Wednesday, December 23, 2009

China's Undiscovered Gems for 2010

By Eric Jackson Senior Contributor

12/23/2009 8:59 AM EST

While there is still broad uncertainty hanging over the largest economies in the world, China's growth story will continue to shine in 2010. This is a country in which gross domestic product is threatening to break 10%. The government policies are all lined up for the march forward to continue. That's a pretty big rising tide to lift a lot of boats.

Investing in some of the smaller-cap names in China always has been risky business for American investors. There are countless examples of a $5 stock today jumping to more than $20 in a matter of weeks. The macro China story, some evidence of company growth, and a relatively interesting story are usually enough to propel smaller Chinese stocks much higher.

However, there are many risks. The same financial controls we take for granted in the West aren't as common for some of the smaller Chinese companies. There are many examples of "related transactions" and family members of entrepreneurial founders who sit on the boards or in key management positions. Boards also aren't typically as strong as in the West (which aren't all that strong to begin with). It's often frustrating for Western investors when they experience subpar investor relations, such as when there's no mention of when a Chinese company is going to release its quarterly earnings. It suddenly appears, leaving the market to react.

That said, it is well worth the effort to comb through what's out there. With a focus on low valuation, growing operating earnings, and in-demand offerings, here are five stocks poised to outperform in 2010.

[This post is an excerpt of the full article, available by clicking here to go to Note: subscription required.]

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