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Why I sold my China positions
Topics: macro
Like many microcap traders, jumping in and out of the dozens of U.S.-traded Chinese microcaps has been my bread-and-butter over the past few years.
Until now. Something has changed, and until I get a better sense of how severe the change is I am staying away from China stocks. Today I sold my last positions, HQ Sustainable Maritime (Amex:HQS) and China 3C Group (OTCBB:CHCG), even though both posted good numbers.
China itself is going through a massive transition from breackneck growth to….I’m not sure what. As Kevin Depew explained on Minyanville:
I saw this morning where Nouriel Roubini has said he believes growth in China could slow to 4 to 5%. I believe that may be too optimistic. China is already experiencing massive deflation.
* According to a recent report from Mitsubishi UFJ Securities (MTU): the Toyota (TM) Corolla, which was selling at 250,000 yuan last year is now selling at 90,000-130,000 yuan, a drop of about 50%.
* Mercedes C Class cars prices have declined from 800,000 yuan to 350,000 yuan.
* Audi A4s from 300,000 yuan to 50,000-60,000 yuan.
* While official government figures show the average price for housing sales (in 70 large and medium cities) rising at 6.2% year-over-year, in Shenzhen’s Jini Mieda district (an expensive residential area), the average price per square meter has declined from 18,000 yuan in autumn 2007 to 11,000 yuan (finished) recently.
* Steel-related prices have seen a marked decline.
* Iron ore prices started the year at $250/tonne, fell to $100 in July and now stand at $83
Incidentally, Mitsubishi UFJS notes that 65% of bank lending in China is secured by real estate.
These deflationary trends should have the greatest impact on Chinese retailers like China 3C Group and LJ International (Nasdaq:JADE), and manufacturers like China Precision Steel (Nasdaq:CPSL). Biotech/pharma companies like American Oriental Biosciences (NYSE:AOB) and exporters like HQS might be less affected, but at times like this I’m inclined to step back from the whole group.
UPDATE: Some commenters on the syndicated version of this post on Seeking Alpha indicate that the pricing figures above are inaccurate. Perhaps–they are quoted from Kevin Depew of Minyanville, not something I have independently verified. That said, I have read him for years and he is solid. Just take the particular figures with a grain of salt until verified.
DISCLOSURE: No positions
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[...] Why I sold my China positions [...]
4 to 5% GDP looks to be around top of the line for most countries next year and this company will beat that by at least 4 to 5 times ( probably over the next 3 to 6 months on average ), if economies are slowing, consumers are making less and downgrading in most activities, this is a low cost food product being presented to markets all over the globe, …hqs is in the right segment in the right environment in the right time, if you sold this stock ( having gotten in in the last 3 months),,then I believe you just lost a winner for the next year, This is the only stock keeping me a float in this mess…thank god i bought it, and didn’t take any profits yesterday…I believe I’ll ride this one on uo to the 9.50 to 12.00 level…at least until the next quarter,,,No way would I get rid of HQS…If you check out the rest of the Chinese changes coming to business over there, you will notice that this type of agricultural business is TAX EXEMPT,,,allowing a lot of additional freedom and growth potential…when the feed lots are finished, expenses will further decline..i just learned about this stock in the last few months and learned this info in the last few days…if you have been holding this stock and are now deciding to sell it, based on the criteria in your opinion, i guess you haven’t really beem paying attention, or you must be crazy…
tom dent
PS, if you buy it back tomorrow, you will easily be in for a huge surprise….this stock has a long way to go to get past last quarters position…and it will go way past it !
You know, I just read this over, and I couldn’t help but leave another comment
You wrote ” Until now. Something has changed, and until I get a better sense of how severe the change is I am staying away from China stocks. Today I sold my last positions, HQ Sustainable Maritime (Amex:HQS) and China 3C Group (OTCBB:CHCG), even though both posted good numbers.
China itself is going through a massive transition from breackneck growth to….I’m not sure what. As Kevin Depew explained
”
Well, I if they are going through such an undefined massive change…then you tell me what we are going through here in the U.S. I think I would rather be in their shoes right now…I am happy finding my mid and small cap Chinese stocks and hang in there..if you pick them right, you will make money…here, if you pick them as we always have….who knows…why don’t you tell me where you are putting your money…The Big 3 or maybe some new Green start up…if you like that type of guess work…then by all means…GOOD LUCK !~
@ Tom: thanks for your comments. I agree that there are worse places, like the Big 3 auto makers. I’m avoiding them too. I’m not saying that China in general or HQS in particular are doomed. Far from it. I think both hold huge promise, but at this point there are so many cross data points I’m content to pull back and plot a more deliberate reentry.
Remember that you buy when nobody does and sell when all want too buy. All of you fools just gave away you 3x to 4x stock pop of a lifetime. I have made a killing on this stock three times, and the fourth is coming from Dec.08 to Feb. 09 DON’T MISS IT.