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Examining Sjuggerud’s “Limited Time 2nd Chance to Get Rich with ‘292-C’ Shares” Pitch

What's the idea behind all those Stansberry China picks?

By Travis Johnson, Stock Gumshoe, September 19, 2016

This ad has been rolling for a week or so, and a group of Gumshoe readers have already been discussing it and trying to figure out exactly what the Stansberry folks are talking about… but there are lots of questions still coming over the transom here at Castle Gumshoe, so let’s take a look.

The ad is for a new Stansberry publication helmed by Steve Sjuggerud that they’re calling Stansberry’s China Opportunities, and like a couple other Stansberry offerings lately they’re using a somewhat different pricing model — they’re charging $1,500 up front to join and get their first listing of investments and the analysis behind them, and then $49 a month to get their ongoing updates… and they’re not offering any refunds for any of those payments. So that’s a somewhat daunting commitment for many investors… and, of course, the idea of investing in China at all is fairly daunting, too, given the relatively poor (though improving, perhaps) sentiment about the Chinese market that you’ll hear in most of the financial media.

What’s the big idea? Well, Steve Sjuggerud is essentially saying that there’s a huge opportunity in Chinese tech stocks, particularly “internet” tech stocks.

The reasons he gives are that they have vastly larger market opportunities than their US counterparts, they are earlier in their growth cycle and the stocks have a better chance of quickly doubling (or more), and the businesses are somewhat protected by the Chinese government — some are actively supported or endorsed by the government, but just being behind the “Great Firewall of China” means that the (mostly) US companies that Chinese firms are either emulating or copying or surpassing (depending on who you ask) can’t really operate in China. Global titans like Facebook and Google are mostly blocked by Chinese authorities.

What are “292-C Shares?” Those are just the shares of Chinese companies that you can invest in either directly on the US or Hong Kong exchanges, or through US OTC listings or ADRs. I don’t know what the “292” means, it could just be a reference to roughly how many Chinese companies are available for trading by US investors (I don’t know that it’s 292 precisely, but if you combine the Chinese companies trading on the OTC market and the ones that are listed in NY it’s right around 300).

There is nothing magical about these shares, nothing leveraged or unique or secret — they’re just shares of Chinese companies (or, depending on how the structure works, shares of holding companies in the Caymans who have indirect ownership interests in Chinese companies… remember the worries about Alibaba during the pre-IPO days?)

The leverage and the higher potential return that Sjuggerud tells us we can enjoy, as I understand it, are based on the fundamentals of the Chinese stock market, which has generally been beaten down for a while, and on the growth prospects for these leading Chinese tech companies compared to the (usually) more mature US counterparts. Steve Sjuggerud has often written about his basic strategy, which is to buy investments that are “hated, cheap, and in an upturn” — which basically means you’re trying to do “value investing” (that’s the cheap and hated part) but wait until a little bit of momentum (the “upturn”) starts to trickle in to the investment before you buy, and you can certainly find Chinese stocks (even most Chinese stocks) that fit those criteria.

Here’s the bit of the ad that got some of our readers interested:

“… most investors don’t realize this, but there are essentially two ways to get rich with internet technology stocks today.

“The first way is to buy a stock like Amazon, Netflix, Google, or Apple before others have heard about or care about it.

“This requires a lot of patience, and a whole lot of luck. After all, Fortune estimates that 90% of companies in Silicon Valley fail.

“But I recently discovered a second, much easier, and much faster way to get rich off internet technology stocks.

“All you have to do is simply wait until something we call a “292-C” or a “C” share, for short, hits the market… typically several years AFTER these big companies become household names… and often for as little as $1.09 a share.”

OK, so that’s basically: if you missed Facebook, buy the Chinese Facebook!

Depending on your assessment of the marketplace in China, your understanding of the competitive landscape, and the specifics of any given investment that might well not work so hot — you could just ask the folks who bought Renren (RENN) five years ago when it went public with a $2.5 billion valuation, backed by the story that it was the “Facebook of China”… it’s now down to a market cap of about $600 million, with a share price down below $2, and it’s really turned to being a venture capital fund more than an internet company… despite the fact that it continues to operate what is now looking more and more like it was the “Myspace of China.”

Sometimes the timing is nice and simple, too, and sometimes the story works brilliantly — like Baidu (BIDU), which was widely touted as the “Chinese Google.” BIDU went public in NY almost exactly a year after Google did, and both stocks ended up providing about the same returns to date — if you bought Google at the IPO you’re sitting on about a 1,500% gain today; if you missed that first 200% run in Google’s first year and decided to instead buy Baidu a year or so later at its IPO, you’re sitting on a 1,400% gain today (and that would be far better than having bought Google at the time of the Baidu IPO — if you waited until a year after the IPO to buy Google shares, your gains would be “only” about 450%).

And there are plenty of short time periods when the “Chinese version” of a US tech stock did far better — here’s one example from Sjuggerud:

“Take Expedia, for example…

“The company went public in 1999. And if you’d guessed right, and got in early, you could have made compounded annual gains of about 13% over the next decade.

“Not bad — but there’s actually a better way.

“Instead, you could have taken the more predictable “C” Share approach…

“On April 1, 2013, a limited number of “292-C” shares hit the market for just a fraction of what the online travel agency stock was trading for.

“In less than 4 months, shares jumped 109%.

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“Meanwhile, Expedia’s stock fell 16% during the same period.

“And that’s not all.

“Over the next few years, these “292-C” shares soared as high as 327% — around 3 times higher than Expedia’s shares.”

That, and the accompanying chart of the stocks, indicates to me that he’s probably referring to Ctrip (CTRP) as the “Expedia of China,” though there are a couple other stocks that are close enough to be somewhat conceivable (among them eLong, the Ctrip competitor that Expedia used to be a big investor in, and Travelsky). And yes, Ctrip was about a third the size of Expedia back in April of 2013 — and it did double between April and August of that year (it has since continued to grow, the shares are up about 600% now if you bought them at that low point 3-1/2 years ago).

So yes, as will probably not surprise you too much, Chinese stocks are often a lot more volatile than US stocks in similar industries. Which ones is Sjuggerund interested in, do we get any hints?

Well, they “gave away” one of them in the live “webinar” that they hosted, a stock that Steve Sjuggerud elsewhere calls a “little known company” that “will soon be the world’s largest” … that one is Tencent (0700 in Hong Kong, TCEHY or TCTZF OTC in the US).

And that one causes me to have a bit of that “woulda shoulda” heartburn, since I sold my Tencent shares after a nice gain of 150% or so in 2007, after holding for a couple years, and it has since gone up 2,500%. It’s not listed in the US like Sina (SINA) or NetEase (NTES) or Baidu (BIDU), so I guess it’s fair to say it’s “little known” here… but it was by far the biggest Chinese internet company five years ago, and it remains by far the biggest Chinese internet company today, with a market cap of about $250 billion. They operate the ubiquitous WeChat instant messaging service that pretty much everyone uses in China (700+ million active users, 90% of them in China), among many other online offerings (payments, shopping, etc.), and the stock is pretty expensive on a trailing earnings basis (about 50X earnings) … but not as expensive as the larger Facebook (trailing PE of 60).

Sjuggerud’s argument has as much to do with the fact that Chinese stocks are hated as it does with the underlying fundamentals of the stocks, but Tencent, at least, is and almost always has been an appealing and expensive company. I’m not sure it’s fair to say that this specific stock has been “cheap” or “hated” in the past couple of years, though perhaps their valuation would be higher if the overall Chinese market was more loved… and it is certainly in an “uptrend” (it’s up 25% in just the last three months).

I don’t know whether Tencent will be bigger than Apple, Facebook or Alphabet/Google in five years or not, but it’s certainly not a ridiculous position to take if China’s economy keeps growing more than twice as fast as the rest of the world.

That doesn’t mean, of course, that every successful internet business can be translated to China, or that a particular Chinese company will dominate in that “next whatever” attempt — they still need to fight off other Chinese companies, at the very least, and appeal to hundreds of millions of Chinese consumers… Tencent may be protected to some degree by the fact that Facebook is locked out of China, but in many parts of their business (and in the ‘fight for the future’) they still have to fight back Sina and Baidu and Alibaba and everyone else who wants a piece of the online Chinese consumer. And, of course, Chinese tech companies don’t all do all of their business in China — and they have to compete with the giants of the US, Europe and Japan if they try to make inroads in other countries outside of China’s immediate sphere of influence.

So… what else does Sjuggerud hint at as among his Stansberry’s China Opportunity stocks? We get a few more clues…

This is what we’re looking for:

“… nearly every big tech company — everyone from Facebook, to Microsoft, to Yahoo — has a limited number of ‘292-C’ equivalents opening on the market as I write this….

“I believe that if you can buy these shares quickly, it’s possible that you’ll make up to 500% gains over the next five years or so.”

And yes, to recap, that just means “there’s a Chinese stock that’s kind of like the Yahoo of China” — it doesn’t mean these stocks have any specific connection to their US inspirations or comparables.

Some clues to help us get a few of the specific names for you:

“Microsoft is a great dividend stock — but do you really think it’s going to double any time soon?

“After all: It’s trading for the same price today as it did back in 1999!

“But had you purchased the ‘292-C’ share equivalent instead… when it opened on the market on August 24th of last year… you would have seen your account more than double in less than 12 months.”

I’m not sure why he makes this Microsoft comparison, but the chart of this “292-C” stock indicates that he’s hinting at Sina (SINA). I would probably describe Sina as more of a mashup of Yahoo and Twitter if you’re looking for a US comparison, but you can look into it and make up your own mind on that front — they are primarily advertising-driven and operate the somewhat Twitter-like Weibo service.

It has also been quite volatile — the SINA chart doesn’t go up in a long line, it goes up and down like an EKG, and if you had sold a few months ago, before the stock had a 50% surge, you could easily have held the stock for 12 years and lost money (or, if you bought near the 2011 peak, lost a LOT of money). The stock price is really mostly based on Sina’s continuing control of and majority ownership of Weibo (WB), which has been separately traded for a couple years now — they distributed a few more shares of WB to SINA shareholders last month, and now SINA owns 51% of WB (and has 75% voting control).

That means you can argue that if WB’s valuation is sustainable, and if Weibo keeps growing, then SINA is cheap and you get Sina’s other businesses almost for free, since Sina’s market cap of $5.4 billion is only a hair more than 51% of Weibo’s $10.3 billion market cap. I’m afraid I don’t know much about Weibo or how that business is doing, but investors sure love it recently and that’s clearly what’s driving SINA shares.

Timing matters a lot with these stocks — over the past decade SINA has beaten MSFT as well, sometimes dramatically, but it’s certainly a wilder ride and you’d have to be either very nimble to get in and out as a trader, or very patient as a long-term investor, to have a smile on your face about SINA… particularly if you picture yourself buying shares near one of those blue peaks on this chart:

SINA_MSFT_chart

What else is Sjuggerud hinting at?

“The same goes for Google… if you waited until the “C” share equivalent of Google was released to the market in September 2005, you could have turned every $5,000 dollars in to more than $128,000 in profits.

“Meanwhile, buying Google shares at the same time would have left you with just over $19,000 in profits.”

That’s a reference to that Google/Baidu relationship I noted above, and yes, buying BIDU in 2005 would have been better than buying Google in 2005 (but about the same as buying Google in 2004). Had you waited until 2011, though, buying Google would have been a far wiser choice (GOOGL is up 190% over the past five years, versus 25% for BIDU… timing matters a lot, especially for more volatile stocks).

Baidu is arguably more hated than most of the big Chinese tech names, particularly recently — JP Morgan came out with a “sell” rating on the stock recently (which made even Jim Cramer say he didn’t want to buy it) because of challenges… though interestingly enough, for those who like to make US-China tech stock comparisons, the negative sentiment on Baidu is a lot like the negative sentiment Google faced a few years ago when its stock was stagnating: They were investing in too many things (Baidu’s spending on lots of odd stuff, too, like driverless cars and food delivery services, in addition to its core search and advertising business); they were losing share in mobile; and search was becoming less important in a social world. Those things are still arguably true about Google, but the stock still recovered as sentiment shifted and the value of some of their “other bets” businesses and things like YouTube started to gain acceptance.

Will that happen with Baidu, too? I don’t know — but it is, arguably, cheap for a Chinese internet stock at about 13 times trailing earnings… particularly cheap if you consider that it has a huge and still growing core search and advertising business. So maybe you’ll find BIDU interesting, as long as you can stomach the competition with Tencent. Does Baidu come out the other side as the “Chinese Google” or as the “Chinese Yahoo” in five years? I’d give the “Google” future a little higher probability, but it ain’t necessarily a sure thing.

Another one?

“Back in 2001, [Amazon] was cheap… but it wouldn’t stay cheap for very long…

“Over the next 15 years, the stock rose by an extraordinary 4,300%….

“Amazon’s price to sales ratio today is three times as high as it was back then. In other words, shares are lot more expensive then they were back in 2001, in terms of what you are really getting for each share.

“But here’s the thing…

“Today — in 2016 — the ‘292-C’ equivalent shares are trading at the exact same valuation as Amazon shares were trading for back in 2001.

“In other words, buying ‘C’ shares today could be the equivalent of turning back time and buying Amazon in late 2001.”

OK, so you can mark me down as one of those folks who didn’t buy Amazon 15 years ago, and who has kept thinking the stock was way too expensive all the way up… but yes, there are two “kinda” Amazon-like stocks in China that are easily traded and have a pretty big market presence: Alibaba and JD.com… and this particular hint refers to JD.com (JD).

I know almost nothing about JD, other than that it’s the one really substantial ecommerce company that acts primarily as a retailer, the way we think of Amazon’s core business — Alibaba is more of a merchant middleman and collects a fee for selling other peoples’ stuff for most of their ecommerce business (kind of like eBay, or the Amazon Marketplace stuff), JD.com actually has the warehouses and sells stuff directly, and even does fulfillment and last-mile delivery. That’s why JD trades at 1X sales while BABA trades at about 15X sales, because actually being a cut-rate online retailer is a far lower margin business than being a service provider like Alibaba.

Analysts think that JD.com is closing in on an inflection point, becoming profitable next year and then ramping up profits very quickly after that — the forecast is for 17 cents in earnings next year and 46 cents the year after that, so it’s still expensive on that front (55 times 2018 earnings estimates)… but I suspect investors and analysts look at Amazon, and the fact that Amazon kept investing like JD is doing, and kept getting more ridiculously expensive because they never moved to maximize earnings.

It’s tough to compare yourself to Amazon, which has had the “benefit of the doubt” from US investors for ten years now because of Jeff Bezos and his singleminded insistence on growing the business instead of making the business profitable — I wouldn’t want to bet on JD.com following in Amazon’s footsteps necessarily, not without understanding the business a lot better than I do after ten minutes of reading the basics (do Chinese consumers love JD.com the way US consumers love Amazon? I have no idea), but that’s probably the best argument for JD.

More from Sjuggerud:

“… right now, about a dozen “C” share opportunities are trading at crazy low prices.

“I can’t stress enough how unique this set up is… and how quickly it could disappear. In fact, when you look at some of the ‘C’ shares as a whole, they’ve moved up about 20% in the past 2 months alone….

“One of the ‘292-C’ companies is often described as the ‘envy of Silicon Valley.’

“… it adds almost 50 million new users every three months?”

That’s Tencent again.

“Another has almost double the number of Amazon’s active users (244 million vs. 434 million) yet trades at an 80% discount to Amazon’s stock.”

That’s Alibaba (BABA), the big ecommerce marketplace provider (which also, like Sina and Bidu and Tencent, has lots of other lines of business). They reported 434 million active online buyers in their last quarter, which is impressive but may not represent as much of a market share in China as Amazon’s user base does in the US. BABA had a pretty rough first year as a public company, but has since rebounded pretty nicely and is finally well above the IPO price from the Fall of 2014.

The stock looks pretty reasonable based on the expected growth — analysts think that revenue will more than double over the next couple years, and that earnings are troughing now in the $3/year range and will start to rise again in the next year or two, getting above $5 a share by 2019… which makes the current price of $100+ look pretty reasonable, but it’s always a little foolhardy to put too much stake in 2019 earnings estimates. Investors will be willing to pay up for BABA as long as that top line growth continues, I imagine.

More hints?

“For example, did you know that there’s a company — with offices in Silicon Valley — that processes more mobile transactions in a single day than PayPal processed in all of 2015?”

That sounds like it must be Alibaba again, with its Alipay service. Yes, they do have some employees in Silicon Valley (though it’s not a major office).

“And what if I told you that the “292-C” equivalent to Twitter added about 55 million new users over the last year or so and has soared as much as 293% since February.”

That’s Weibo (WB) again.

You get the picture — interested in buying a basket of Chinese tech stocks? You can pick and choose and try to see which ones look most appealing to you, or you can invest in Steve Sjuggerud’s new service if you like to get his analysis… or you could just go with an ETF, like the relatively small KraneShares CSI China Internet ETF (KWEB). I’d probably go with the latter unless I wanted to get really deep into digging into the various businesses and their competitive positioning, but certainly you would have done better with just a few winners like Tencent and Netease over the past year than you would have with that ETF (the ETF is very top-heavy in those big name, almost half the value is in the top five holdings Alibaba, Tencent, Baidu, Netease and JD.com).

Any thoughts on your favorite Chinese “next whoever” stocks? Some you’d love to buy or to avoid? Let us know with a comment below.

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Ed Grey
Guest
Ed Grey
September 19, 2016 5:53 pm

Chinese stocks make me nervous, even the big, famous ones. Who knows what the Chinese government will do next, and who knows which companies have serious accounting irregularities?

Bob Norikane
Irregular
September 19, 2016 5:54 pm

I subscribe to Sjuggerud’s True Wealth newsletter. In the August issue, he describes his China trip, which I know is the inspiration for his new newsletter. In that issue, he recommended KWEB because it contains about 40 Chinese internet companies. In fact, he credited a KWEB staff person for scheduling and introducing him to various Chinese internet companies and their principals.

I bought a few shares of KWEB at $35 after reading that issue. After the big promo for the new service, I didn’t want to spend the money for the subscription. I just bought more shares of KWEB around 40.50. I like the fact that Krane has staff in China and is picking a broad cross section of internet stocks for me. I remember investing in China stocks before 2008 and many of those companies are no longer in business. KWEB seems like a safer alternative with lots of upside.

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Jerry
Guest
Jerry
September 19, 2016 6:28 pm

I get Steve Sjuggerud’s & others at Stansberry publications. I like them. I did also watch the China subscription presentation last week. Didn’t subscribe, was a bit pricey for me. But hey, I may well come to regret it… The bottom line, is I’ve been with Stansberry for years, and I truly do trust them. They are NOT mirror and smoke dudes! And, I’m glad, while you at Stockgumshoe may be hesitant and competitive, that you did not viscerally attack them. If you would have, I would OBJECT! They, as are you, some very fine people, including Doc Eifrig & Porter Stansberry, etc… Have a good day!

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gumjax
Irregular
September 20, 2016 9:49 pm
Reply to  Jerry

Disagree. I’ve subscribed to many of these Stanberry letters over time, and other than Eiffrig, these guys are used car salesmen who peddle fear. Sjuggerud is an irrepressible optimist, however. Have tried and canceled all subscriptions. You’d be much better off to become an irregular, IMO.

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sandy_shore
September 19, 2016 6:31 pm

I’ve done business in China and there’s almost nothing you can trust about it other than you’ll get drunk at a business meal.

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gouwsmail-hok
gouwsmail-hok
September 19, 2016 6:59 pm

The 292 apparently refers to the State Policy order no 292, which was the basis of curtailing the activities of Uber, Facebook, Google etc in China

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Jerry
Guest
Jerry
September 19, 2016 7:23 pm

I’ve been a Steve Sjuggerud reader for several years, as well as Dr. Eifrig and Porter. I like those guys. They are not some “smoke & mirror” kind of guys… I did listen to Dr. Sjuggerud’s China subscription last week. Did not subscribe. Hopefully I’ll not miss out, as it “was” tempting, minus the price.

And I’m happy that you at Stock Gumshoe, covered this delicately & not viscerally, being competitors and all. As you guys also do a very good job with financial news. I read your stuff, and I read Stansberrys’ stuff, and you both do a good job.

I thank you guys (Stock Gumshoe), as well as Stansberry!

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Truth
Guest
Truth
March 29, 2017 5:33 am
Reply to  Jerry

Stansberry and his clowns obviously have some paid pakis posting positive for them. Never trust online reviews when you are not positive you know the person and they have good judgement. As for this site, I see it as one that contributes to the problem of these boiler rooms. This Travis monkey knows damn well Stansberry and their clowns pay people to make favorable posts. Fact is they are all con artists.

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rjarvis11
Member
rjarvis11
September 19, 2016 10:28 pm

Interesting that Steve’s August True Wealth letter promoted KWEB, which was months before this new service promotion began. Sounds like if a person looked at the annual report for KWEB, they could do the same as the new service.

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Walt
Irregular
Walt
September 19, 2016 10:40 pm

I am a big Steve Sjuggerud fan. I went in on his China recommendations around 2004, and even more in 2005; and went heavily into his metals suggestions starting in late 2015. Those two moves alone made me almost seven figures.
I can’t stomach the Chinese internet volatility, but I am long his A-share recommendations. I think I’ll put a bunch of KWEB in my grandchildrens’ accounts, and look at it again in 10 years.

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niizajim
September 19, 2016 10:52 pm

Just read an article about the growing debt problem that Chinese banks are facing. It seems like this debt problem will produce a drag on the economy over the next couple of years until they get it under control. I’m sure there will be individual stocks that will still do well and maybe these internet/tech stocks will do fine, but I’m a bit leary of China at this point.

http://www.gulf-times.com/story/514349/China-facing-possible-debt-crisis-says-bank-watchd

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lechefgerard
Member
September 20, 2016 12:27 am

I am more interested in understanding Sjuggerud’s thinking (without which it is difficult to understand his recommendations)—according to him, the end of the investing world will happen on the thirtieth—and he’s is pushing this thought very hard—so, why?????

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Jerry Rampton
Guest
September 20, 2016 12:41 am
Reply to  lechefgerard

I think he is suggesting that that is when the Chinese currency becomes much more of a first tier Global currency, similar to but not yet equal to our US Dollar.

pbormann
Irregular
September 20, 2016 1:40 am
Reply to  lechefgerard

I have the same wonderment. I’m holding off on any new long investments until I see what kind of wild & crazy things shake up the investment world between now and the election. Too many dire forecasts by well connected and knowledgable people to ignore.

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normxyz
Irregular
normxyz
September 20, 2016 9:34 pm

His position is only that when the yuan is added to the SDR, MSCI and other international/Asian indexes will add some 5 -20% Chinese stocks which will prompt the stock funds and ETAs to add them to their current 0% allocation ==> big buying of China stocks!

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gumjax
Irregular
September 20, 2016 9:57 pm

Doug Eberhardt puts the kabosh on this Sept 30 Rickards nonsense in an article in Seeking Alpha today (9/20).

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geneh
geneh
September 20, 2016 11:50 pm

BRICs, I thought.

curiousjoe
curiousjoe
September 21, 2016 12:04 am

normxyz got it right. I upgraded to irregular recently to avoid having to wade through the verbiage torrent generated by Travis’s personal robot Thinkolator :). Nevertheless, I did wade through the verbiage above to see if Thinkolator makes any mention of the announcement Sjuggerud has been waiting for:

“MSCI is pleased to announce the upcoming launch of 20 new illustrative indexes, reflecting the effect of a potential 5% partial inclusion of China A-shares into the MSCI Emerging Markets Index…
The new illustrative indexes will be launched in late September 2016. More details on the new indexes will be shared at launch date.”

Sjuggerud claims that $400 billion will move into Chinese stocks as a consequence.

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Jason
Jason
September 20, 2016 5:11 am

It’s just a letters game. Now they are pitching A stocks the same way

colbillseals
colbillseals
September 20, 2016 8:25 am

I’ve been reading Steve, etc., and occasionally buying one of their recommended stocks, for several years. I bought KWEB and CAF their recommendation and made a little money when I sold them and moved my entire portfolio to MF PRO.

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geneh
geneh
September 20, 2016 11:51 pm

What about the extremely discounted energy stock bonds?

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dbeamer
dbeamer
September 21, 2016 12:23 pm
Reply to  geneh

– I have a subscription to Contract Income Alert (I think that’s the name), which recommends distressed bonds. The first few were energy-related, but that’s not an exclusive focus. (The most recent one was retail.)

It has worked pretty well for me so far. One of the energy company bonds shot up for some reason, so I got in at about 65 and sold at about 90, in a few months. Not bad. The rest are just sitting there.

The trickiest part of doing the distressed bonds is the actual trading. I have accounts with TDAmer and Fidelity, which is good for this kind of trading, because for a given issue, one or the other of those brokers might not have any in their inventory. In which case you have to get on the phone, talk to somebody who knows less about bonds than you do, convince them you know what you’re doing in buying toxic debt, and have them find you 5 or 10 bonds to buy at a price you’re willing to pay. So it sometimes takes more work than the few clicks we’re used to.

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Pete A
Guest
Pete A
September 21, 2016 5:48 pm

Not sure about the appetite of USA or other developed market players about a curved ball entry into Tencent. Naspers (NPN) on the Johannesburg Stock Exchange (JSE – South Africa) is a major investor and has been involved with Tencent from the early days. NPN is is one of the JSE’s top cap stocks and the local assessment is that all of the NPN share price is represented by its position in Tencent = all their other investmest are thus for free. This may be a way to manage China risk. Google Nasperes for detailed info and company financials etc.

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chojnowski
September 22, 2016 1:37 am

Hi guys,
I take the liberty to add my view on this really well written article.
I lived in Beijing for the past 3 years (and I am now in Hong Kong) but I had the opportunity to discover all these companies from an customer view and here is what I understand:

– BAIDU : This is clearly the Google of China, and in my opinion there won’t be any competitor that can catch up the distance Baidu has taken over the years. That is for sure. As a French living in China and having always use Google as my Search engine, it is impossible for us (understand European) to use this engine. Even though I speak Chinese, the way the engine works is completely different from what we have been used to.
I bought some stock of this company because I really understand how big it is in the Chinese market.

– ALIBABA: Yes Alibaba is clearly set to be the Amazon of China. Don’t get me wrong, this company his really aggressive and I wary the management and opacity of their balance sheet. However, during these 3 years living in Beijing, I really got an insight of how Alibaba is powerful in this country and is investing in every domain (Telecom, E-commerce, Finance…). According to me, Alibaba will be the very biggest giant internet company in China. I have a lot of consideration for Jack Ma, and the guy knows how to grow all its businesses.
I will keep adding BABA to my portfolio as I get cash on my hands. I can’t tell you anything but to jump on this company that is already “too big too fail” (although issues with yuan, opacity, management could rebalance the stock in the futures) but I am a pro Alibaba regarding the fact that EVERY Chinese use it, but surprisingly don’t trust it!

– TENCENT: Yes Tencent has the second world most use messaging app! And if I can sum up things for you : You may have read many articles about how Wechat (the messaging app) is big but you will never understand how powerful it is ! I used Wechat (and still use it) every day, and this is basically the only app you use when you are in China. In this same app, you can pay your bills, top up your mobile plan, order water, buy movie ticket, flight ticket, clothes and everything you can think of. You also use Wechat to pay in every store (with Wechat Wallet), you use it to reimburse friends, to order pizza without calling anyone, to make a wire directly to your bank account and so forth…
Wechat recently allowed Chinese to invest in stock (and crypto money as well) directly through the app, and Chinese love that, that I can tell you! No other messaging app has a chance to be half the size of Wechat and that won’t change in the future (even though when Messenger from FB will be allowed in the territory).
To me Tencent has a monopoly here, and as I really get a good insight of the weight of it, I will keep buying these shares as I know that it can only grow.

– JD: Yes JD is an e-commerce giant, and as you rightly stated, it has its own logistic infrastructure and a massive float of delivery “tuktuk” working 7/24.
Although I realize the importance of JD in China, I don’t like the company and won’t be interested in buying some shares of it.

– SINA: I never really understand how it worked, though I know every Chinese use it. I am not interested in buying shares of companies I don’t really know how they work. I pass on this one.

– WEIBO: The Facebook of China. Same thing as Sina, too complicated for a European to use it. I know it is big but I am afraid Wechat will take the shares in this Social Network market. I do not consider this stock!

I hope my contribution could help some of you interested in those HUGE Chinese company.
If you have any question, I would be glad to try to answer them.

Thanks Travis for your work!
Pierre

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SoGiAm
September 22, 2016 3:56 am
Reply to  chojnowski

Thank you Pierre. What is your assessment of $BZUN Baozun? http://www.stockgumshoe.com/2016/09/microblog-baozun/ Best2You ~ Ben

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chojnowski
September 23, 2016 6:40 am
Reply to  SoGiAm

Hi SoGiAm,
I would be honest telling you I didn’t even know this company. After checking a bit on internet, I can see that they are a growing company in the E-commerce/ Marketing services but I can’t see a company like this becoming what Criteo (in a different domain of course) has become and will be in the next 5 years.
I am only adding stocks from companies that I know and potentially use, as a service or product, and this won’t be one that I consider.
Last tip I can give you guys, is that at the very moment the Chinese Mi company (Xiaomi) will do its IPO, try your best to grab as many shares as you can. You can’t even realize how powerful they became in such a small period. (Their growth has increased far faster than Facebook). Here in China, Mi is revolutionizing the Hardware by making very high-quality products as half the price of Samsung/ Apple/ Sony… They are manufacturing and selling speakers very close to the ones made by Bose for 29$. Their power-banks are the best you can find in the marker (and I know what I am talking about). Their phones are as powerful as the iPhone 6/ Galaxy and other topper of this category, but they sell them from 129$ to 399$ for the best one.
Last but not least: They started their business model only selling their products online, and are beginning to launch stores (I just left one in HK)

I am convinced that this company will skyrocket the hardware market for a long time !

Cheers,
Pierre

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SoGiAm
September 23, 2016 6:53 am
Reply to  chojnowski

$BZUN, Xiaomi – Thank you Pierre, was not aware of their pending IPO…awesome company imo. Regards ~ Ben

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SoGiAm
September 23, 2016 7:15 am
Reply to  chojnowski

Xiaomi – Comments from a friend in Indonesia: Since 2015, xiaomi entered Indonesia with its phone series. The first launch is normal acceptance. But the second series (smartphone xiaomi 2 and xiaomi note) were greatly acceptable in Indonesia. Until now, smartphone xiaomi is one of the most phone people buy.
With its powerbank to be sold in Indonesia in the beginning of 2016, the acceptance is nice.
My collegues have xiaomi phones as them…

…smartphones are using in Indonesia (mostly) now are Samsung, iphone, xiaomi, advan (indonesia brand), infinix, lenovo, alcatel (in my opinion)… Many indonesia people use xiaomi. Why? With cheap price, xiaomi gives good and many function. Remember that Indonesia is developing country, so cheap thing with good/great/better function will be such as sugar around ants.
Those are my opinion
With cheap price and great function, absolutely the parts Xiaomi (supposes) are used aren’t as great as samsung or iphone. But, buyers in Indonesia (mostly feel satisfaction regarding the customer service they get, for example: their handset is broken and their guarantee time is still on [usually the guarantee time is for 1 year]. So they think the post-sell service is great.
Not infinix but xiaomi

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chojnowski
September 23, 2016 7:39 am
Reply to  SoGiAm

Agreed with you!
Not to mention that India market is set to be one of the largest market in the world. With a penetration rate for mobile increasing every year! And Xiaomi is already seen as a very good product there.

If you have the investor accreditation, I strongly suggest you to make the most of the Pre-IPO market when Xiaomi will be filling up its IPO!.

Cheers,
Pierre

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AST
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AST
September 23, 2016 4:58 pm

I subscribe to it (canˋt miss China in a global portefolio) and can say there are also several interesting reports and recommendations outside of the tech sector. It will be interesting to see if Steve (who is good at picking ETFs) is also able to find hidden gems at the other side of the world going forward

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jrtrelv
September 24, 2016 1:07 am

Travis as usual great analysis! I’ve made great money on BABA the past 3 months. Follow the chart:-) I will now look at a few other China companies with the great insight. Thanks!

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Sargam
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Sargam
September 24, 2016 11:44 pm

I don’t subscribe to Sjuggerud but It seems everyone has missed the real pick, including Gumshoe:

“At this week’s conference, Steve shared an even better way to buy this company – a “backdoor” way to own these same shares at a 31% discount, right here in the U.S. ­– an idea he has not revealed anywhere else.”

The point doesn’t seem to be Tencent, which has climbed too rapidly recently. It seems to work another way, like maybe an EM closed-end fund that is under-performing.

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polo 9
polo 9
October 1, 2016 4:16 pm

This is an interesting and highly invaluable discussion, as I often gain the best intel from intelligent opinions from investors with an array of experiences from which I draw shared opinion and insight. There is no better barometer. I have found that Porter Stansberry surrounds himself with an exceptional team of expert investors. I have followed his opinion in the precious metals sector, and by entering the market at the exact low, I have done very well in terms of ROI. While Steve Suggerud’s teasers are perhaps overly stated, I can get a quick scan analysis that generally answers my main questions. I am not fond of his coded language such as “292-C” shares. They are the same as common shares, but his moniker suggests one is buying some specially allocated elite shares. Not the case. Steve, please call a spade a spade in fairness to the buyer of your wares, lest you be likened to a snake oil salesman. One thing your readers are not is ignorant, for the ignorant do not venture down these roads. I thank all of you in this discussion for your excellent opinions.

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ChuckP
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ChuckP
December 14, 2016 10:22 am

When I hear the words “Chinese Stocks” I don’t walk I run the other direction. No more dishonest government in the world. Not to mention how they can come in on a whim and shut your company down.

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