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China Stocks WILL Rebound

After very poor performance in 2011 and 2012, China stocks will rebound.  Investors seeking yield cannot ignore what will be the world's largest economy.

 

Pundits, especially those on the short-side, draw parallels between CHINA stocks and the high-flying dotcom stocks of 2000.  I agree.  It is exactly like that.  And, so will be the eventual result.

 

CHINA STOCKS AND THE DOTCOM CRASH OF 2000

 

In the darkest days of the dotcom crash of 2000, when even mighty Amazon hit the skids following a bearish Lehman Brothers report, it was next to impossible to find interest in internet stocks. Investors retreated to bricks and mortar, and the sector went from favourite child to leper. 135 dotcom stocks went bankrupt in 2000 as funding stopped.   The best strategy for companies after the crash was to change names and avoid the post-boom hangover. In a scholarly peer reviewed paper, Cooper et al (Purdue University) determined that in 1999, listed companies adopting internet related “dot com” names had a sustained 32% return. After the crash, the authors revisited their study and found that removing internet related dotcom names had a sustained 64% return.  Read more here: .ChinaCo Stocks are exactly like dotbomb stocks

 

CHINA STOCKS AND THE SHORT SELLERS

 

In its December 24, 2012 issue, Bloomberg Business Week carried an article entitled "Done With China, A Trader Takes on Nuts"  In the article, Muddy Water's President Carson Block says "this year he stopped betting against Chinese companies because government agencies [in China] are harassing his analysts and limiting their research."  Elsewhere in the article, "Despite Block's allegations of fraud, Beijing-based wiremaker Fushi Copperweld gained 25% on the Nasdaq after the China Development Bank loaned it money to buy back shares." 

 

Now I certainly don't concern harrassment, and share buy-backs, unless with financial rationale are unwise, this article highights what my contacts tell me is a significant event:  The emergence of some Chinese listings that were clearly frauds embarrassed the central Chinese government.  It is not a good idea to embarrass the Chinese government. Any heat that Muddy Waters felt from the authorities was nothing compared to the heat felt by Chinese executives that had launched a scandal on the overseas investing public. 

 

CHINA STOCKS GOING PRIVATE

 

Markus Aarnio covers the China Stock sector and has identified China Stocks Going Private Since September 2012 .    This often infuriates China-Conspiracy-Theorists, since they are convinced the part of the master plan was to fleece investors and then buy their companies back cheap.  The conspiracy theorists don't accept that the reason for going private is the same as for any company - when the valuation isn't there, look for options.