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To China or not to China....that is the question....



April 09, 2010 – Comments (6) | RELATED TICKERS: YONG.DL , TSTC , PALM.DL2

I see a lot of China blogs lately.  They seem to have very STRONG opinions and I'm not up for debate. I had a good week, and DragonLZ sent me some more koolaid.  I'm hiding from UltraLong as he probably saw that I upthumbed PALM and then slipped to DragonLZ that I also put in a handful of RL calls, well, okay two handfuls.  I sold half my Hasbro Calls and I'm looking for some trouble.

I'm working on some macaroni necklaces and shellacked plates for UltraLong, but I think the guys with the straightjackets will have me soon. 

As I review my portfolio and CAPS score card of late, the China Plays keep catching my eye.  What's up with thier either soaring or dropping in rapid cycles?  I thought FUQI was getting ahead of itself last year, but it sheds 50%, most of that before it hinted at accounting issues. RINO can't get traction. TSTC takes 30 % weekly swings.  

 China Sentiment, concerns of accurate books, dubious uplift methods, buyout rumors, dulution, bankrupt rumors, credit restriction rumors, Hillary pissed off somone rumors, currency fights, and half go one way and half the other.

TastyLunch gives me some inspiration, but I can't find any players who are consistantly right in this arena.

I just pitched YONG:


Yongye Biotechnolology International is another China stock with a convoluted name. It is not a medical biotech. Less than two years on the nasdaqGS Yongye had a rapid climb to $8 and then six months or so bouncing around as high as $12 before trending back down. Three months cycling between $9 and $7, I'll play it here at $8 on CAPs and with a RL purchase. One problem with Chinese equities is gauging growth. Sometimes investors get well ahead of themselves expecting anything China to have a huge market. Yongye has shown very solid growth, but margins are confusing. How do you get a 2% profit margin and a 32% operating margin? Is a 200% yoy growth accurate? $82 Million in stock issue. Is that enough, will there be more. How is that money being spent? (Answer on that one, for the most part it's in the bank). Revenue quater to quarter is all over the map. Administration expenses are climbing. How do you value this thing?

"The company sells two lines of product based on its fulvic acid compound base, including plant nutrition liquid compound and animal nutrition powder." " As of December 31, 2009, it operated 9,110 branded stores".

All one can do, for the most part is value growth potential and NOT assume that agriculture in China is a slam dunk. DO you believe a forcast? It's about all you have. In this case, it's lofty.

"(YONG) continues raising revenue guidance, with 2010 net income expected to increase between 60% to 72%, and has issued the expectation of 50% compounded annual revenue growth over the next three years. Its recent count of branded stores is 10,000, with the goal at year-end to be 20,000. There are discussions that by the end of the decade Yongye may have 100,000 branded stores."

I have no idea how true this is, how well Yongye will spend it's cash hoard. IF it's sales efforts and expenses will exceed reality and it will burn cash. It "appears" things are looking good. Investors backpeddled over 30%, risk/reward?? In the eyes of the beholder. I'm in.


 Overall, I just take a Chinese equity one at a time.  I really believe a few in a diversified portfolio is relatively healthy. I'm game for some trouble and generally my winners outnumber my losers, what more could you ask for.  

 I have no idea how to play China any other way, if one is going to play it.   I don't speak the language. I don't plan on travelling there and looking around. 

Good luck with whatever method you use.  (Stay out, go deep, or selectively watchful!).

TSIF   The Sky isn't Falling (Today), at least not in my part of the world, and if it does fall here or in China, I suspect I'll have better things to worry about.



6 Comments – Post Your Own

#1) On April 10, 2010 at 12:42 AM, portefeuille (98.84) wrote:

It is really somewhat strange that these small capitalisation China stocks are so popular. I can see why someone would focus on "small caps", or "small caps" from a certain sector or "small caps" from the country one lives in, but I really don't see what keeps this China small cap craze going.

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#2) On April 10, 2010 at 12:46 AM, portefeuille (98.84) wrote:

But then again apparently around 6841 "caps" game calls have been made on SIRI. And 3 on Vivendi. 2 of those 3 by me. Oh well ...

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#3) On April 10, 2010 at 10:19 AM, TSIF (99.97) wrote:

Port, on Vivendi, maybe because none of the six people (multi-persona characters included) have yet to score a single green point from it with either up or down thumbs.... :)

Maybe because it pays out a 5% dividend, but you don't get any credit for it here on caps because it's a PK stock......

Maybe because no one ever heard of it?   :)

Regarding China. I think it's attractive as a speculative play because people assume that with their rising GDP, their rising middle class, and their huge population that it's a growth opportunity that can't go wrong.   Of course we know that's a bad assumption, but I think many investors are just trying to live the dream, chasing opportunities to try and recoup what they may have lost the last two years.  Not a good plan overall, but it can add some interest in moderation.

Good luck with Vivendi!  With dividends being paid out, but not credited it's hard to beat the S&P.


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#4) On April 10, 2010 at 6:06 PM, portefeuille (98.84) wrote:

yes, 6 calls.

Maybe because no one ever heard of it?

which is the problem I was trying to point out.

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#5) On April 10, 2010 at 9:13 PM, TMFUltraLong (99.36) wrote:

You can't hide from me....


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#6) On April 10, 2010 at 10:03 PM, TSIF (99.97) wrote:

ought-o.....guess I will be going to China on a one way ticket.....time to learn some Manderin.......

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