Buy This Chinese Company on Pullbacks

07/14/2006 12:00 am EST


Robert Hsu

Editor, China Strategy and Asia Edge

Robert Hsu, chief editor, China Strategy, and former hedge fund trader at Goldman Sachs, retired as a millionaire at age 30. Today, he unravels the complexity of the Asian markets, and gives subscribers a recommendation to take advantage of China's growing economy…


“Investors are behaving more rationally toward Asian companies—Chinese companies in particular—and realize that they have a unique set of fundamentals separate from US interest rate concerns.


“Here in the US, I expect the S&P 500 Index to trade in a range between 1220 and 1290 over the next two months. Asian markets could continue to follow the US because US fund managers are the largest buyers and sellers. However, I'm highly encouraged by the divergence we recently saw and the signs of relative strength we're seeing in Asia.


Ctrip (CTRP NASDAQ) is China's homegrown version of Expedia, a leading online consolidator of hotel rooms and airline tickets. I'm also recommending it as a long-term investment in China Strategy , but it's now trading in a pattern that leads me to believe we can make a quick 20% in the next eight weeks. It's growing more than 50% a year because it is successfully operating right in the thick of three key trends:


“First, tourism is a growth industry in China, expected to grow more than 15% a year, thanks to rising affluence. Second, the number of Internet users in China is growing 20% a year, making it the world's second-largest market behind the US, and with a penetration rate of only 8%! Online travel is just starting to take off, with less than 4% of all trips booked online—tremendous room for growth.


“And third, up until the last couple of years, most Chinese tourists preferred to travel in groups. However, in a recent survey my team and I did in China, 97% of the Chuppies (the younger, more affluent urban professionals) we talked to said they would rather travel independently. I view Chuppies as the most important demographic group in China, and this trend is another strong sign that rapid growth will continue for some time.


“In short, Ctrip is on fire. The stock recently made a new all-time high, even with most Chinese stocks down around 15% from their highs. The company's strong relative strength and price momentum in these volatile market conditions are excellent signs of investor interest in CTRP.


“For these reasons, I believe that Ctrip will hold up significantly better than the broad market. That will be especially true if Chinese stocks maintain the strength we spotted this week. Buy Ctrip below $46 for a quick 20% pop in the next eight weeks.

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