The document discusses the recent turnaround in Chinese stocks, especially those listed on Chinese exchanges, after a period of decline due to lack of confidence in corporate reporting. While some Chinese stocks now offer low price-to-earnings ratios, overall confidence issues remain due to a lack of oversight and reporting regulations in China. The document suggests there may be opportunities to find value in well-known Chinese companies, but that speculators currently prefer gold to Chinese stocks due to ongoing uncertainties around Chinese markets and the global economy.

1. By- Mitchell Clark
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2. • One sector of the stock market that we all know has been hammered is
Chinese stocks. A large portion of all U.S.-listed Chinese stocks have
dropped significantly in value due to a lack of confidence in their
corporate reporting. Also occurring in the broader stock market has
been a drop in the share value of well-known, respectable Chinese
stocks, mirroring the trading action in the domestic Chinese equity
market.
• Since the beginning of October, however, there’s been a marked
turnaround in Chinese stocks, especially those listed on Chinese stock
exchanges. The Hang Seng Index, which is the main stock market index
in Hong Kong, dropped to a low of around 16,000 early in October, then
smartly reversed to its current level of around 19,500. By any account,
this is an impressive turnaround, and the strength in Chinese stocks is
due to expectations for monetary easing in China.
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3. • Right now, the U.S. stock market needs all the help it can get and any positive
news on the Chinese economy would be very helpful. Smaller Chinese stocks
trading on American stock exchanges typically take quite a while to report their
quarterly earnings and many beaten-down positions will be reporting
throughout November. There is an opportunity in this stock market for some
bottom feeding in Chinese equities. Stock market conditions seemingly can’t
get much worse for this group and there is good value out there.
• Of course, a number of previously listed Chinese stocks were outright frauds in
terms of their operations and financial results. Many of these companies listed
by acquiring shell companies and renaming them. It’s an easier way for a
company to get a U.S. stock market listing. In this market, I’d only consider the
well-known Chinese stocks that have strong followings from the investment
community and I’d focus on value.
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4. • Right now, I think it’s fair to conclude that stock market speculators would
rather own gold over Chinese stocks. The resource trade is holding up despite
all the risks out there and, while some Chinese stocks offer very low price-to-
earnings ratios, the confidence issue isn’t going away anytime soon.
• Chinese stocks were some fantastic wealth creators. Then they were fantastic
wealth destroyers (unless you were short). It’s fair to say that Chinese stocks
operate in a kind of Wild West environment, which lacks oversight and
reporting regulations. The stock market knows that there are great growth
stories out there; but, in today’s environment, all investors seem to want is
safety and stability (see Growth & Momentum in a Market Like This? You Bet!).
I don’t blame investors, considering all that’s transpired. We’re in an
environment of great unknowns and this uncertainty is holding the Main Street
economy back. Are we any closer to more certainty in the stock market? Right
now, I’d have to say no.
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