All China, All theTime

Another Chinese company has craked onto the list. CDS. Aactually as I read their profile, the are not Chinese per se, but a Florida company that has a good chunk of their operations in China. Like many China-associated companies, they are cheap, cheap cheap, selling below book value. I have enough Chinese exposure with KHD, STP, CHCG, CSKI, CAST and QXM in my portfolio... not looking to add more. All of these companies are so cheap, that I feel there is a good chance of several of them popping. But I am sure that there is a lot of competition in China and perhaps not big moats for these firms.

Faithful readers may recall that 5 weeks ago I started a China-value portfolio. It is down 19% since I started it, but the Russell 3000 is down 26% in the same stretch. Aha! The best stocks have been XIN (a real estate company) and ADY (a baby formula company). They are up 12% and 25% respectively. The worst has been STP, down a whopping 66%. Thankfully I have bought them at the bottom (I hope).

Now I know some people think I am crazy for investing in these Chinese companies, and perhaps I am. But here are some thoughts: many of them are audited by big 4 accounting firms (I called CAST and verified), China is growing 8 to 10% per year, China has a fed rate of about 6.5% - so they have more levers to use to prime growth and they just passed a huge (600b) stimulus package (China moves to boost economy). While the consumer in the States is pretty much tapped out, Chinese consumers are not knee-deep in debt and consumer spending should ramp up steadily over the next decade. Jubak agrees (Global economy depends on China). So there!