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 Ford
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 2008. 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 last year. 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 CNOOC
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 is about to embark on another research trip to China, where we'll sit down with the CEOs of the companies we're most interested in investing in.
If you'd like to get our notes from those meetings sent in real-time to your inbox, simply provide your email in the box below. Because while there are many companies in China you don't want to own, we think we can do very well by getting on the ground and finding the cream of the crop.
This article was first published on Aug. 20, 2007. It has been updated.
Tim Hanson is co-advisor of Motley Fool Global Gains. He does not own shares of any company mentioned. CNOOC and New Oriental are Global Gains recommendations. The Fool's disclosure policy likes basketball and recommends you also follow Global Gains on Twitter by clicking here.