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Stockpickr
China Stock Party Won't Last
By Stockpickr Guest Columnist
10/12/2007 12:18 PM EDT
URL: http://www.thestreet.com/newsanalysis/stockpickr/10384145.html
Editor's note: This column was submitted by Stockpickr member Faisal Laljee,
author of StocksandBlogs.com.
I hate to be a party pooper, but the Shanghai Stock Exchange and the excitement
surrounding all the recent China stock IPOs reminds me of the Nasdaq exuberance
of 2000.
Granted, China is growing at a 10% pace, but does that justify the 80 multiple
currently sported by the Shanghai Stock Exchange, especially when compared to
the meager 16 multiple of the S&P 500? We may be seeing hints today of a more
rational market to come -- check out Bubble Fears Circle Chinese Tech Stocks
from this morning.
It seems as though every day, all day, I see new tickers scroll across my TV
screen representing new companies I've never heard of: China Digital TV (STV) ,
China Natural Resources (CHNR) , China Finance Online (JRJC) ... the list goes
on. Many have no history of earnings.
The Chinese market is up 110% so far this year and more than 200% since January
2006.
Even stocks like China Mobile (CHL) , China Telecom (CHA) , China Life (LFC)
and Baidu (BIDU) , stocks that actually have an earnings history and have some
claim to investor confidence are up like the Ciscos (CSCO) and Aribas (ARBA) of
the tech bubble.
I don't know when the party will end, but it will definitely end unless we
see a near-term, decent-sized correction. And when it ends, I would hate to be
holding anything that starts with the word China.
My recommendation: If you are a gambler, keep betting on China until one day
you lose a lot of money. Otherwise, reduce your exposure to China (note I say
"reduce" because I don't know when a top will come -- nobody does).
Go long Russia (RSX) , India (IFN) , South Africa (EZA) , France and even
Indonesia.
Alternatively, you can pick up select names in Latin America, Europe, Turkey
and Brazil. There are plenty of ways to make 30% to 40% returns a year without
the risk of losing your shirt.
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At the time of publication, Laljee was long China Mobile
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