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3 Chinese Growth Stories
11/04/2011 12:16 pm EST
Now that everyone seems to be negative on China, valuations have dropped to very attractive levels, says James Oberweis, who shares three companies that he thinks are attractive now in this exclusive interview with MoneyShow.com.
Jim, China seems to be everybody’s favorite scapegoat and whipping boy now, but do you see some opportunities there?
Funny how the pendulum swings, isn’t it? Just a couple of years ago, China couldn’t do anything wrong, and stocks were going through the roof. Since then, valuations have come down to the lowest point in six years.
Absolutely, I think it’s very difficult to generalize in China. China, like the US, is comprised of lots of different regions and lots of different opportunities.
What’s driven stock prices down more than anything has been money leaving the country from international investors. That may be because some of the risks are justified, but it might also be because they need the money elsewhere.
Yes, so we think right now there are a lot of opportunities in China, because finally valuations are great, and GDP growth is much better than it is in the US, despite some of the risks of a little bit slower growth in the months to come.
We’re finding areas where there is significant change. Those are the types of areas where we tend to fare very well.
What types of areas?
Well, one of the things that we’re looking at is the emergence of a middle class in China. We see companies that are developing products and developing brands that are quite elementary in the slow-growth business in the US, but that are going gangbusters in China.
Simple examples would be companies that produce tissue paper and toilet paper and sanitary napkins, those types of products that are relatively new in utilization in China that would be old business here. Also other things like human resources. 51Jobs (JOBS) is one of our favorite stocks. We like JOBS because they’re the industry leader in China for recruiting and outsourcing of HR services in China.
I think there’s a variety of companies—anywhere, from companies building brands, to companies focused on infrastructure, to companies that are frankly just copying what’s worthwhile in the US and bringing it over to China.
What about the building protectionism from the United States against China, and of course the anger with them and their currency manipulation? Does that cloud the investment arena at all?
Yeah, it clouds it. But at some price, are you willing to take that risk?
I would argue that right now, the risk is worth it. If you assume that folks are rational—and it’s a big assumption, especially with the politicians—but if you assume that they’re rational, I think not a lot will come of this.
I also think that the differential in wages is not the only factor that’s appealing in China. Now companies have manufacturing plants there, they have products there, and not only Chinese companies, also many American companies. It’s certainly possibly that you see for a while the protectionist thunder rolling, but I think at the end of the day I think the cloud will pass as the economy stabilizes a bit.
I think there will be some great opportunities. Most of the investments that we have in China aren’t geared toward exports anyway. They’re focused on the emergence of the domestic consumption market within China. That helps mitigate some of that risk.
Just for the record, do you own any of the stocks that you mentioned?
I do in our funds, and I’m a large shareholder in our funds, so indirectly I do.
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