Like all investors, I thoroughly enjoy seeing my investing ideas turn into profitable positions.
I have my share of losses, too. Early in my career, they were painful but I learned to get over them.
One emotion, however, still gives me trouble.
When I look at a stock chart, see how it was mercilessly hammered down and then shoots straight back up, I feel regret. I ask myself a tough question: “Why didn’t I grab that stock while it was down?”
I can usually put on my analyst hat and know exactly what happened. These rocket-like recoveries happen when sentiment is so overwhelmingly bearish that no logical person would want to buy the stock.
At that point, every potential seller is already out. Even a small amount of buying interest can drive prices much higher.
I see this kind of pattern right now in China. After several months of turmoil, most of the “fair-weather” China investors are out of the market. Now bargain-hunting buyers are starting to get interested.
Dennis Gartman is a good example. His Gartman Letter is a must-read for institutional investment managers. This is what he said in a recent China roundtable feature:
“I’ve stood aside from the global equity market since February and now have dry powder to put to use. I’ll put it to work firstly in China.”
Gartman isn’t alone. Tyler Mordy is another widely followed research director who sees potential for China. Mordy says Chinese firms can keep gaining global market share despite rising wages. Worker productivity is going up faster than wages.
As for concerns about China’s “shadow banking” system, Mordy thinks recent volatility is actually a sign of progress. It means the economy is moving closer to a more market-driven structure.
An even-more-compelling case comes from Paul Dietrich of Fairfax Global Markets. He noted China’s economic leadership has essentially “coasted” since the impressive, decade-long preparation for the 2008 Beijing Olympics.
The government was determined to show off for the world. They did it, too. .
Now Beijing has a new five-year plan. The government intends to completely restructure and diversify. They want to transition from export-driven manufacturing to a more integrated and balanced economy.
This will mean a whole new wave of infrastructure and materials demand. It will be different from what we saw the last few years — but the scale will be equally impressive. Millions of Chinese citizens will relocate from rural areas to new cities. It will be breathtaking.
One way or the other, China’s economy is still on track for impressive growth. New figures from the government pegged current economic growth at a 7.5% annualized rate. Just a few days earlier, a top official said Beijing would be happy with 6.5% growth.
While many on Wall Street interpreted those comments as a reason to expect China to slow down to that level, I look at it a different way. They’re hitting the target and more!
I’ve identified five interesting U.S.-listed Chinese companies as potential winners in this next five-year plan. The list includes leaders in energy, telecom, transportation, residential construction and electrical equipment.
Click on the image above to view it full-size.
These five stocks all posted impressive revenue growth in recent years — and are in perfect position to take advantage of the nation’s new direction, too.
While I think all these have excellent long-term prospects, they will definitely swing both directions. I keep an eye on China stocks and many others for my Global Trend Trader subscribers — looking for chances to buy ahead of those rocket-like recoveries. If you’re doing this on your own, timing your entry points and knowing when to take a profit are always critical.