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Chinese Stock Market Pull Back A Great Buying Opportunity

Companies / China Stocks Mar 11, 2008 - 11:36 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleThe Olympics have long been a boon to stock markets of host countries. The Spanish stock market climbed 19% in the 12 months prior to the 1992 Barcelona Olympics, while the Greek stock market jumped by 27% in the year before the 2004 Athens Olympics.

And those countries were not growing at a fraction of the breakneck pace that China is. So it wouldn't surprise me to see the Chinese stock market double or even triple those numbers. Specific stocks could do even better.

Last week, I wrote about how fast and furiously the Chinese are working to clean up their horrible air and water pollution before the Olympic Games in Beijing. And I told you that there was money to be made by investing in the companies helping them do that.

Today, I want to tell you about the chief beneficiaries of the Olympic Games — consumer and travel-related stocks. So here is ...

My Short List of Companies That Will Bring Home Olympic Gold from Beijing

Olympic Gold Winner #1: China Mobile (CHL):

It seems like every person I see in China has a cell phone glued to their ear. And the cell phone is not just the primary voice communication medium in China; it is also the common way most Chinese access the Internet and email. In China, the cell phone 'is' the personal computer.

Heck, most new high rise condominium and apartment complexes being built in China aren't even wired for land lines. Once you understand the device's role, you'll see why China Mobile has more cell phone users (360 million) than the U.S. has people.

I expect a lot of cell phone calls and text messages during the Beijing Olympics!

Olympic Gold Winner #2: Focus Media (FMCN):

China is booming but most Chinese still can't afford TVs, personal computers, or cars. Because of that, the only way for companies to reach those consumers is through billboards and video monitors strategically placed in heavily traveled areas like elevators, train stations, and bus stops.

Focus Media is the dominant advertising firm in China. So every company that wants to reach people attending or watching the Beijing Olympics will be spending millions on Focus Media ads.

Olympic Gold Winner #3: Home Inns (HMIN):

While most affluent foreigners will stay in fancy western hotel chains like the Ritz Carlton, the more budget conscious travelers — like me — will be checking into one of these spotlessly clean, bargain-priced rooms at the fastest-growing hotel chain in China.

At less than $40 a night, Home Inns was running at a 90%-plus occupancy rate, but they are already sold out for the Olympics at triple the price. What's more, the company's tremendous value proposition will make it a big, big winner for many years after the Olympics.

Olympic Gold Winner #4: (CTRP):

CTrip is China's largest travel agency and odds are good that it will be handling the hotel and airline reservations for many Chinese travelers.

In fact, business is already skyrocketing ... and the Olympics are six months away. CTrip recently reported its quarterly results and they were spectacular: A 52% increase in revenues and a 58% increase in profits. That's an amazing growth rate and yet CTrip only sells for 33 times earnings.

Plus, American investors still don't get the idea that Ctrip has a unique and proprietary payment system in a country where credit cards are close to nonexistent.

Olympic Gold Winner #5: Yum Brands (YUM):

Hungry visitors are going to swarm Yum's restaurants during the Summer Games.
Hungry visitors are going to swarm Yum's restaurants during the Summer Games.

A lot of hungry travelers are going to be walking around Beijing because they can't read Chinese and aren't willing to eat the 'mystery meat' being offered to them. Heck, I always utter a huge sigh of relief whenever I see the unmistakable logo of the 2,000 KFC and Pizza Huts peppered around China.

Many KFC and Pizza Huts already have lines snaking around the block, but I bet those stores will be packed morning, noon, and night during the Olympics. You better believe that Yum Brands will be making some very big profits during the Summer Games.

Olympic Gold Winner #6: New Oriental Education (EDU):

Beijing is going to be flooded with foreign visitors and very few of them will speak Mandarin. That's why any Chinese worker with even basic English skills is going to be in very high demand ... and very well paid.

That opportunity isn't lost on the Chinese and they are signing up in droves for basic English classes at New Oriental Education. And while the payoff at the Olympics may be immediate, the long-term payoff for acquiring English skills is to the moon. That means plenty of future business for EDU.

The Pullback in Chinese Shares Is Opening Up a Great Opportunity

My Asia Stock Alert subscribers already own a few of the companies I mentioned here. However, I am not suggesting that you rush out and buy all of these stocks today. As always, you should do your own research. And remember that timing is everything!

Right now, the weakness in the U.S. markets has been spilling over to the rest of the world.

In fact, the Chinese market — as measured by the iShares FTSE/Xinhua China 25 Index — has fallen by more than 30% from its October highs.

That may sound awful, and the weakness could continue in the short term. But it is also creating what looks like a great long-term opportunity.

Consider that the trailing twelve month P/E of that index is now a mere 17.8 times earnings. As valuations drop, you should consider adding some Chinese spice to your portfolio.

After all, the Chinese economy may be the most powerful economic phenomenon in recorded history. And when you throw fuel on the fire by adding in the 2008 Olympic Games in Beijing, the country's stock market explodes with potential.

Best wishes,


P.S. If you want my complete list of what Asian stocks to buy, along with all of my timing signals, click here to start your risk-free introductory subscription to my Asia Stock Alert .

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