This is a Bull Market in Chinese Stocks
If You're Not in It, You're Losing Money
One Chinese Stock in a Strong Rally
When most westerners look at China, they see pollution, water crises, corruption, a housing bubble and political unrest. And if you keep clicking on the sensational stories about China that litter the Internet, you may get the impression that the country is just days away from an economic meltdown and a catastrophic collapse of civil order.
I read the same things everyone else does and I understand the dangers. But my attitude toward China is a little different, probably because I’m the Lead Analyst for Cabot China & Emerging Markets Report. That means I’ve spent the past 10 years paying very close attention to what happens in China. I’ve seen dire predictions come and go. (I’ve also seen rosy scenarios bloom like roses and then wither on the vine.)
I’m not much impressed by anybody’s predictions about China. Some of the headline writers just want to get you to click the link, some are genuinely concerned and some have an ideological axe to grind. And a few are just idiots.
But what does impress me is the performance of a platoon of Chinese stocks that have been storming up the charts for months! There’s nothing predictive or hypothetical about a strong chart; it just shows you a summary of what the collective wisdom of the entire stock market has to say about a particular stock.
I bought Vipshop Holdings (VIPS) for the China & Emerging Markets Report’s portfolio at the end of January and this week I advised my subscribers to sell half of their position to book some profit after a run of more than 100%.
Yes, I’m glad that Chinese stocks in general are doing better. The Golden Dragon ETF that tracks the performance of all Chinese ADRs that sell on U.S. exchanges has been making good progress and holding above its 25- and 50-day moving averages quite well. Here’s what the chart of that ETF looks like.
The important thing to notice here is that during the March–April correction that slammed the ETF into the dirt, VIPS just flattened out into a nine-week consolidation with support at 130. That’s the kind of strength that happens when investors have a real taste for a particular stock.
When China is doing well, my investment advisory is easier to write and it makes people think I’m smart, which is a nice effect.
But the real engine behind my apparently enhanced market wisdom is that Chinese stocks are doing amazingly well. Or, to be more exact, a small group of Chinese stocks is doing well. And I’ve been fortunate enough to find them. But I have an important point to make, and here it is:
This is a bull market in Chinese stocks, and if you’re not in it, you’re losing money!
I don’t mean that in an abstract sense. I mean that Chinese stocks are in a strong uptrend and there is big money to be made.
If you wait around and think about it and consider it and hem and haw, you will miss it. You will wait until you are completely comfortable with the idea of buying Chinese stocks, you will probably be one of the thousands of people who make the same decision at the same time. And it will be too late.
When everyone is comfortable with a market opportunity, it’s just about over. That’s what market tops are all about.
I’m not comfortable being this assertive about Chinese stocks. They’re not going to go up forever and the risks are certainly higher than if you bought an index fund or (ptui!) a bond fund.
But I’ve said many times that bull markets are not so frequent that you can afford to miss one. And one of the major benefits of Cabot’s market timing indicators is that we can tell a bull from a bear with real confidence. And this is a real bull in Chinese stocks.
My advice would be to put aside your doubts and your trepidations and your worries that the prophets of Chinese doom might be right. When there is a bull, you should be riding it.
And when the bull is gone and the markets have moved on to the next opportunity, I will tell you when to get out and where to go next. It’s what I do.
The Chinese bull is here. Don’t let it get away.
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My stock pick this week is a Chinese education stock I recommended for my subscribers back in June. The company is TAL Education Group (XRS), a company that specializes in K-12 after-school tutoring services, including small group, one-on-one and online courses. The company offers classes in math and science and English, with a division for teaching young learners (age three to eight) and another for personalized premium educational services.
The company operates in 16 key Chinese cities, with 274 learning centers, 90 of which are devoted to personalized premium services. Plus, TAL operates the largest online education community in China.
The company has $270 million in cash on hand and no debt. Its Q2 earnings report showed a 69% jump in earnings, not as good as the four consecutive quarters of triple-digit earnings growth in the previous year, but still quite strong. And revenue growth was a robust 45%.
XRS floundered around after its October 2010 IPO at 10, finally putting in a bottom at 7 in September 2012. Since then the stock has been in a strong rally, with a modest four-month correction from January through May that helped to shake out weak hands and reset its buyability. The stock broke out in June and again in late July. I like it.
Chief Analyst of Cabot China & Emerging Markets Reports
and Cabot Wealth Advisory
P.S. For further updates on VIPS and XRS and to view additional strong emerging markets stocks with high profit potential, consider taking a risk-free trial subscription to Cabot China & Emerging Markets Report. My current portfolio has six double-digit winners and one triple-digit winner, and all of our stocks have lots of room for future growth. Get more details here.