Chinese stocks drop most in 6 weeks ahead of Opening Ceremony of Olympic Games

Zhang Shidong and Dingmin Zhang of Bloomberg LP report Chinese stocks have plunged ahead of the Olympic Games due to what analysts and investors say was a failure on the part of the Chinese Government to announce "market stablalizing" measures ahead of the games.

A great deal can change in China in just a months time. Considering the last time I visited was back in Sept-Dec of 2006, I'm sure a great deal has evolved. One thing, no matter the time difference in which people visited China or more particularly Beijing that seemed to remain with time was hope that the games would boost Chinese equities.




This has been a good lesson to avoid heading into markets with the "herd" or in laymen terms... the masses.

Beijing definetly has a boom town feel, but so do other cities in China. Other places, such as Shaang Xi province, a coal producing region do not (or did not back in 2006). Chinese people from Southern Economic Zones created in the late 90's and other regions which have grown rapidly over the past decade expressed concern the country was spending too much on the games to me.

One young man of 20 years from Guang Zhou, a Cantonese speaking region ajacent to Hong Kong told me "Beijing has the boom but is only able to back it up becuase of the government. Places like Shanghai and Shenzhen are boom towns but can back the talk and boom."

He may be right, as Olympic spectators are dazzled in the capital, they are seeing quite a show... trust me it will be a show when the games opening ceremony comes on TV at 8am (Eastern Standard Time).

The boom feeling in China is real, but not substantial enough to defy slumping global equities. The Shanghai Stock Exchange has grown 7 fold in the past 2-3 years. With the global credit crises, there is no mystery as to why China and other boom markets like Vietnam and India are plunging.

This will be a good lesson to the thousands of investors picking stocks based off lucky numbers and the belief that their investments can only grow. US investors are still learning this despite being from a country with long established financial markets.

When I was born in the mid 80's, Stock Exchanges did not even exist in China. Now that they do, both independent and institutional investors in China must learn to ride the bad times. Learn how ot depend on an income flow from investments. Learn how to not hit or yell sell when things drop. Learn how to properly evaluate equities, instead of using lucky numbers of other ways to pick stocks.

The list goes on... in Chinese Bear Markets 101.

International Finance - China Play - China 3C Group (CHCG.OB)

China 3C Group (CHCG.OB), a stock pick which I mentioned briefly in a previous post on July 25th (click here), recently released their preliminary second quarter 2008 financial results.

Net sales for the second quarter 2008 is expected to be in the range of $81.5-$82.5 million, which would be a 26%-28% increase compared to the prior year second quarter results of $64.5 million.

Net income for the second quarter 2008 is expected to be in the range of $7.3-$7.4 million, which would be a 33%-35% increase compared to the prior year second quarter results of $5.5 million. Second quarter 2008 diluted earnings per share is expected to be approximately $0.14 compared to $0.10 in the same period last year.

Mr. Zhenggang Wang, Chairman and Chief Executive Officer commented, “We are very pleased with our preliminary second quarter results, which exceeded our internal plan. Our sales growth benefitted from a net increase in new doors, healthy demand for electronic products in most of our key categories, a broader product selection from the prior year period as well as from certain, new consumer-oriented programs that focus on service and increasing awareness of our expanding portfolio of brands.

Our net income improved largely due to increased sales results, the exit from unproductive doors as well as a lower tax rate in the second quarter compared to the prior year. We also anticipate a sequential improvement in gross margin for the second quarter. Overall, we are encouraged with our second quarter performance and continue to work aggressively to further enhance our position in China’s electronic consumer industry,” concluded Wang.

CHCG.OB as of close on July 15 - 2008

This stock has in no shape or form been the best preformer in my portoflio, as a matter a fact it's been the worst preforming equity I've owned in the past year and a half. Nevertheless, I have remained patient and vigilent with this company knowing that when global financial markets finally begin to recover and Chinese equities and markets pick up once again... the mainstream investment community will once again take note China 3C Group.

CHCG is a sort of mini version of Best Buy, operating small electronic retail stores within larger retailers of China. CHCG currently has over 900 stores within stores in operation, and hopes with their recently agreement with Yongle, they will achieve their long time goal of having 1,000 stores in operation. Some of its retail partners include Carrefour (French), Bestbuy (US), Wal-Mart (US), Lotour (Chinese), Yongle (Chinese) among others.

*** Click on the links above to access articles describing CHCG's agreement with each particular company.

2008 was undoubebly a tough year for all equities. CHCH was no exception. After receiving a great deal of hype from articles published in the Wall Street Journal, Barrons and other financial publications; the stock failed to ever IPO and saw its share price plummit from around $8/ per share in the summer of 2007, to under $2/ per share this year.

I feel the stock is unfairly priced, with the market pricing in too high a risk factor on the equity. The company has virtually no liabailities (that means little or no debt), it slowed down the pace of opening its long time goal of 1000 + stores in order to consolidate its current operations, closing various stores throughout 2008 and focusing its energies on the more profitable operations.

CHCG also receives revenue from its distributions services to larger retails, which it is highly acredited for doing efficiently. With the backing of many well known foreign retailers, big names in China and continued profits this equity looks like a good play to me.

Although I don't condone any action on the part of readers, this is a micro-cap, speculative investment which could continue to preform badly if markets overall continue this bear market, which has been one of the major reasons this equity has failed this past year.