Please ensure Javascript is enabled for purposes of website accessibility

The Buying Opportunity You Won't Want to Miss

By Tim Hanson - Updated Nov 11, 2016 at 4:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One formerly hot market just got a whole lot more interesting.

It didn't happen exactly as I had predicted, but it has finally happened. And it means that the world's fastest-growing stocks are available for cheap.

Before I get to the whos, whys, and wheres, though, let me tell you who we have to thank.

Here comes the cabal
Although certain SEC regulators and owners of heavily shorted stocks such as Home Depot (NYSE:HD), AIG (NYSE:AIG), and US Bancorp (NYSE:USB) may disagree with me, short-sellers are crucial to healthy markets.

By making the case for stocks to fall, short-sellers make the market more efficient. Shorts temper excessive optimism, helping us all avoid the protracted painful corrections that are its consequence.

Where shorts didn't tread
Optimism, however, had been the defining characteristic of Chinese markets until this year. Chinese stocks gained 130% in 2006, and another 97% in 2007. As a result, money moved into the Chinese markets at a remarkable clip, and stories abounded about Chinese housewives, cab drivers, and fishmongers speculating in the market.

Of course, there was nothing to stop them.

See, you couldn't short stocks in China. Without investors scouring the market for weaknesses, those same housewives, cab drivers, and fishmongers have been treated to nothing but good news. That made them overconfident, overzealous, and now overexposed to an unquestionably richly-valued basket of stocks.

It won't be that way for long ...
And China's Security Regulatory Commission -- fearing a stock market crash -- was reluctant to stop them. That's why the country held off for so long on allowing investors to short stocks.

But it's gotten so bad in China that the CSRC finally approved shorting at the end of September. What this indicates to me is that it believes all optimism has been purged from the marketplace. When that happens, we've reached the point of maximum pessimism -- the precise time that master international investor Sir John Templeton would have told you to invest.

And you should consider that. Because China bellwethers such as China Mobile (NYSE:CHL) are available for lower multiples than we've seen in years. Even once-heady growth stories such as Baidu.com (NASDAQ:BIDU) have been crushed by disappointing earnings and near-term outlooks.

Get ready to buy
That's why you should be licking your chops.

China's rapid economic growth will be the global economic story of the next 10 to 20 years. The opportunities are huge, and the country is growing richer by the day. In fact, our Motley Fool Global Gains international investing team recently returned from a research trip to China, where we were almost universally impressed by the companies we met with and the growth trajectories they displayed.

That does not mean, however, that we'd be willing to pay any price to own them. Today, however, thanks to the decline in the Chinese market, we're looking hard at a long list of Chinese stocks. To see what we're recommending, click here to try Global Gains free for 30 days. There is no obligation to subscribe.

This article was first published on Aug. 20, 2007. It has been updated.

Tim Hanson does not own shares of any company mentioned. Baidu.com is a Motley Fool Rule Breakers choice. Home Depot is an Inside Value pick. US Bancorp is an Income Investor recommendation. The Fool's disclosure policy likes basketball.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

American International Group, Inc. Stock Quote
American International Group, Inc.
AIG
$52.27 (0.85%) $0.44
U.S. Bancorp Stock Quote
U.S. Bancorp
USB
$46.95 (-0.93%) $0.44
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$311.97 (0.74%) $2.28
China Mobile Limited Stock Quote
China Mobile Limited
CHL
Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$136.40 (-1.03%) $-1.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.