Friday, June 19, 2009

How to Buy China Without Overpaying

A couple days ago Bloomberg had this story:

China Small Caps Spark ‘Bubble’ Concerns on Valuation
Eastern Bay Investment Management’s James Zhong is selling China’s small-cap stocks after the steepest rally worldwide pushed valuations to the highest level since the shares peaked in January 2008.

“We’re seeing a bubble in small-cap stocks,” said Zhong, who helps oversee $220 million in Hong Kong. Zhong predicts the CSI 500 Index, a benchmark for China’s 2.1 trillion-yuan ($307 billion) market for small-cap equities, will slide as much as 30 percent “in the near future” because he expects companies will report first-half results that disappoint investors. The index gained 1.6 percent to 3,403.96 at the close today.

The jump in mainland-traded equities with a median value of 3.8 billion yuan pushed the price-to-earnings ratio for Shenzhen Topraysolar Co. to 110, data compiled by Bloomberg show. Xuzhou V V Food & Beverage Co. fetches 160 times profit, almost double its PE ratio of 87 at the top of the last bull market. Beijing Vantone Real Estate Co. shares rose 171 percent since Nov. 9, even as analysts cut their earnings estimates by 35 percent....MORE

The day before Forbes had a possible answer to maintaining China exposure in light of the valuations pointed out above:

Highlights From The Forbes CEO Forum

...Forbes Managing Editor Bruce Upbin had a useful of way of thinking about the world’s electricity needs. “Think of the earth as a 13-trillion-watt light bulb. It will be a 28-trillion-watt light bulb by 2050. Where will the electricity come from?"

Any future energy plan that leaves out nuclear power and clean coal will fail to get us to 28 trillion watts by 2050. Utterly so.

An interesting way to invest in China’s growth without overpaying for Chinese stocks--much of China’s stimulus money is going into the stock market--is to invest in Africa, which supplies natural resources to China....MORE