Live by the rumor; die by the rumor.
Maybe they ought to engrave that above the entrance to the Shanghai stock exchange.
Yesterday, July 12, the Shanghai Composite index climbed 0.8% to the highest level since June 28 after newspaper reports, essentially unsourced rumors, said that banks had resumed making mortgages on third homes in China’s biggest cities. A prohibition on third-home mortgages had been a conspicuous part of Beijing’s efforts to slow real estate speculation.
Today, the Shanghai Composite index fell by 1.6%–that’s the biggest drop since June 29-when named government officials said, on the record, that bank regulators had made no changes to the rules on mortgages and called on banks to strictly enforce current rules that ban third-home mortgages and restrict second-home loans.
That same announcement took the Shanghai real estate index down 3.2% for the day. Shares of China Vanke, the country’s largest real estate developer fell 2.4%.
The slump extended to the shares of commodity producers that supply the construction market. Jiangxi Copper, China’s largest copper producer, fell 3.1%.
This kind of volatility isn’t especially unusual on the Shanghai market, which often resembles a betting parlor more than a stock market as traders furiously move shares in an effort to profit from any sign of a change in government policies.
But the market is especially volatile right now.
Real, official, market-moving data is set for release on Thursday. (Wednesday night back in New York and after that market has long been closed.) That day the government will report second quarter GDP growth for China’s economy.
With every trader in Shanghai and well beyond wanting to know if China grew too fast—more government restrictions on credit on the way—too slowly—more government spending on infrastructure on the way—or just right—no change in current policy—you can bet that news will move markets. (For more on what that data might mean see my post Growth? Slowdown? Watching the data drift while waiting for China’s GDP report on Thursday .)
Ed, southof8,
Agreed. Nevertheless, a price-to-book of 0.61 is much preferable to 0.88. I was looking to pick up a financial, either JPM or BAC, and that was the deciding factor for me. I expect both banks to be trading with a P/B above 1 by spring of next year.
Not to mention that it is exceedingly difficult to second-guess (or verify, if you like) the “book value” the banks ascribe to their loans. Basically, you have to trust them. Have they earned that trust?
Investing in bank stocks based on purported book value ratios is rank gambling. Fun and potentially profitable but don’t bet the rent money on them.
USDAportfolio,
You do realize that you could NEVER liquidate either BAC or JPM at book value? Both companies have far too many assets to easy liquidate. Any attempt to do so would end up causing their assets to drop in value (fire sale anyone?). This is the inherent problem with “too big to fail” banks: their book value can never be realistically evaluated.
Seaturtlelady,
BAC’s Price-to-Book ratio (at 0.61) was much lower than JPM’s (at 0.88) when I bought. Basically, you could liquidate BAC and make money, and more than you would with JPM. Check it out yourself.
Twitter-like sites in China suddenly in “test” mode: http://www.reuters.com/article/idUSTRE66D0K120100714
While there may be some interesting investment potential in China, I have a real hard time making money from a dictatorship.
USDAPortfolio…
Just curious why you bought BAC as opposed to JPM?? Thanks!
I was just in Shanghai 2 weeks ago after spending month in china. if you want to get impressed go to the world expo and see 100,000 buses in the parking lot that brings 500,000 visitors each day. This place is over the top. Specific commentary; Chinese electronics are junk and Chinese only buy from their traditional sources which means herbs and other eastern remedies. You have to be extremely careful in china as their is a lot of junk. if you go to Setzchen The best products are made by outside companies that use contract factories. Think app.e whose plant I visited. Someday this will all change. also Chinese cars suck. They all ride like trucks which is why the Chinese buy Gm, ford, and Mercedes. The Chinese are not fooled so make sure in investing that you take these things into consideration.
I posted here few weeks ago about the burden of doing business in US. I said companies now also are subject to ICE audit in addition to IRS audits. Here it comes.
http://www.reuters.com/article/idUSTRE66918Q20100710
And another buy in the Chinese market: Renhuang Pharmaceuticals, Inc. (CBP).
Anyone who has followed me at all knows I like the Chinese pharma industry. Here is a good summary of why:
http://seekingalpha.com/article/211225-china-pharmaceuticals-huge-opportunities-ahead?source=yahoo
CBP is a strong contender in the Chinese pharma sector, showing good performance and growth over the last several years. The current numbers:
P/E: 4.35
Price/free cash flow: 2.65 (translation: a lot of cash flow for very little share price)
Debt/equity: 0 (no debt means they can ignore interest rate fluctuations going forward)
Insider ownership: 75.9% (major skin in the game!)
ROI: 33.4% (that is the lowest their ROI has been since 2006)
Sales, book value/share, EPS, and cash flow have all been increasing since 2006.
CBP has been trading in a steadily narrowing range, which means they are due for a breakout in the near future. I am targeting to buy at the bottom of the range, around $1.75. Considering the stock is undervalued now, I should be able to pick it up on a dip, and then enjoy a breakout to the upside.
My next buy in the Chinese market…NIVS IntelliMedia Technology Group, Inc. (NIV).
Think of a small Chinese version of companies like Mitsubishi or Samsung, and you have NIVS. They are very big in the home electronics market, selling LCD tv’s, DVD players, and multiple other products. They recently expanded into the 3G cell phone market in China (which is still growing there).
For you chartists out there, the stock has a double top at $4/share, but closed yesterday at $2.31. The average target price for it is at $7/share. Take your pick of targets, and you really can’t lose here. Even selling at $4/share is a nice profit.
As for the company’s fundamentals, it is stilll strong, with solid growth over the last 5 years. To the numbers…
P/E: 3.55
Forward P/E: 3.08
Price/free cash flow: 10.94 (not bad at all)
Price/book: 1.12 (pretty strong for a cheap stock. Potential takeover target?)
Debt/equity: 0.65 (a bit more debt than I’d prefer, but still a strong position for a growth stock)
Insider ownership: 32.6% (nice to see they have some skin in the game)
ROI: 38.2% (as Keith Jackson would say, “Whooooa Nelly!”)
I am currently targeting a $2.22 price to buy this stock (yesterday’s low). But this stock is dirt cheap in it’s current trading range.
USDAportfolio- one word abitrage… Nothing new…
Big day tomorrow:
China GDP numbers come out AND
AgriBanks Shanghai Debut
http://noir.bloomberg.com/apps/news?pid=20601087&sid=ax6ay9mgebx4&pos=6
On another note, I’m starting to see more and more reports of mergers and acquisitions taking place. My prediction, published in earlier posts, is that M&A activity would pick up throughout the 2nd half of the year.
This activity will likely be better for corporate profits than it is for the unemployment rate. Companies may “right-size” with layoffs after such activity. This pressure could keep job growth low through 4Q. That said, profits should continue to rise as in other “jobless recoveries”.
Investors who buy good, small-to-mid cap companies with a solid growth story stand to profit if that company is acquired by a large-cap firm. The trick is finding a stock that is a screaming takeover target. That would be a company offering growth (think Piramal) coupled with at least one, and preferably more, potential suitors sitting on a pile of cash (think ABT, in this case).
As EdMcGon wisely advised in a previous response to one of my posts, you want to own the acquired company (not the acquiring company) to realize the immediate benefit, especially if a price-war ensues between the potential suitors. (Owning the acquiring company only pays off over time.)
I’d definitely be interested in any ideas that other readers may have…
It’s still early in earnings season, and a surprise or two could still emerge. But nothing yet…
So far, earnings have gone exactly as I have forecast. Alcoa and CSX initially reported better than expected earnings to kick off the earnings season.
Today, Intel “hit it out of the park”, posting their best numbers in history. I expected this earnings “surprise”, as corporations and individuals satisfy pent up demand which was delayed due to Vista and the recession. (For this reason, I own Intel shares in the portfolio.)
Stay tuned for earnings reports from BAC and JPM later this week. (I recently bought shares of BAC – adding financials back into the portfolio for the first time since 4Q 2009.)
I am just so amazed by how frequently Jim writes about China these days.
Right now there are 5 postings on the front page, all has something to do with China. Even the postings that did not mention China directly, any thoughtful readers would link to China. For example, the Apple posting did not mention China at all, but we all know all Apple’s stuff are made in China. The “scorecard” posting did not mention China expressively either, however at the end of the post, Jim wrote what the market is really waiting for is clear direction of fundamentals. What’s the market fundamentals these days? Euro debt, China and US growth. It’s just unbelievable that China has come this far.
From Jims https://jubakpicks.com/2010/07/13/scorecard-get-your-scorecard-here-as-the-market-moves-into-earnings-season/#more
We moved above 1093 today….
The next level to the upside is 1085, and then 1093, and then 1100. None of these are hugely important numbers either but if the market can break through 1085, then optimism alone would keep it going for another 15 points.