Basing Chinese Stocks Heating Up
While the China market has pulled back in recent days, the Shanghai Index has been a leader for the last few months. Just recently we have seen the U.S. markets catch fire as the economic outlook appears much better. Just in the last few days, some Chinese ADR's have started to rip higher on buyback news or what seems to be short squeezes. Just yesterday, out of the blue Fuqi International, Inc. (NASDAQ:FUQI) shot higher, surging from a price of $4.98. Today, the stock hit a high of $7.30. This is an amazing gain of 46.58% in just two days. In addition, China MediaExpress Holdings Inc (NASDAQ:CCME) announced a $30 million share buyback, sending the stock higher by almost 12% today.
The key to these China plays seems to be their low price to earnings ratio and the massive amount of shorts that have piled on, expecting some sort of major depression that just does not seem to be on the near term horizon. Over the last few days, shorts have been getting nervous as many of these charts have been basing at their 52 week lows. It seems like many of these plays are like TNT with the fuse just waiting to be lit.
I have been accumulating some of these plays and continue to do so. The key is to look for China ADR's trading at their dead lows that have solid profits and growth. Many of these have price to earnings ratios of 3-4. Some examples are Zoom Technologies, Inc. (NASDAQ:ZOOM), Biostar Pharmaceuticals, Inc. (NASDAQ:BSPM) and China Infrastructure Investment Corp (NASDAQ:CIIC). ZOOM had news yesterday that seemed to float under the radar. They received a proposal for a line of credit of $44 million from the Bank of China. This was not noticed but is positive as many feared ZOOM would have to dilute to raise capital for growth. That now should be off the table. The stock is profitable and at the lows of the chart. It looks low risk, high reward here.
BSPM and CIIC are both solid cases for being the next short squeeze as well. Both trading at the lows of their charts with solid growth. There are others as well that look intriguing but I will cover them at a later date. As of now, keep an eye on other China plays at the dead lows of their chart that have profits, it may be the next big mover.
Chief Market Strategist