For most investors, buying Chinese stocks can be either an exciting proposition or an intimidating one.
Oddly enough, that's similar to the reaction you get when you ask people whether they like roller coasters. If you've followed the Shanghai Composite over the past five years or so, you can certainly feel as though you've been on the Vortex at Kings Island. Consider:
|
2004
|
2005
|
2006
|
2007
|
2008
|
|
(15%)
|
(8%)
|
130%
|
97%
|
(65%)
|
Source: Yahoo! Finance.
Whew. At this point, you're either running for the bathroom, or racing to get back in line for another ride.
Was it worth it?
Despite all of that volatility, the Shanghai Composite has still risen by 25% during this period, while the S&P has lost 10%.
Since the fall of 2007, however, the Chinese markets have plummeted. Sinopec (NYSE: SNP ) , CNOOC (NYSE: CEO ) , and China Mobil (NYSE: CHL ) have seen billions of dollars in market capitalization erased, though those losses pale in comparison to those sustained by our own AIG (NYSE: AIG ) and Wachovia over the same stretch.
Some investors will inevitably view the plunge in Chinese shares as a comeuppance, but others see it as a fresh opportunity to put money into the Chinese markets. In recent months, Motley Fool Global Gains co-advisor Tim Hanson re-emphasized his belief that China is the "World's Next Great Growth Story" and argued that the Chinese market's depressed stock prices offer us "An Unprecedented Investment Opportunity."
Is he crazy?
The past 15 months have been tumultuous for Chinese stocks, but there are definitely some better buying opportunities left behind in the aftermath. Some shares that may have seemed too expensive to investors last October have returned to more reasonable valuations.
For example:
|
Company
|
P/E October 2007
|
P/E Today
|
5-Year Estimated EPS Growth Rate
|
|
Sohu.com (Nasdaq: SOHU )
|
72
|
16
|
46%
|
|
Guangshen Railway (NYSE: GSH )
|
31
|
14
|
18%
|
|
Shanda Interactive (Nasdaq: SNDA )
|
17
|
13
|
16%
|
Sources: Capital IQ (a division of Standard & Poor's) and Yahoo! Finance.
All three of these companies are led by entrepreneurial founders and innovators, exactly the types of companies that investors should be looking for in China, instead of stodgy state-owned enterprises (SOEs) like China Telecom. Moreover, they are tapped into promising industries that are poised to grow as the Chinese economy expands. Whether or not these are the companies that will come out ahead remains to be seen, but thanks to the dip in their share prices, they present us with three intriguing research ideas.
That's why the Global Gains analysts made their second trip to China last year, to meet with some of the country's most promising companies. The team also made stops in Vietnam, Indonesia, and Singapore. If you'd like to read their reports, and take a peek at all the Global Gains recommendations, a free 30-day trial to the service is yours. Click here to get started.
This article was originally published on June 4, 2008. It has been updated.
Todd Wenning would not want the job of amusement-park custodian, but he respects those who put on the uniform. He does not own shares of any company mentioned. CNOOC is a Motley Fool Global Gains pick. Suntech Power, Sohu.com, and Shanda Interactive are Motley Fool Rule Breakers picks. The Fool's disclosure policy hopes everyone had a great New Year's.
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