Earnings warnings are nothing new -- they happen every quarter, and it's simply a part of doing business in a world of half-clueless analysts and lawyers salivating at the possibility of suing anyone for anything.
Leave it to the Chinese, then, to add a new spin to an old idea. In warning of disappointing earnings, automaker Brilliance China Automotive (NYSE: CBA) took the unusual step of including the following line:
"Shareholders of the Company and investors should exercise caution when dealing in the shares of the Company."
You know, that's pretty good advice to follow, no matter what the situation. In fact, I'd even say that's a line that would make a pretty good boilerplate for almost any publicly traded stock.
Of course, people wouldn't listen. The siren song of easy money is too hard for many investors to ignore. What's more, we seem to be living in a society of no responsibility, where anything that goes the least bit wrong just has to be grounds for a class action lawsuit. It sorta reminds me of my days as an analyst -- whenever you gave a portfolio manager a tip that went up, he was brilliant, but whenever that stock went down, you were the idiot.
Anyway, going back to the subject at hand...
Brilliance China pointed to what management called a "significant" slowdown in domestic automobile demand in China as the cause of the disappointment. Apparently, the government's economic-austerity measures are really starting to bite into consumer demand, and profits are suffering. The company declined to quantify the impact, but the stock market went ahead and lopped off about 18% of the stock's value.
It's not easy to be a China stock these days if you're seen as being vulnerable to domestic demand. Although there are pockets of strength in companies such as Netease (Nasdaq: NTES), others, including China Yuchai (NYSE: CYD), Ninetowns (Nasdaq: NINE), 51Job (Nasdaq: JOBS), and China Southern Airlines (NYSE: ZNH), are all near 52-week lows.
This isn't exactly shocking news. We at The Motley Fool have mentioned the "China bogeyman" before in reference to future demand for steel, shipping rates, and overall global economic health. Nevertheless, here's a solid sign that demand is actually tapering off -- at least for automobiles -- in China.
What will the future hold? I don't really know, but you can bet that the companies most tied to Chinese demand (steel, shipping, oil, etc.) will be paying careful attention in the weeks and months ahead.
For more Foolishness on China:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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