Have China Stocks Already Burst?

The Shanghai Composite closed Friday at 5315, down from a high of 6124 which is a 13.2% drop.

Petrochina (PTR) is down 24% from its high.

Sinopec (SNP) is down 23% from its high.

China Mobile (CHL), which I own for one or two clients is down 18% from its high.

CNOOC (CEO) is down 19% from its high.

Sina (SINA) is down 18% from its high.

Baidu (BIDU) is down 20% from its high.

China Life (LFC) is down 21% from its high.

China Digital TV (STV), a recent IPO, is down 40% from its high.

Aluminum Corp of China (ACH), aka Chalco I believe, is down 37% from its high.

iShares FTSE China 25 ETF (FXI) is down 17% from its high.

To repeat from the other day: zoiks! I rounded off the pennies and the highs measured are all intra-day highs. The high for all of these names, including the Shanghai Composite, occurred in the last month. The only other stock I looked at but did not include above was Ctrip.com which is not even down 5% but that would make the above less dramatic ;-)

I have no idea if some sort of mania has ended, I have no idea if this is just a dip that should be bought, but at this point I am not sure it is possible to do any sort of forward looking analysis to even make a decision. The story of China is still intact, but the stocks are like a Girls Gone Wild video.

You all know that when many Chinese stocks started going parabolic a while ago, and I noted this along with many other people. I disclosed getting out - at levels which turned out to be way too early. Despite a tidy gain, I left a lot on the table.

Recently a reader said that my not owning China was lunacy and that I have cost my investors dearly. I'm not sure selling something too early is lunacy and we'll know in a few months, maybe, how costly it was, but for folks not interested in making fun of me when I don't top-tick a sale (which I don't do very often) you will own parts of the market that become too hot for your comfort.

This goes with diversification. I still do not think 'bubble' is the right word for China, but China was a mania last Spring when I sold Sinopec at about $103. At the time, $103 was a huge gain and I felt the China theme had already gone parabolic.

I did not feel that a stop order would work and given the $10 price movements a lot of these names are now capable of having on a given day (back then the moves were $3-4 per day) I think that was right. So then it boils down to trying to figure out how to protect a gain. You can only do what you can do.

From here no outcome should be surprising, but unless I am missing something the declines thus far don't seem to have gotten much attention - that is, people don't seem to be worried. That seems similar to the first 20-30% down in tech stocks. People were not worried at that point either.

If you think you should still own China, go for it - but I would suggest moderation, which has been the point behind all of these China posts in the last few months.

Comments

[Malik:]

I believe your decision was rational considering conventianal wisdom. However in my opinion times have changed, there is a strong capital flow towards Asia/South America and it will remain so for several years.

2007 Dec 01 01:53 PM

[Roger Nusbaum:]

big macro-wise, I agree. i have had one Brazilian stock throughout. I expect to own china again in the next six months or so, certainly withing a year. Ideally i would like to see our cycle end and buy when visibility for the next cycle starting shows itself.

2007 Dec 02 08:47 PM