Buying Opportunity As DOJ Joins SEC On China Stocks
Today, word hit the markets that the U.S. Department of Justice is helping the Securities & Exchange Commission look into “accounting irregularities” among U.S. listed Chinese stocks. This sent companies like Baidu.com, Inc. (ADR) (NASDAQ:BIDU) and Sohu.com Inc. (NASDAQ:SOHU) down over 10%. Other Chinese stocks listed on the U.S. exchanges dropped as well.
While this news is causing some selling, it is probably the best possible outcome and should be cheered. It also may be setting up for the best investment opportunities over the next decade. In the last year, Chinese companies like RINO International Corporation and many others have been exposed as frauds. This has made investors run from all small and mid cap Chinese names. Whether legitimate or not, investors are not willing to take the risk of buying them. The DOJ and SEC action will hopefully cleanse the system of bogus companies. Out from under the ashes will emerge companies trading at P/E's of 1,2,3 and 4 that are legitimate. This will be the place to be in the next decade and these valuations will not last long.
Now is not the time to jump in to these small and mid cap names. However, once the DOJ and SEC do their jobs, the sun will rise and those that survive will be some of the best values in the stock market.