A True China Bear

With all the talk of a bear market in China, it pays to look at China in comparison to Hong Kong, its nearest cousin. I would consider a true bear market as one that drops 80% or more. In 1973, the Hang Seng Index dropped from 1100 to 153 in under a year. Today the Hang Seng Index is over 25,000. China may be a similar long-term opportunity as Hong Kong in 1973. In 30 years, a Shanghai Composite Index at 150,000 points or higher seems plausible if we look at the history of emerging economies that continued growing into developed economies. In the U.S. the Dow grew thousands of percent points as the economy grew between 1930 and 1960.

Since reaching an all time high in October, 2007, The Shanghai Composite Index has dropped nearly 40%. At the moment the best way to invest in China is through Morgan Stanley’s China A Share Fund (CAF: 45.5101 -0.09%, vol: 139,551). The fund is down from a high of $72.30 to $45.41, a drop of 37.19%. Last month, CAF dropped over 50% to a one year low of $33.51. If the fund were to drop to $20, it would represent a drop of 72%, close to a true bear market and I would enter heavily at that price as a long-term investment opportunity.

*Disclaimer: The author does not hold a position in any of the stocks mentioned.

Comments

[city:]

your article is so so as you are so so; so stop making prediction like a god as you are just so so

2008 Apr 29 07:11 AM

[thechinasto...:]

Read Jim Rogers new book 'A bull in China'. I think this westerner knows a lot more about China then me or any Chinese I know.

thechinastory.org

2008 Apr 29 07:55 AM

[thechinasto...:]

city -
Don't judge a person by his writing skill. A genius might know nothing of writing but it is understanding of the world that matters. On the contrary there are lots of very skilful bs writers everywhere.

2008 Apr 29 08:00 AM

[yishuehang:]

City: Please don't make fun of people's name. Didn't your teacher in elementary school taught you that?

2008 Apr 29 11:59 AM

[Geoffrey Lordi:]

Andy,

From where do you derive such a number for a bear market? And, even if we reached it, why would basing at or around your -80% target mean that a reversal was expected? After all, I might suggest that a true bear is 40% from the highs - or 90%. And I might expect channel behavior thereafter while confidence - and likely, the underlying financial architecture - is rebuilt. Would you clarify your number, please: it seems arbitrarily picked, as you say "I would consider..."

Thx,
ivy

2008 Apr 29 02:36 PM

[Raw Greed:]

Ivy,

I will follow up with an article about bear markets.

Best,

Andy

2008 May 03 12:28 PM

[Goldpalm:]

It seems, the author did did not consider CAF’s very large capital gains distributions in his calculations.
Performance of Closed End Funds must be calculated on the fund’s Total Return, and not by it’s NAV or Market price.

2008 May 07 05:16 AM