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Is the Chinese stock market going to continue its freefall?



May 20, 2010 – Comments (2) | RELATED TICKERS: CHINA.DL , HEAT

And if so, why? Companies that report 40% annual growth and trade for less than 10x trailing earnings, and have confirmed guidance that put their forward PEG at less than 0.2, are being massacred in the streets, particularly Wall Street. Is this a time to buy when the streets are running red with the red ink of shareholder returns? Or is this an accurate reflection of the need to cut and run from the falling Chinese giant? Please post your well thought-out opinions, or ill thought-out harangues, below.

I own calls and am short puts of a certain Chinese company, SmartHeat, Inc. (HEAT) that is represented by the numbers given above. I am particularly concerned, because I don't know to what extent the bursting of China's housing bubble will impact SmartHeat's business of energy efficiency heat transfer plates, given that they may still be purchased for existing homes/businesses to decrease energy costs. Then again, after America's housing bubble burst, Home Depots and Loweses were ghost towns. I.e., hardly anybody was buying any upgrades or home repairs for their homes at all. Does anybody have any more specific knowledge of SmartHeat's business (not their numbers)? Please share below.

So, given my ignorance about SmartHeat, I'm still willing to take a few options fliers on its great numbers, but I kind of want to balance it (and bet a conviction of mine) by finding a few Chinese construction-related companies to short the heck out of. Does anybody know any great candidates for that purpose? Please post any ideas or finds below.

Thanks to everyone who participates in this China forum.

P.S. CDC Corporation (CHINA), from my related tickers, is neither a Chinese index fund, nor a construction-related company (as far as I can tell), but is chosen for its ticker symbol.

2 Comments – Post Your Own

#1) On May 20, 2010 at 4:12 PM, Option1307 (30.57) wrote:

I'm sure you've already noticed, but just fyi Ultralong posted a blog ealier today regarding China. There are some good bull and bear opinions there that might help you.

I like HEAT long term but China will continue to get crushed if the overall US market continues it's slide. 

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#2) On May 21, 2010 at 2:21 AM, FleaBagger (27.59) wrote:

I think China's problems have a lot less to do with the US stock market than with China's own idiotic policies. For everything they've learned from our negative example (e.g. higher reserve requirements on banks receiving interest-free loans from the central bank versus interest-free loans for banks with negligible reserve requirements), it's still not enough, and their housing bubble actually looks worse in some places, specifically their biggest cities, and they are headed for a fall. Of course, some or all of that fall is being priced in as we speak. How much, if any, is left to go? That is the $64,000 question.

I am glad to have seen Ultralong's post, because now I know of a Chinese real estate company. I shall probably like to short it. Its numbers remind me of the numbers of American builders and REIT's in 2007. If you picked the right numbers to look at, they looked really good, but the next quarter's numbers looked worse, and the next quarter worse still. There was still a lot of money to be made shorting them.

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