Reprinted from MarketWatch :
China craze continues, nervously
Some warning signs may be beginning to emerge
By Peter Brimelow, October 14, 2007
NEW YORK (MarketWatch)—Asia fell on Friday, but it set record highs in the past week. And the top-performing letter says, nervously, that the China craze will continue.
Cabot’s China & Emerging Markets Reports is the top-performing letter over the past 12 months according to the Hulbert Financial Digest, up 78.51% vs. 16.99% for the dividend-reinvested Dow Jones Wilshire 5000. Over the past five years, it’s up a remarkable 24.42% annualized vs. 16.5% annualized for the total-return DJ Wilshire 5000.
I’ve said before that China gives me the creeps. The triumphalism is just too tremendous. I instinctively suspect that no one really knows what’s going on there.
Nevertheless, the China craze continues, regardless of what I say.
But I could claim that there are signs I might be right. In September, for example, John Buckingham, editor of The Prudent Speculator, the top performing investment letter over the nearly three decades that the Hulbert Financial Digest has been operating, complained about being bagged by a stock called China Expert Technology Inc. (CXTI) . He wrote: “China Expert purports to be engaged in the provision of information technology network and infrastructure consulting services to government and corporations in China that are involved in creating electronic governments, also known as e-governments. The company also claims that it provides large-scale network infrastructure construction with solutions for enterprise information platform construction, public local area network (LAN) construction, software development, Website planning and development, workflow management and computer-hosting services.
“The reason for the verbs ‘purports’ and ‘claims’ is that there is now substantial doubt that the company is legitimate, as we have heard nothing from anyone at China Expert since an Aug. 14 regulatory filing in which the company submitted an automatic 5-day filing extension for its 2007 second-quarter financial results. The company claimed that the delay was the result of former CFO Simon Fu’s resignation, which was announced on July 20.”
China Expert has fallen from a high of $8 this summer to a recent 58 cents.
And more recently, shares of the fabled Chinese search engine Baidu Com Inc (BIDU) fell almost 10% on reports that American brokers were having second thoughts.
When I last looked at Cabot, it was trying hard to diversify into Brazil, Russia and India.
It’s still trying. But, as it reports ruefully in its most recent issue: “We’re a little self-conscious about calling ourselves BRIC (Brazil, Russia India, China) investors when all of our current recommendations are based in China. For each new stock we pick, we look for the best combination of strong story, sound fundamentals and positive momentum. And since the Cabot China-Timer flashed its most recent buy signal, the stock selected has been Chinese...every time.”
This is so even though Cabot acknowledges that what’s going on now is “A buying panic! That’s exactly what’s been unfolding, as institutional investors scurry to buy up the best BRIC stocks (especially Chinese stocks) they can find.”
Cabot adds consolingly: “Brazil’s time will come, but we won’t hurry things. When Brazilian stocks rise to the top of our selection process, we will be ready to recommend them. But we won’t jump the gun.”
Cabot’s most recent recommendation: Focus Media Holding Ltd. (FMCN) , which appears to be responsible for a Chinese ad-driven version of Muzak.
About Baidu, CCEMR said: “Some more short-term weakness could be forthcoming (as with all China names), but if you don’t own any, we believe you should use any weakness as a chance to pick up some shares. BUY.”
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