergingChinaStocks.com when I begin locking in my profits.

 

Warmest Regards,

Larry Isen

Chinese Markets Go 5 for 7 – Chinese Markets

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Chinese markets were down again in overnight trading for the third day in a row and the last 5 of 7 days.

The Shanghai A shares were down .25%, and the B shares down .14%.

The price of copper, considered one of the leading indicators of industrial demand and the health of China’s manufacturing economy, fell to a 14 month low. Many believe this signals another global recession.

We’re going to need some economic numbers out of China suggesting the impending recession is not as bad as the market is pricing in, and the growing Chinese consumer can pick up any shortfall their export manufacturing might experience.

Here’s a few other news items out of China today: 

  • Hedge fund manager and highly respected Bear and Short sell Jim Chanos estimates China’s debt to GDP ratio is close to 200%- worse than European countries. He says their debt crises will lead to 0% growth in 2012. He believe China will write of 7.5% to 10% of GDP to bad loans.
  • Resource investing news reports electric car demand is strong in Brazil, India, and China- price being the key sticking point.
  • In a move that many see as an “In Your Face” to the US Senate, China has frozen its currency at the current level. By a wide margin the US Senate recently passed a initiative to start crafting a bill that would allow the US to impose big tariffs on the imports of countries who do not allow their currencies to float. This is aimed directly at China. However, China observers point out- the last time China did this, it was three months out in front of a massive stimulus program.

That’s it for today. Perhaps better news tomorrow.

 

Continuing South – China has officially become the world’s largest consumer of energy

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While October has been the “Bear Killer” most of the time since WWII, the China sector continues making new lows as speculation continues that the Chinese economy will go directly from overheated inflation to recession.

Not much news out of China over night. The Shanghai Markets were lower for a 3rd straight day and for 5 out of the last 7 trading sessions. The China markets are flirting with the lowest levels in 2 years.

In Wednesday’s trading, China’s Shanghai A shares were down .25%, and the B shares down .14%.

There’s a couple of news items out of China worth mentioning- Here you go:

  • Premier Wen Jiabao was out urging stronger financial support for China’s small businesses. He’s suggesting some bank credit support, preferential tax treatment, and a relaxing of the standards for non performing loans. Also, he wants banks to avoid “adminstrative intervention”. Now, there’s a concept we could use in the US.
  • China has officially become the world’s largest consumer of energy according to BP’s statistical review world energy. BP reports that in 2010, China used 20.3% of the world’s energy, while the US used 19%.
  • Llloyd Private Banking just completed a survey of private investors which concluded China has now become the most attractive market on balance of risk and return, with the UK, Brazil, and Russia coming in distantly behind.  The Lloyds private banking customers noted they were mostly concerned about the Greek situation.

That’s it for today.

Another Train Wreck Wrecks China Markets Today

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On Wednesday in China- last night for us, there was a subway accident injuring 271 people. It happened right in Shanghai’s financial district, so the markets in china naturally sold off.

The Shanghai A shares were off .95%, and the B shares off .17%. These indexes just continue bumping along the bottom at about the lows of 2010.

In Shanghai, 13 stations slowed their trains, and Line 10 closed. Special buses were brought in by the government to move people. Rail stocks of all sorts were clobbered in both Hong Kong and China trading.

In other China news:

  • Senior China officials were out yesterday stating China GDP growth would hit 9% this year. Lu Ahonguyan, deputy director for the State Economic research center, said there was no need to worry about a hard landing for the Chinese economy. Lu said the global slow down will help China contain rising prices and readjust the country’s economic structure.

  • Allan Liu, manager of the Fidelity Southeast Asia fund, revealed his favorite consumer stock picks for China. He is extremely bullish on Baidu (BIDU), and Sina Corp (SINA)- Bidu is the China equivalent of Google- Sina is a bit more like a functional Yahoo!. He also likes Hyundai Motors and Kia Motors. Fund manager Paul Winborne of JO Hambro Capital Management likes Sun Art Retail, China Mengui Dairy, Golden Eagle, Hengan Inernational, and Baidu.

That’s all for today.

 

 

 

Another Ugly Week is Likely for China Stocks

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China stocks were down again in Monday trading. The Shanghai A shares were off 1.66%, and the B shares off 2.52%. We are now approaching the summer lows of 2010, which was the beginning of a nice move to the upside in China stocks.

The sentiment is largely negative on the global outlook in China. The only bright spot I could find in any of the commentary on China is the possibility the Chinese policy makers might be able to stop raising interest and tightening lending requirements.

Morgan Stanley continues to invest in the Asia mega caps as they are finding the dividends attractive, and feel they are getting paid to hold those stocks. MS Asia forecasts the MSCI Taiwan index may rise 32% in the next two years based on earnings and dividends.

On the “Interesting” front, the first “Gold Vending Machine” in the world has been installed in Beijing. Shoppers in the popular Wangfuijing Street can put cash or a bank card in a vending machine to withdraw gold bars or coins.

Very interesting.

 

China Stats Fuel Big Wall Street Rally

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Sorry for the late post today. I was up too late last night to get an early start on the day. Here’s the news out of China.

  • In overnight trading, the major China indexes dropped a bit after Wall Street’s huge run up. The Shanghai A shares were off .51%- the Bs off .38% in lackluster trading.
  • BIDU was up about $10 in trading yesterday. Subscribers were able to sell calls against their position for the 3rd time after two profitable trades in the last two weeks. Subscribe if you want to learn about this.
  • Yesterday’s 300 point rally on Wall Street was fueled by perceptions there could be a “QE3″ coming out of the economic meeting in Jackson Hole this week. However, China also played a big part in fueling the rally. A manufacturing report out of China showed moderate slowing, but still enough manufacturing to maintain GDP growth in the 8% to 9% range.
  • Commodities were all higher on the news- oil and copper leading the way.
  • Yesterday it was widely reported China has now surpassed the US as the largest consumer of PCs in the world. 18.5 million PCs were sold in China in Q2 vs 17.7 million shipped to the US. China is expected to consume 85.1 million units next year compared to 76.6 million for the US.
  • Harvard Economist Martin Feldstein believes the Chinese will allow the RMB to rise more rapidly over the next 12 months than it has in the past 12. Feldstein believes this will mitigate the risks in China’s foreign investments, and reduce the costs of imports, thereby reducing inflation.
  • One final note- VP Joe Biden, who has been on a trip to China to reassure the Chinese our bonds are good, not surprisingly goofed up the numbers on our treasuries. In a speech, he claimed we had good reason to watch out for our bonds as the US owns 85% of them- this is simply wrong. We only own 69%. China holds 8%- he got that right. Way to go Joe.