In The Intelligent Investor section of the Journal this weekend, Jason Zweig had an interesting article on the performance of stocks with the word "China" added to their names. Similar to the dot com mania days, some companies are adding "China" to their names to get a big boost in their stock prices. Investors blindsided by the China growth story are sending these stocks to astronomical levels without any fundamentals to back them up.
From the article:
I asked Wei Wang, a finance professor at Queen's School of Business in Kingston, Ontario, to study the returns of the 82 companies that have adopted new names containing the word "China" since late 2006. The list includes 18 last year and four so far in 2010.
Prof. Wang looked at returns from 20 trading days before the announcement through 20 days after. He found that the average stock that added "China" to its name outperformed the overall market by 31 percentage points over that period. The results held up over shorter and longer periods and after Prof. Wang removed the most extreme cases.
Golden Green Enterprises Ltd., a steel producer, became China Gerui Advanced Materials Group Ltd. on Dec. 14. Over the 40 days surrounding the switch, the shares went from $5.01 to $6.88 on the Nasdaq Global Market, a 37% gain even as U.S. and Chinese stocks were generally flat.
Jason also notes that between 2004 and 2007 when crude oil prices soared companies that added the words "Oil" or "Petroleum" to their names got an 8% boost to their stock prices. Later that mania faded.
The bottom line: In the long run, cute names don't make money; only good businesses do.
Taking advantage of the craze for all things China, many Chinese companies have listed their ADRs in the U.S. markets in recent years. However many of their stock prices are still struggling under $10. For example, the IPO of China Real Estate Information ADR (CRIC) sold at $12 a piece in October last year. Since then the stock has fallen under the $10 mark and closed at $9.38 last Friday.
The following is a list of Chinese stocks trading under $10 as of March 19, 2010:
- China Hydroelectric (CHC)
- IFM Investments (CTC)
- VisionChina Media (VISN)
- Shanda Games (GAME)
- KongZhong (KONG)
- Xinhua Sports & Entertainment (XSEL)
- Agria Corporation (GRO)
- Hurray! (HRAY)
- JA Solar (JASO)
- Airmedia (AMCN)
- Solarfun Power (SOLF)
- China Sunergy (CSUN)
- Gushan Environmental Energy (GU)
- China Techfaith Wireless Communication (CNTF)
- ATA Inc (ATAI)
- China Distance Education (DL)
- Ninetowns Internet Technology (NINE)
- Vimicro International (VIMC)
- China Nuokang Bio-Pharmaceutical (NKBP)
- Xinyuan Real Estate (XIN)
- LDK Solar (LDK)
- WSP Holdings (WH)
- China GrenTech (GRRF)
- Tongjitang Chinese Medicines (TCM)
- Simcere Pharmaceutical (SCR)
- Actions Semiconductor (ACTS)
- Concord Medical Services (CCM)
- China Nepstar Chain Drugstore (NPD)
- Linktone (LTON)
- The9 (NCTY)
- ReneSola (SOL)
- China Mass Media (CMM)
- Giant Interactive Group (GA)
- China Finance Online (JRJC)
- Noah Education (NED)
- Acorn (ATV)
- ChinaEdu (CEDU)
- Spreadtrum Communications (SPRD)
- ChemSpec International (CPC)
- China Digital TV Holding (STV)