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Tuesday, November 29, 2005

[Foreign] Investing in the Country of Dragon. China Stocks

For the past few weeks we've been covering stocks within US. Although there is a lot of choices available from Corporates America, a smarter investment strategy would be to diversify your portfolio by investing in non-US stocks especially since in today's world US is no longer the only dominate economic forces.

Ever since the weakening of US currency, smart investors have already looked elsewhere for better investment returns. Traditionally European stocks are the top investment choices outside of US. However with the emergence and strong economy growth of the developing nations such as the BRIC (Brazil, Russia, India, China), more and more investors cash is going into these once so called the poor nations.

Of the BRIC nations, China probably has attracted the most attention today. With about 1/5 of world's population or 1.2 billion, China has established itself as the main supplier of low cost labors in the global supply chain. Many fortune 500 companies such as Nike(
NKE) and General Motors(GM) have factories in China to cut labor costs as well as initiating penetration into this potential mega market. On the other hand many Chinese companies are seeing exponential growth with the increaseing of foreign investment and individual per capita income.

Investing in these high flying Chinese companies does not require you to have a brokerage account in China. Fortunately for the hungry investors there's something called ADR(American Depositary Receipts) where you will be able to buy Chinese stocks in US. Currently there are probably more than a dozen China ADRs listed in either NYSE or Nasdaq and the one you should pay attention to are:

  • Baidu.com(BIDU): Investors call it the Google(GOOG) of China. This Google like search engine provider has a Yahoo(YHOO) like business model where people pay for the positions of the search result. The stock is trading near its opening day lows around $76 per share and has been sitting in the $60 to $80 range for two months. Revenue has trippled to 13 millions 2004 from 4 millions in the prior year and the revenue in the first quarter of 2005 has easily surpassed the revenue of the entire year of 2003 around 5 millions. Watching how Google(GOOG) stocks flys, investors are betting this Chinese Google will also do well.
  • Shanda Interactive Entertainment(SNDA): The fast growing online game maker in China known for its MMORPGS(Massively Multiplayer Online Role Playing Games). Although it revene has more than doubled from 2003 to 2004, yet the stock has dipped more than 50% this year. After accouncing adapting new avatar-like revenue model, it will be interesting to see how the company will perform next quarter with the new revenue model taking place.
  • Sohu.com(SOHU): One of the three main portal sites in China where the other two are Sina.com(SINA) and Netease.com(NTES). The energetic CEO Charles Zhang has brought Sohu from net loss in 2002 to net gain of 35 millions last year. Why I choose Sohu over Sina and Netease is its attractive stock price, and insider buying. Normally when insiders of a company are buying their stock, the stocks generatlly should do well.

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