Last week I got an email ad from Robert Hsu telling me with an encouraging sentence hidden in the middle:
“After today, I feel more confident that we have seen the lows for the year.”
That was on Thursday, October 30, and the encouraging point Hsu was pointing to was the big bounce on Tuesday, when the Fed cut interest rates by the expected amount and the Dow ended the day hugely higher. The rest of last week was pretty tepid by comparison, and God knows how this week will go, especially with everyone convinced that they know how the election will impact the market, but perhaps Hsu will be right.
I wouldn’t complain.
Now, of course, Robert Hsu isn’t staking this claim for his health. He’s trying to get you to subscribe to his China Strategy newsletter, largely because he sees China stocks having a year-end rally, and returning to the growth forefront, and he wants you to be invested in those stocks.
Oh, yes, and he’d also like to cash your $199 check.
Let’s hear a little bit from Mr. Hsu about how he thinks this year will end, then we’ll snoop out a few of his picks so you can investigate them at your leisure:
“A Yearend Rally
“That’s why sitting on your hands is NOT the right course of action.
“Emerging market stocks are selling at extremely oversold levels right now: Valuation in Hong Kong stocks is at an all-time low, with a PE of 7.75, and Mainland Chinese stocks listed in Shanghai have a PE of only 7.3. And the MSCI Emerging Market Index is trading at 7 times PE—the cheapest since 1998.
“Because of this extreme oversold condition, I expect the markets to recover with a yearend rally as investors come into the markets in drove to pick up fundamentally strong Chinese companies for dirt-cheap prices.
“That’s why you need to buy in now. If you had been listening to me over the past few weeks when I’ve advised picking up shares in strategic China plays at a discount, you would have been rewarded nicely this week.”
This is not the first time he has predicted a bounce, but, to his credit, I’ve heard from several of his subscribers that he did close out a lot of positions early in the year when China stocks were falling. On the flip side, he also sent out ads probably at least once a month this year urging a purchase of his favorite fertilizer stock, Mosaic, which has been one of the worst performers of an almost unimaginably bad year. He tends to be fairly momentum driven, with a strategy similar to that used by the Investors Business Daily folks, and he’s made plenty of good calls and mistakes in the ads and letters I’ve seen.
18 months ago, when there were a small group of core readers in this space and Stock Gumshoe had yet to become the market-shaking phenomenon that it is today (OK, at least in my own mind), Robert Hsu was probably the most popular newsletter editor among my readers. Probably not a surprise for someone who had the good sense to be surfing the wave of China investments just as it came close to becoming a Tsunami, before it hit a reef this year and collapsed harmlessly into the ocean.
Harmlessly, of course, as long as you weren’t holding any Chinese stocks. I was, and still am, though probably not any of his recommended shares.
Still, China has a good chance of being an engine of the world’s recovery, either through massive government spending on infrastructure as the Communists try to keep people busy enough that they’re too tired to march on Beijing with their pitchforks … or through the long-predicted emergence of the Chinese consumer (those people you see passed out on the floor with red faces are the ones who’ve been holding their breath waiting for that). Regardless, China is one of the world’s largest economies now by most measures, and it is the only large economy that’s still experiencing rapid growth, even if that rate of growth is slowing.
Of course, news out this morning is not particularly cheery for the China-focused — they just reported a significant decline in manufacturing, and it’s pretty clear that declining demand for manufactured goods is going to really hurt the world’s factory. The latest release showed a big decline in the Purchasing Managers Index, which is similar to the indexes you’ll see in the US that also tend to move markets — this survey started in 2005, and October’s number was the worst one ever recorded. The government is trying to keep growth moving, in part by freeing up lending limits that had been meant to cut down on bad loans and slow the then-red-hot growth, but it might be tough for a while — exports have been growing at incredibly rapid rates for years, and many folks are predicting that the growth is going to come to a grinding halt for at least a little while.
So is that already reflected in share prices? Is it time to buy some China stocks? I dunno, but let’s hear what Hsu’s picks are, I’ll tell you the names and tickers, and you can go forth, researchify, and make your own choices …
“A number of our top China Strategy recommendations—which you should be buying now—jumped higher over the past three days:”
China’s number-one medical devices manufacturer, up 17%
Gumshoe sez: Mindray Medical (MR)
China’s largest insurance provider, up 19%
Gumshoe sez: China Life (LFC)
China’s leading search engine, up 21%
Gumshoe sez: Baidu (BIDU)
China’s top wireless service provider, up 23%
Gumshoe sez: China Mobile (CHL)
China’s leading education services provider, up 27%
Gumshoe sez: New Oriental Education (EDU)
China’s leading online travel company, up 30%
Gumshoe sez: Ctrip (CTRP)
These are all the kind of core holdings that China Strategy has been picking for the last couple years, as far as I can tell. Most of them are typical of the kinds of stocks Hsu likes: companies that are run by entrepreneurs and not state-owned, and that have strong positions in growing domestic markets. None of these stocks has had a particularly strong year, but they’re all real companies with growing businesses. For the most part, they still trade at fairly significant premiums to comparable companies in the US or elsewhere (when there are comparable companies), but even in a market like this you’re paying up for above-average growth.
There are also Chinese companies that look cheaper than the market, or that are much more beaten up than these picks — including some other old Hsu favorites that aren’t currently making this “top buys” list and seem to be doing much worse, firms like the various oil companies (PetroChina, Sinopec, or CNOOC, I don’t remember if he has picked all of those but he has definitely touted CNOOC before), hotelier Home Inns (HMIN) or real estate broker E-House (EJ). Buying anything in China feels a little like bottom fishing now, but Hsu certainly isn’t urging investors to scrape the bottom of the barrel.
Some final words from Hsu:
“Despite the dramatic run up in a number of our China Strategy recommendations this week, there is still time to get on board. Why? Because, this was just the first of a number of similar bounces that I’m expecting this quarter.
“So now is the time to prepare for the move higher in China stocks. The upcoming rally that I’m expecting is a great way to pick up some substantial gains in these long-term positions.”
So is he right? Will China stocks bounce further, or will they recover faster? Is there a rally coming to end this depressing year?
No, I don’t have the answers — but if you do, feel free to spit them out below …