RSSA Little China
By Roger Nusbaum | August 11, 2008 | 12:56 PM | 0 Comments
Anyone who actually had ever read anything from me before I started in with greenfaucet might recall I'm big for planning out in to the future for a particular outcome and then if that outcome occurs, acting upon it.
Months ago, I mean many months, I decided that one possible catalyst for going back into China (I've been out since Q2 07, yes too early) would be a 60% decline from the peak for the Shanghai Composite. With last night's big decline it got within about 30 points of 60% so this morning I swapped out of a mega cap European telecom stock and into China Mobile (NYSE: CHL) for most clients at about 2% of the portfolio.
The net effect on the portfolio is that I still have the same exposure (in terms of cash level, hedge and net long exposure).
I had been mulling between CHL, a Chinese toll road and a broader infrastructure name that trades in Hong Kong.
I went with CHL, which to avoid any confusion is an ADR of a Hong Kong listed stock that has a lot of customers on the mainland, for the ubiquity of cell phone need.
The point of the purchase is not to try to pick a bottom in China. Big macro; looking out over any time horizon where will there be more growth, China or Western Europe? This answer has been the same all the way down for China. While the market could certainly keep going down from here there is no debating that the country is much cheaper than it was before.
The reason for 60% was that I never thought the mania in China was as bad as the tech bubble which took the Nasdaq down 75%. Additionally, 50% declines don't come along very often so if it ever got to 60% that might belie a lot of panic or at least a sense of being overdone. That this level occurred during the Olympics seems very interesting to me.
Whatever bearish case anyone can mount against China is probably true but remember it is down 60% from its peak. The nature of prices and news is that prices tend to bottom before the news does.
At some point in the future I could see adding a little more exposure but I have not figured out that scenario yet.
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