Tuesday, May 18, 2010

Coal-Fired Potential

By Eric Jackson
RealMoney Contributor

5/18/2010 1:00 PM EDT
Click here for more stories by Eric Jackson

Yesterday, I attended the CCG China Rising conference in New York. CCG is an investor-relations firm that has built up a strong practice, representing Chinese-based companies that have listed on US exchanges. The companies tend to be smaller, typically with a market capitalization of less than $1 billion and often less than $500 million.

Despite recent market volatility, there was a big turnout at the conference yesterday. Yet many of these companies have seen sharp price declines since early April. As US investors have lightened up on their long high-beta names, they've sold many of these smaller Chinese companies. Still, I sensed a lot of optimism on the part of the CFOs who were presenting.

Almost every presentation began by talking about the market potential in China and favorable government policies that are set to benefit their growth trajectory. When you have an economy of 1.3 billion people growing 8% a year, with an emerging middle class of 300-400 million, you're fortunate to be shooting a basketball hoop into the ocean.

Yet, talking to several investors in the hallways in between presentations, although they hope that their research will uncover a company that will double or triple over the next year (compensating for more modest returns from the rest of their portfolio), they also have much higher concerns about the potential for fraud in the Chinese companies they're looking at.


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