China (Still) Rising

By Eric Jackson
RealMoney Contributor
5/14/2010 7:32 AM EDT
Click here for more stories by Eric Jackson

Despite all the worries about a China bubble, many of its U.S.-listed companies are posting real profits and boasting tremendous potential for growth.

Next week, I'll be attending a conference in New York put on by CCG Investor Relations featuring up-and-coming U.S.-listed Chinese companies.Oppenheimer & Co. is also running a China conference next week. As many in the media took notice of the fact that Shanghai's stock market entered "bear" territory early this week, it's important to revisit the outlook for these Chinese names.

First, let's talk about the Shanghai market, perhaps the most unusual in the world. You can't short stocks or trade futures (although the Chinese government has recently proposed changing this). I haven't seen any studies, but anecdotally, it is pretty clear this index has the lowest correlation with other world markets. Therefore, you have to take its movements with a grain of salt.

This year, the Shanghai Composite Index is down 17%, compared with a 5% gain for the S&P 500. Some market watchers have been worried about this being a leading indicator of a pending China crash, with the commodities that feed the country's booming demand about to fall off a cliff. In fact, my RealMoney colleague, Don Dion, wasout this morning with an article titled "Avoid China." Recall, however, that Shanghai surged 80% in 2009 vs. 27% for the S&P. This means that, since Jan. 1, 2009, Shanghai has climbed 46% vs. 32% for the S&P.

An investor also needs to keep in mind that U.S.-listed Chinese stocks trade in line with U.S. indexes -- not the Shanghai or Hong Kong exchanges. Why? Simply because they trade on U.S. exchanges, where the primary movers are U.S. investors. A good rule of thumb is that, if U.S. equities are rising, these China-based equities trading on the Amex, Nasdaq or OTC, are up some multiple of that. However, the same holds true in down markets. One reason is that these equities are smaller and less liquid. Sometimes, just a few retail investors dumping their holdings can drop a stock.

....

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

Sphere: Related Content

China Trip: China Wind Systems

By Eric Jackson

RealMoney Contributor

4/26/2010 1:32 PM EDT

Click here for more stories by Eric Jackson

Three weeks ago, I met with Ryan Hua, vice president at China Wind Systems (CWS - commentary -Trade Now), at his corporate offices in Wuxi, China. The company has attracted attention because it produces components for large windmills that generate alternative energy. It is one of the only Chinese-based, U.S.-listed public companies operating in that space. Overall, I like the company a lot for the long term, but any potential investor should be aware of some potential short-term challenges to the stock.

Wuxi, the headquarters of China Wind, is about an hour and a half northwest of Shanghai, up the Yangtze River. Most Americans would have a hard time finding it on a map. Yet it's a city of about 5 million -- larger than the city of Los Angeles -- that's home to many industrial and tool companies with a lot of wealth.

China Wind Systems was founded in 1995 by the current CEO, Jianhu Hua, as a heavy machinery and dyeing company. The company developed a cheaper way of dyeing fabrics in large vats. This older business still exists today, and although it is declining in revenue in comparison with the wind systems business, Ryan Hua told us that the dyeing business has shown some renewed strength over the last couple of quarters, compared with the post-Lehman days when business dried up. Besides this legacy dyeing business, China Wind Systems also sells industrial equipment used in the coal power industry.

In fact, to this day, when you walk into the China Wind Systems corporate offices, the legacy company name, Wuxi City Huayang Dyeing & Finishing Machines Co., is displayed on the building prominently.

From Dyeing to Going Green

Most investors in the business are attracted not to these legacy businesses but to the wind power component. The origins of this business date back to 2005, when CWS began to manufacture "green" equipment that was environmentally friendly, for sale to the coking and coal-powered industries in China. By April 2007, things were going well, and Jianhu Hua recognized that the wind power industry would be significant in the years to come in China. Remember, the company had been operating in the clean coal industry. China's power usage comes predominantly from coal power, which, although plentiful in China and relatively cheap, is highly polluting. Citizens of Beijing and Shanghai count the number of "blue sky days" they get annually, because they are so rare.

....

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

Sphere: Related Content

Ask Your Questions for Chinese Growth Companies

I am going to be in China for 2 weeks at the end of this month to meet with management of several Chinese companies. I'm now working to confirm the final list of meetings, but it appears likely as though I'll meet with the majority of the following companies:

- Origin Agritech SEED

- China Agritech CAGC

- China Mass Media CMM

- China Wind Systems CWS

- Puda Coal PUDA

- FUQI FUQI

- Universal Travel UTA

- Shengkai Innovations SHE

If you have any specific questions, please send them along. If I ask, and they answer, I will post the responses once I get back.

Sphere: Related Content

Tiny China Wind Systems Could Be a Big Winner

By Eric Jackson
TheStreet.com Senior Contributor
12/9/2009 2:30 PM EST
Click here for more stories by Eric Jackson

Global wind power is estimated to be a $23 billion market, and one of the fastest-growing markets in the space is China. In 2006, China accounted for just 9% of that total amount invested, but if current growth rates continue, China will become the leading wind farm user in the world. Additionally, the government may endorse the technology in an effort to reduce extreme air pollution in coastal cities. Clearly, anyone interested in investing in wind technology should have China on his radar screen.

There are more than 40 suppliers -- domestic and international -- competing in the Chinese wind market today. Any Chinese governmental edicts favoring the industry would obviously first benefit the domestic suppliers, and that's where today's pick comes in.

China Wind Systems (CHWY - commentary - Trade Now) is a very small player in the Chinese wind market. It has small market capitalization (just $64 million) with a very low trading volume (just 17,000 daily average over the last three months), making it highly speculative. Its primary business is to supply the gearboxes and bearings used in windmills. Although it's not a model of good corporate governance, a number of characteristics make China Wind an attractive long investment at the moment.

[To read the rest of this post, click here to go to RealMoney.com (subscription)]

Sphere: Related Content