More CEOs Buying Chinese Stocks—Time to Jump in?

On the subject of Chinese stocks, I think it’s fair to say that stock market investors should view all of them as 100% risk-capital securities. Anything could happen to any of these businesses, not the least of which are problems with accounting and transparency.
The number of U.S.-listed Chinese stocks that are unappreciated by the rest of the stock market is growing. These businesses can’t seem to be able to get their share prices moving. More and more Chinese stocks are now the subject of management-led takeovers and investments for the simple reason that they see their stock market valuations as too low.
E-House (China) Holdings Limited (NYSE/EJ) is a Chinese stock that just bounced off its all-time low on the stock market. Even though the company’s third quarter came in just shy of expectations, the business is still growing. The company just announced that its own CEO and other managers plan to purchase over 17 million shares of the business, representing about 15% of the total shares outstanding. E-House’s stock chart appears below:

Chart courtesy of www.StockCharts.com

Eventually, I do think that there is going to be a major resurgence in Chinese stocks, and it will likely be commensurate with a revival in the domestic Chinese stock market. Valuations have become extreme among U.S.-listed Chinese stocks, but this still doesn’t mean that they will go up in value. I would be bottom fishing in this group right now, but individual stock selection is key.
Noah Holdings Limited (NYSE/NOAH) is a Chinese wealth management business that just reported seemingly strong third-quarter financial results. According to the company, its third-quarter revenues grew a solid 34% to $25.8 million, while earnings attributable to shareholders grew 32% to $7.5 million. The company finished the third quarter with $122 million in cash, yet the stock isn’t doing much. Noah’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

It’s a tricky business speculating in Chinese stocks. The broader stock market was once very interested in this group. Now I think it’s fair to say that the market is very skittish on this sector. Perhaps it’s a case of once bitten, twice shy. Regardless, valuations among many Chinese stocks have become extreme, but it’s unclear if this will change.
The stock market is still in one big consolidation, and this could last right up until the end of the year. With little news for the stock market to go on, worries trump reality. Expectations for fourth-quarter earnings have come down a lot, so we’ll probably get a lot of companies beating consensus. It’s still very likely that large, international companies will have revenue troubles. It’s continued consolidation for now.